Oil falls on Iran talks progress, euro zone worry

Tue May 22, 2012 3:38pm EDT
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By Robert Gibbons

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.   Continued...