By Henning Gloystein
SINGAPORE (Reuters) - Oil prices fell on Monday, extending steep losses from the previous session, as Iran and six world powers tried to reach a deal that could add oil to the market if sanctions against Tehran are lifted.
The two sides tried to break an impasse in nuclear negotiations on Sunday ahead of a deadline to find a preliminary agreement by Tuesday, exploring compromises in a number of areas.
Benchmark Brent crude futures had dropped to $56 by 0531 GMT, down 41 cents after falling 5 percent on Friday as the market began to price in the possibility of a deal with Iran. Front-month U.S. West Texas Intermediate (WTI) futures were down 77 cents to $48.10 a barrel.
"Any relaxation of Iran oil sanctions could see increased exports adding to swelling global supplies and further pressuring prices," ANZ bank said on Monday.
A cut in production, which some OPEC members have lobbied for, could lead to higher prices, but its biggest exporter Saudi Arabia has resisted.
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"Saudi Arabia had to cut its price in Asia to ensure its crude oil remained attractive," energy consultancy Wood Mackenzie said.
"Other suppliers looking to position themselves in Asia will have to pay close attention to the Saudi's pricing strategy," it added. This would also include Iran should sanctions be eased.
Brokerage Phillip Futures said that it expected oil prices to fall further in the second quarter, which begins in April.
"We expect Brent and WTI to bottom out at $50-53 and $46-48 respectively," it said, adding that strong U.S. output, rising Libyan production and weak Asian economic data could further delay rising prices.
Morgan Stanley said that crude demand outlook would also be dented via the refinery sector, where production tends to fall towards the middle of the year.
"By summer, high (refinery) runs and seasonally weak product demand could lift product stocks and weigh on demand and prices," it said.
In the United States, the oil rig count continued to fall as producers adjust to lower prices, although analysts said that lower drilling activity would only affect oil production later this year.
"The current rig count is pointing to U.S. production declining slightly sequentially in 2Q15 and 3Q15," Goldman Sachs said.
Yet Goldman said that drilling could bounce back in 2016 as U.S. drillers had raised equity and benefitted from falling production costs.
(Editing by Joseph Radford and Richard Pullin)