LONDON: Global oil prices fell towards $110 per barrel on Monday on expectations that Iranian nuclear talks will ease tensions, while a looming deadline to head off a US default stoked worries about the outlook for demand.
Brent crude futures fell by 93 cents to $110.35 at 1348 GMT. US oil pared early gains and was down 45 cents at $101.61 a barrel.
"Oil is falling on the possibility of talks with Iran bearing fruit. That possibility is the main factor. The US budget deadlock is also weighing," said Christopher Bellew, an oil trader at Jefferies Bache.
Talks about Iran's nuclear programme are due to start in Geneva on Tuesday and will be the first since the election of President Hassan Rouhani, who has tried to improve ties with the West to pave the way for an end to sanctions.
Iran's nuclear negotiator voiced hope on Monday that his country and world powers could agree on a road map to resolve a standoff that has helped support oil prices for nearly a decade.
Years of sanctions have cut Iranian oil exports by more than 1 million barrels per day (bpd).
Bellew said declines in Brent would be limited, however, by expectations that any easing in sanctions will not come quickly.
Citi analysts said in a weekly note to clients that hopes for the Iranian talks were probably running too high.
"There are several large obstacles that need to be confronted before a significant lifting of sanctions could be at hand. These obstacles are both regional and domestic," the Citi note said.
The spread between Brent and WTI has widened in the past two weeks as the US budget crisis has weighed more heavily on its domestic contract than on Brent.
Weekend talks to avert a US government debt default showed signs of progress on Sunday, but there were still no guarantees that a government shutdown was about to end.
The prospect of a debt default in one of the world's largest oil consumers has had an adverse effect on the demand outlook, though a weaker dollar has offered some support for oil by making the dollar-denominated commodity cheaper for importers.
"Markets are hamstrung by what's going on in the US If they go over the deadline, that will make people really nervous," Michael Hewson, an analyst at CMC Markets in London, said.
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