Oil slumps as Iran talks deadline looms

A motorist filling up his vehicle at a petrol kiosk. (AFP/Federico Parra)

NEW YORK: Oil prices fell on Tuesday (Mar 31) as global powers and Iran raced to reach a deal on Tehran's nuclear program that could ease sanctions on the crude producer, adding to the global oversupply.

US benchmark West Texas Intermediate for May delivery lost ground for the third day in a row, losing US$1.08 to US$47.60 a barrel on the New York Mercantile Exchange. In London, Brent North Sea crude for delivery in May, the global benchmark, tumbled US$1.18 to settle at US$55.11 a barrel.

Marathon talks in Lausanne, Switzerland, looked set to miss a self-imposed Tuesday midnight deadline (6.00am Singapore time Wednesday) to agree the outlines of a agreement that could lead to an easing of sanctions placed on Iran based on beliefs that it was developing a nuclear weapon.

As the deadline nears late Tuesday, Washington said there had been "enough progress" to keep going into Wednesday.

"An Iranian nuclear deal could mean an eventual increase in Iranian supply that has the potential to turn a passing surplus into a more persistent oversupply" on the global market, said Tim Evans of Citi Futures.

Commerzbank analysts, citing shipping sources, said that Iran has at least 30 million barrels of oil in storage onboard tankers.

"In other words, it could make an additional one million barrels of crude oil available per day for at least a month if sanctions were to be lifted, without even having to ramp up its oil production," putting immediate pressure on the market, Commerzbank said in a research note.

The stronger dollar also weighed on oil, which is priced in the US currency. The euro was down to US$1.0746 around 2.45am (Singapore time), from US$1.0825 late Monday, on Greek debt pressures.

Meanwhile, traders awaited the Department of Energy's weekly US oil inventories report on Wednesday, expecting another increase in crude stockpiles to a new record high.