By Stephanie Kelly LONDON, Feb 3 (Reuters) – Oil prices edged lower on Tuesday, dropping for a second day, as market participants weighed the possibility of a de-escalation in U.S.-Iran tensions, while a firmer dollar added downward pressure. Brent crude futures fell 15 cents to $66.15 per barrel by 1016 GMT, while U.S. West Texas Intermediate crude was at $62.06 a barrel, down 8 cents. Earlier in the session, Brent and WTI fell to $65.19 a barrel and $61.12 a barrel, respectively, both the lowest in a week. Oil prices slumped more than 4% on Monday after U.S. President Donald Trump said Iran was "seriously talking" with Washington, signalling a de-escalation of tensions with the OPEC member. Iran and the U.S. are expected to resume nuclear talks on Friday in Turkey, officials from both sides told Reuters on Monday, and Trump warned that with big U.S. warships heading to Iran, bad things could happen if a deal was not reached. Talks with the U.S. should be pursued to secure Iran's national interests as long as "threats and unreasonable expectations" are avoided, Iranian President Masoud Pezeshkian posted on X on Tuesday. "The volatile price actions of oil seen in the last four weeks have been driven by the geopolitical risk premium factor that is linked to the current U.S. administration's expansionary foreign policy, especially the 'on-off' threats towards Iran," said OANDA senior market analyst Kelvin Wong. Weighing on prices further, the U.S. dollar index hovered near its highest in more than a week. A stronger greenback hurts demand for dollar-denominated crude from foreign buyers. Investors also considered global supplies. Deputy Prime Minister Alexander Novak said on Tuesday that Russia has sufficient volumes of fuel and even enjoys a fuel surplus, adding that the situation in the Russian oil products market stabilised last autumn. On Monday, Trump unveiled a deal with India that slashes U.S. tariffs on Indian goods to 18% from 50% in exchange for India halting Russian oil purchases and lowering trade barriers. "Overnight, the U.S. and India agreed on a trade deal … if we do see this happen, it will only lead to a further increase in the amount of Russian oil floating at sea," ING analysts said in a note. Trump announced the deal on social media following a call with Indian Prime Minister Narendra Modi, noting that India had agreed to buy oil from the U.S. and possibly Venezuela. "Looking ahead into February, prices are likely to remain choppy and range-bound … (they) are expected to stay highly reactive to headlines and macro cues rather than a decisive trend, with risk skewed to the downside," said Phillip Nova's senior market analyst Priyanka Sachdeva. (Reporting by Stephanie Kelly in London, Anushree Mukherjee in Bengaluru and Trixie Yap in Singapore; Editing by Thomas Derpinghaus, Tom Hogue and Susan Fenton)
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