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Dollar firm as oil falls amid possible US-Iran deescalation

The oil prices dropped on Tuesday for the second consecutive day as market participants assessed the likelihood of a deescalation of tensions between Iran and the United States. A stronger dollar also added to downward pressure.

Brent crude futures fell 39 cents, or 0.5%, at $65.91 per barrel at 0330 GMT. U.S. West Texas Intermediate Crude was down 31 cents or 0.5% at $61.83 a barrel.

The oil prices dropped more than 4% after U.S. president Donald Trump announced that Iran is "seriously speaking" with Washington. This signaled a de-escalation in tensions? with the OPEC country.

Officials from both sides told reporters on Monday that Iran and the U.S. will resume nuclear talks in Turkey on Friday. Trump also warned that bad things could occur if there is no?deal, as large U.S. battleships are heading towards Iran.

Phillip Nova Senior market analyst Priyanka sachdeva said that the sharp movements in oil prices during the past few sessions are more likely to be driven by sentiment than any significant shift?in fundamentals. After last week's rally the markets have quickly given back their gains as other risk assets also became volatile.

Oil clearly failed to maintain gains. There was no new escalation in geopolitics and the macro data were still mixed.

The U.S. Dollar Index hovered at a record high for more than a month, further weighing on prices. The stronger dollar hurts the demand from foreign buyers for crude oil denominated in dollars.

Oil prices were also impacted by the continued recovery of the US dollar, which followed President Trump's nomination Kevin Warsh to be the next Federal Reserve chair.

Trump announced a trade deal on Monday with India, which reduces U.S. tariffs on Indian products to 18% instead of 50%. In exchange, India will stop buying Russian oil and lower trade barriers.

The ING analysts stated that "overnight,?the US agreed to a trade agreement with India... if this happens, it will lead to a further rise in the 'amount of Russian crude oil floating on the sea".

Trump announced the deal on social media after a phone call with Indian PM Narendra Modi. He noted that India had agreed, to buy oil from both the U.S.

Analysts have predicted that prices will be volatile this month.

Sachdeva, from Phillip Nova, said that prices will likely remain range-bound and choppy in February. "Prices are expected to be highly reactive to headlines, macro indicators, and other cues, rather than to follow a clear trend. Risks are skewed towards the downside," he added. (Reporting from Anushree mukherjee and Trixie yap in Singapore, with editing by Thomas Derpinghaus.)

(source: Reuters)