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NEW YORK (Reuters) - Oil prices fell in light volume on Monday as revived talks on Iran's nuclear program eased fears of supply disruption, while slowing U.S. jobs growth sparked concern about demand for fuel.
Negotiations between Iran and world powers over Tehran's disputed nuclear program are slated on April 14 in Istanbul. The resumption of talks after more than a year tempered worries about an immediate cut in supply.
U.S. markets reacted to U.S. jobs data released on Friday when markets were shut to observe Good Friday. The employment report showed job growth slowed to 120,000 in March, well below expectations and the smallest increase since October.
Brent May crude fell 76 cents to settle at $122.67 a barrel, having dropped as low as $121.02 and tested below the 50-day moving average of $121.60.
U.S. May crude lost 85 cents to settle at $102.46 a barrel, after testing below the 100-day moving average of $101.61 and recovering from a low of $100.81.
U.S. RBOB gasoline futures slumped more than 4 cents, pressured by the sluggish employment data. Heating oil futures declined by more than 2 cents.
Brent's premium to U.S. crude edged up slightly to $20.21 a barrel based on settlements.
Trading was lackluster, with some investors still on holiday. Total Brent and U.S. crude turnover, as well as volumes for U.S. RBOB gasoline and heating oil, were well below their 30-day averages.
"If there are some good vibrations from the Iranian talks, and they don't immediately break down, the markets will have hopes that the European Union may lighten the sanctions on Iran, at least on the insurance front," said Olivier Jakob from Petromatrix.
"At the moment, the sanctions are having a much stronger impact than anticipated, mostly through insurance, which could lead to a full interruption of Iranian oil flows," he added.
Tehran's ability to continue exporting oil is being hampered as maritime insurance companies around the world walk away from covering tankers carrying Iranian oil.
A European Union embargo on importing Iranian oil is slated for July, while the United States is pressing major importers of Iranian oil in Asia to reduce purchases as well.
Analysts and brokers also noted that a failure of the upcoming talks could result in a higher geopolitical fear premium for oil because of the perception that Iran will have spent the patience of the West and Israel.
For a 24-hr technical outlook on Brent:
GRAPHIC on Iran sanctions: link.reuters.com/qeh85s
GRAPHIC for China's inflation data:
The U.S. jobs report tempered recent optimism about the pace of economic expansion. U.S. stocks fell but pulled off their lows after the S&P 500 hit its lowest point in more than three weeks. .N]
The jobs growth slowdown fed expectations that the Federal Reserve could be spurred to another round of monetary stimulus.
That was the belief of economists at most major Wall Street firms, a Reuters poll found on Monday.
"The disappointing jobs growth, while weighing on oil prices, may open the door for quantitative easing 3 and that would be supportive to oil," said Phil Flynn, an analyst at PFGBest Research in Chicago.
Investors awaited Federal Reserve Chairman Ben Bernanke's speech, scheduled for 7:15 p.m. EDT (2315 GMT) on Monday at a conference hosted by the Federal Reserve Bank of Atlanta, for any indications about policy direction.
China's annual inflation rate jumped more than expected in March, but expectations that a cooling economy has eclipsed inflation as the government's pressing near-term worry were reinforced by surprisingly soft producer prices.
Additional reporting by Gene Ramos in New York, Dmitry Zhdannikov in London and Manash Goswami in Singapore; Editing by Dale Hudson, Sofina Mirza-Reid, David Gregorio and Bob Burgdorfer