WTI Drops Below $84.00 on Stronger Dollar, but US-Iran Tensions Limit Deeper Losses

In early European trading on Monday, WTI crude oil prices extended their decline, slipping below the $84 mark, mainly pressured by a stronger US dollar. Earlier in the session, prices touched a high near $85.35 before attracting selling interest. Significantly escalated US-Iran tensions over the weekend dimmed prospects for a fragile ceasefire agreement, fueling risk-averse sentiment and driving investors into the dollar, which weighed on dollar-denominated commodities.

**Stronger Dollar as Key Headwind**

The dollar gained fresh safe-haven bids on US-Iran tensions, emerging as a key force pressuring oil prices. Reports indicate that traders sought refuge in the dollar after US-Iran ceasefire talks largely broke down, boosting the dollar index. Meanwhile, robust US consumer price index (CPI) inflation data further dampened expectations for near-term Federal Reserve rate cuts, providing additional support for the dollar. A stronger dollar typically reduces crude's affordability for buyers holding other currencies.

**Geopolitical Risks Provide Floor**

Despite the stronger dollar, oil's downside potential appears limited, as geopolitical tensions themselves pose a threat to supply. Market reports show that after the US seized an Iranian vessel, Tehran again threatened to close the Strait of Hormuz, and any disruption risk to this key oil transit chokepoint keeps investors wary of tightening global crude supply. This supply disruption risk balances against the pressure from a stronger dollar, underpinning prices at lower levels.

**Market Seeks Direction Amid Crosscurrents**

The oil market currently faces a mix of bullish and bearish factors. On one hand, macro headwinds from a strong dollar and hawkish Fed expectations weigh on prices; on the other, geopolitical hotspots, particularly the escalation of US-Iran tensions, continue to inject a risk premium into oil. The market is assessing the relative strength of these opposing forces, resulting in a pattern of choppy declines with limited downside. Future moves will hinge heavily on further developments in US-Iran relations and the impact of upcoming US economic data on the dollar this week.