Brent crude oil dropped towards $55 a barrel on Tuesday as Iran and six world powers entered a final day of talks over a nuclear deal that could see the energy-rich country increase oil exports to world markets.
With a self-imposed deadline set for the end of the day, the United States, Britain, France,Germany, Russia and China ramped up the pace of negotiations with Iran in Switzerland over an outline deal on Tehran's nuclear program.
Disagreements on enrichment research and the pace of lifting sanctions remained as hurdles that could scupper a deal to end a 12-year standoff between Iran and the West.
Russian Foreign Minister Sergei Lavrov told reporters in Moscow he believed the talks had a good chance of success.
"The chances are high. They are probably not 100 percent but you can never be 100 percent certain of anything," Lavrov said.
Brent LCOc1 was 89 cents lower at $55.40 a barrel by 0940 GMT. U.S. crude CLc1 was down 89 cents at $47.79 a barrel.
Oil prices extended two days of declines as investors said a deal in Lausanne could lead to an increase in Iranian crude supply to a market already weighed down by oversupply due to rising U.S. shale production.
"If the flood gates to Iranian crude open, (prices) will probably test this year's lows again," Daniel Ang, analyst at Singapore-based brokerage Phillip Futures, told Reuters Global Oil Forum.
Iran could increase oil production by around 500,000 barrels per day (bpd) within six months if sanctions are removed, and by an additional 700,000 bpd within another year, according to estimates by Facts Global Energy.
Western sanctions have limited Iranian crude oil exports to around 1 million bpd, and shipping sources say Iran is storing at least 30 million barrels of oil on a supertankers.
Asian purchases of Iranian crude fell by a quarter in February from a year ago to an average 1.02 million bpd, with the biggest cut by Indian refiners, government and tanker-tracking data showed.
A stronger U.S. dollar .DXY also weighed on oil prices. A firm greenback makes dollar-denominated commodities costlier for holders of other currencies. [USD/]
U.S. commercial crude oil stocks are likely to have risen by 4.2 million barrels last week to a record high for a 12th week, a Reuters poll showed ahead of weekly data by the American Petroleum Institute. [EIA/S]