Brent drops towards $106 on Iran pact; U.S. data eyed

Last Updated: Wed, Jan 15, 2014 07:13 hrs

Brent crude edged down towards $106 a barrel on Wednesday as the prospect of a rise in Iranian oil exports weighed, while investors looked ahead to weekly oil inventories data from the United States to assess supply.

Big powers and Iran have continued to move ahead on an interim deal that eases some sanctions on Tehran in exchange for curbs on its nuclear programme. Any signs that the initial deal might lead to higher Iranian oil exports will add to global supply and depress prices.

"It looks as if we're moving towards resumption of production (and the) lifting of sanctions," Michael McCarthy, chief strategist at CMC Markets in Sydney, said.

"That's the major reason for the weakness in Brent."

February Brent crude slipped for a third session, down 18 cents to $106.21 a barrel by 0619 GMT. In the last two sessions Brent has hovered just above a two-month low of $106.03 hit on Friday.

U.S. crude for February delivery edged down 12 cents to $92.47 after settling up 0.86 percent on Tuesday.

The preliminary accord between Iran and the P5+1 group of world powers goes into effect on January 20. Under the deal, Iran's oil exports are to hold at current levels of about 1 million barrels per day (bpd).

Talks on a final settlement to the long dispute over Tehran's nuclear ambitions will start in February.

The resumption of oil production at Libya's El Sharara field has also weighed on prices, although the key issue is still when the blockade at its eastern oil ports will end.

With no resolution to the Libyan crisis in sight, oil prices are likely to hold near current levels, with Brent at $105-$106 and WTI at $90-$92, based on technical charts, McCarthy said.

Weekly crude stocks in the United States fell by 4.1 million barrels, data from industry group American Petroleum Institute showed on Tuesday, against an average projected decrease of 600,000 barrels by analysts polled by Reuters.

The U.S. Energy Information Administration, a government agency, is expected to release its stockpile data at 1530 GMT.

"It would take an extraordinary lift in inventories to push WTI down from these levels," McCarthy said. "A modest increase in inventories will keep oil price action fairly flat in the next day or two."

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