Oil down but off lows as market awaits Iran nuclear deal

By Barani Krishnan

NEW YORK (Reuters) - Oil fell as investors waited on a possible nuclear pact that could release more Iranian crude into an oversupplied market, although prices backed off session lows with no word of a deal as the clock ticked toward the talks' self-imposed deadline on Tuesday.

Six world powers, consisting of the United States, Britain, France, Germany, Russia and China, are negotiating with Iran in Switzerland for an outline deal on Tehran's nuclear program that would be integral to removing sanctions on its oil exports.

Iranian oil exports have been limited to around 1 million barrels per day by the U.S.-led sanctions.

Tehran could raise output by around 500,000 bpd within six months if the restrictions are removed, and by an additional 700,000 bpd within another year, according to estimates by Facts Global Energy.

Oil prices have fallen around 7 percent since Thursday's close on fear Iran would achieve a pact with the world powers, bringing more crude to a market already swollen with supplies.

But with only hours to the midnight deadline for the talks in Lausanne, Switzerland, the White House said U.S. negotiators were willing to continue the discussions into Wednesday if necessary.

France and Germany said earlier they did not want a deal where Iran could not be stopped from developing nuclear weapons.

"I think the negotiators are playing with words, and the market is seeing through that," said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

"They were originally set to announce a framework agreement by March 31. Now, we expect them to say talks are going to continue to June but that they have a framework understanding. This means they have nothing."

Brent was down $1.13 at $55.16 a barrel by 1:17 p.m. EDT (1717 GMT), versus its session low of $54.72. U.S. crude was down 90 cents at $47.78, off its earlier low at $47.28.

Brent was on a track to a 12 percent loss on the month and 4 percent for the quarter. U.S. crude showed a 3 percent loss for March and 10 percent for the first three months.

Oil was also pressured earlier by a Reuters survey showing producer group OPEC's crude supply in March at the highest since October.

U.S. commercial crude oil stocks were expected to have risen by 4.2 million barrels last week to a 12th week of record highs, according to a Reuters poll ahead of data from the American Petroleum Institute.

(Additional reporting by Ron Bousso in London and Jacob Pedersen in Singapore; Editing by Marguerita Choy and Chris Reese)