Oil drops the most in two months as equities decline on Europe

Geopolitical Premium

Talks to defuse tension over Iran’s nuclear work will be held Feb. 25 in Kazakhstan, Salehi said yesterday at the Munich Security Conference. The U.S. will offer bilateral negotiations if the Islamic republic’s Supreme Leader Ayatollah Ali Khamenei is prepared for “serious” discussions, Biden said the day before at the same event.

“The prospect of talks between Iran and the West is alleviating some of the geopolitical premium,” Yawger said. “We got a risk-off day here with stocks lower, the dollar higher and some reduction of geopolitical risk.”

The U.S. and its allies are trying to pressure Iran over its nuclear program, which they say is aimed at producing atomic weapons. The U.S. and Israel haven’t ruled out military strikes against nuclear facilities. Iran, under dozens of sanctions and a decade-long investigation, insists its nuclear program is peaceful.

Do Or Die

“We are going to have talks, and tensions will fall,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “This is kind of bringing the whole situation to a do-or-die moment. If the talks come and they fail, then the administration is pretty much going to be able to tell the world that we’ve got a green light to take steps.”

Hedge funds and refiners vied to buy oil last month. Money managers increased net-long positions, or bets on rising prices, to a nine-month high of 218,604 in the week ended Jan. 29, the Commodity Futures Trading Commission’s Feb. 1 Commitments of Traders report showed. Bullish wagers held by refiners and producers rose to the most since at least June 2006.

In London, investors raised bullish bets on Brent to their highest level in the two years for which data is available, according to ICE data. Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 179,735 lots, the exchange said today in its weekly Commitment of Traders report.

Electronic trading volume on the Nymex was 391,408 contracts as of 3 p.m. It totaled 798,288 contracts Feb. 1, 55 percent above the three-month average. Open interest was 1.58 million, the highest level since Nov. 12.

Bloomberg News

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