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NEW YORK (Reuters) - Oil prices fell on Tuesday as signs of a deal between the U.N. nuclear watchdog and Iran on Tehran's nuclear program eased fears of oil supply disruptions, while the euro zone debt crisis continued to threaten economic growth.
International Atomic Energy Agency (IAEA) Director General Yukiya Amano said he expected to sign a deal with Iran soon to boost cooperation with the investigation into Tehran's nuclear activity, although differences remained.
Germany dismissed a French-led call for euro zone governments to issue common bonds, cooling hopes a day before a European Union summit that the meeting would produce fresh measures to tackle the region's debt problems.
Waning optimism about Wednesday's meeting pushed the euro lower against the dollar and the dollar index .DXY strengthened. <USD/>
A stronger U.S. currency can pressure dollar-denominated commodities like oil by making them more expensive to consumers using other currencies.
Oil prices also felt pressure from an Organization for Economic Co-operation and Development (OECD) report warning that failure to contain Europe's crisis could derail fragile global growth led by Japan and the United States.
"There is perception that Iranians are more agreeable at this point to slowing down its nuclear efforts, but they still have to show some concrete action regarding their nuclear program to justify such hopes," said Gene McGillian analyst at Tradition Energy in Stamford, Connecticut.
Brent July crude slipped 40 cents to settle at $108.41 a barrel, after reaching $109.36.
The expiring U.S. June crude contract fell 91 cents to settle at $91.66, after trading from $91.39 to $93.01.
U.S. July crude fell $1.01 to settle at $91.85 a barrel.
Brent's premium to U.S. crude pushed back above $16 a barrel, ending at $16.56 based on July contracts.
Trading volume remained lackluster, assisting choppy trading trajectories. Brent volume was 24 percent below the 30-day average and U.S. turnover 32 percent under its 30-day average.
Fitch Ratings cut Japan's sovereign credit status, weighing on oil futures and coming after both Brent and U.S. crude on Monday snapped a string of lower finishes and closed higher on lift from China's call for more efforts to stimulate growth.
A report showing U.S. home resales rose in April to their highest annual rate in nearly two years and a drop in foreclosures pushed prices higher helped boost housing shares and nudge U.S. equities higher.
U.S. heating oil futures, the benchmark distillate contract, settled 0.11 cent higher even though the index tracking tonnage hauled by American trucks slipped in April compared to March, ending seven straight months of gains.
Gasoline futures ended 0.31 cent lower, after MasterCard reported U.S. gasoline demand rose last week versus the previous week, by 1.3 percent, though demand remained 0.9 percent lower compared to the year-ago period.
The IAEA's Amano announcement that a deal with Iran was near came a day after holding talks in Tehran.
Israel expressed deep suspicion on Tuesday about the expected deal, suggesting Iran's aim was to avoid sanctions rather than make real concessions.
Six major powers are slated to meet Iran on Wednesday in Baghdad to discuss Tehran's nuclear program, but the dispute with the West remains tense and the U.S. Senate approved a package of new economic sanctions on Iran's oil sector on Monday.
"The mere possibility of the negotiations failing is keeping markets on their toes," said David Wech from JBC Energy.
Ahead of weekly reports on U.S. oil inventories, commercial crude stocks were expected to have risen last week for the ninth straight week, a Reuters survey of analysts showed. <EIA/S>
U.S. crude oil stocks stood above 380 million barrels in the week to May 11, according to the U.S. Energy Information Administration (EIA), putting inventories at their highest since 1990.
Industry group the American Petroleum Institute's inventory report is due at 4:30 p.m. EDT (2030 GMT) on Tuesday, with the EIA report following on Wednesday.
Additional reporting by Gene Ramos in New York and Dmitry Zhdannikov, Christopher Johnson and Simon Falush in London; Editing by John Picinich and David Gregorio