Brent crude oil fell almost 2 percent toward $61 a barrel on Monday after Iransaid a deal on its nuclear program could be agreed this week if the West lifted sanctions, which could boost the country's oil exports.
Oil prices were also depressed by a stronger dollar and reports of a rise in Libyan crude output, traders said.
Brent crude hit a low of $61.18 a barrel and was at $61.30 by 7.20 a.m. ET, down $1.28. Front-month Brent jumped 18 percent in February, the largest monthly rise since May 2009.
U.S. crude was down 95 cents at $48.81 a barrel.
"If there is the political will to accept that an agreement and sanctions cannot go together, then we can have an agreement this time," Iranian Foreign Minister Mohammad Javad Zarif said in Geneva.
The dollar hit an 11-year high against a basket of currencies after a rate cut in China dented the Chinese yuan and also hit emerging Asian currencies.
Disruption to oil supplies from members of the Organization of the Petroleum Exporting Countries has helped support crude with lower output from Libya and Iraq in January and February.
Iranian oil exports have been restricted by sanctions for several years as the United States and Europe have responded to Tehran's nuclear program, which the West says is designed to make atomic weapons. Iran says its nuclear plans are peaceful.
Analysts say Iran could increase its oil sales fairly quickly if sanctions were lifted and may eventually be able to raise exports by up to 1 million barrels per day (bpd). A Reuters survey last week showed Iran pumped around 2.8 million bpd in February.
Output from other OPEC countries may also be recovering.
Libya's oil production has risen to more than 400,000 barrels per day (bpd), officials said.
Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt, said much of the recent strength in oil had been due to speculative buying.
"All in all the market is still over-supplied by a wide margin," Fritsch told Reuters Global Oil Forum. "We expect Brent to come under pressure again in Q2."
U.S. oil markets are particularly weak with a U.S. refinery strike denting demand for crude and domestic production still increasing, despite reports that the number of rigs operating in North America is falling due to lower prices.
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