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The two sides have until the end of Tuesday to come up with
an agreement at talks in Lausanne, Switzerland.
Officials close to the talks have said progress has been made
and many investors believe a deal is in the making. Few expect
the talks to end without some sort of agreement.
"Regarding Iran, there are two possible outcomes: a framework
deal or an extended deadline," Bjarne Schieldrop, chief
commodities analyst at SEB Markets in Oslo, told the Reuters
Global Oil Forum.
Brent crude was down 40 cents at $56.01 a barrel by 0938 GMT as
the market began to price in a deal with Iran. U.S. crude was
down 80 cents at $48.07.
Oil markets are well supplied and recent figures show global
production outstripping demand by around 1.5 million barrels per
day (bpd), filling oil inventories.
"Further downward pressure may come at any time from a nuclear
agreement with Iran," said Michael Wittner, analyst at Societe
Generale. "If a framework agreement is reached, we would expect
an immediate bearish knee-jerk reaction in the markets, with oil
prices quickly losing on the order of $5."
Barclays said a build in U.S. stocks would make its way into an
oversupplied global market in the second quarter and that demand
would unlikely be strong enough to support oil prices once that
happened.
"Continued dollar strength is (also) a headwind to the oil price
recovery," Barclays said, forecasting the dollar would rise
above parity with the euro by the fourth quarter of 2015.
Few investors expect the Organization of the Petroleum Exporting
Countries, which pumps around a third of the world's oil, to
restrain production to help push up prices.
Oil producers are much more focused on maintaining market share,
analysts say.
Lower oil prices have encouraged some oil and gas companies to
stop drilling, particularly in the United States, but this is
unlikely to affect oil production until later this year.
"The current rig count is pointing to U.S. production declining
slightly sequentially in 2Q15 and 3Q15," Goldman Sachs said,
adding that activity could bounce back in 2016 as drillers
benefit from falling production costs.
(Additional reporting by Henning Gloystein in Singapore; Editing
by Jason Neely and Dale Hudson)
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