Oil settles lower on reports of potential Iran nuclear deal

© Reuters. FILE PHOTO: A diesel fuel nozzle with new European labels to standardise gasoline pumps in the EU zone is seen at a petrol station in Nice, France, October 12, 2018. REUTERS/Eric Gaillard

By Laura Sanicola

NEW YORK (Reuters) -Oil settled lower on Tuesday, tumbling from a two-month high after media reports said the United States and Iran have made progress on reviving a deal restricting the OPEC country's nuclear weapons development, which would boost crude supply.

Prices plunged on the reports that Russian ambassador to the United Nations Mikhail Ulyanov said significant progress had been made, but losses stopped after he said on Twitter that negotiators need more time to finalize an agreement.

After falling more than $2 a barrel, Brent crude settled down 75 cents, or 1.1%, at $68.71 a barrel by 1:19 p.m. EDT (1719 GMT). U.S. West Texas Intermediate (WTI) crude settled down 78 cents, or 1.2%, to $65.49.

If the United States lifts sanctions on Iran, the country could boost oil shipments, adding to global supply.

"That could put a significant amount of crude oil on the market, which is why we are steadily drifting lower now," said Bob Yawger, director of energy futures at Mizuho.

During the session, global benchmark Brent oil hit $70 a barrel for the first time since March, lifted by expectations of demand recovery.

Britain further eased coronavirus restrictions on Monday and Europe is starting to reopen cities and beaches. New cases in the United States fell further and New York lifted the mask requirement for vaccinated people.

"The crude demand recovery story during the second half of the year still supports much higher oil prices by the end of the year, with this Iran news possibly shaving a couple of dollars off most analysts’ end-of-year targets," said Edward Moya, senor market analyst at futures brokerage OANDA.

European and U.S. progress in the battle against the pandemic contrasts with the situation in Asia, which is limiting oil's rally.

Singapore and Taiwan have reinstated lockdown measures and India has experienced a plunge in fuel demand after imposing restrictions to curb infections.

Also weighing on the market, analysts forecast U.S. crude inventories to have risen by 1.6 million barrels last week, according to a Reuters poll ahead of weekly reports from the American Petroleum Institute at 4:30 p.m. ET, and the government on Wednesday morning. [EIA/S] [API/S]