Brent tumbles on Iran, Libya; U.S. crude up on spread play

By Barani Krishnan

NEW YORK (Reuters) - Brent crude tumbled more than 3 percent on Monday on speculation of a nuclear deal that could boost Iran's oil exports, and U.S. crude rose by around 1 percent as traders bet the gap between the two would narrow.

Iranian Foreign Minister Mohammad Javad Zarif said a deal on Iran's nuclear programme could be concluded this week if the United States and other Western countries had sufficient political will and agreed to remove sanctions on Tehran.

Iranian oil exports have been restricted by sanctions for several years as the United States and Europe responded to Tehran's nuclear programme, although 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.

Brent was also pressured initially by rising Libyan output and a firmer dollar (.DXY) that weighed on greenback-denominated commodities. [USD/]

In the case of U.S. crude, its advance versus Brent came after a smaller-than-expected build in the Cushing, Oklahoma delivery point, reported by oil services firm Genscape.

Genscape's Cushing report, and the American Petroleum Institute (API) inventory data on Tuesdays, are a precursor to the government's weekly crude stockpiles report on Wednesdays.

"The Genscape expectations for a slower rise in crude at Cushing and returning production in Libya reverses the dynamic in play last week," Phil Flynn, analyst at Price Futures Group in Chicago, said, referring to the rally in Brent and bigger Cushing builds then.

Brent (LCOc1) was down $2.12, or 3.4 percent, at $60.46 a barrel by 12:23 p.m. EST (1723 GMT).

U.S. crude (CLc1) rose 55 cents, or 1 percent, to $50.31.

Brent's premium to U.S. crude (CL-LCO1=R) was at below $10.20 a barrel, after reaching above $13 earlier on Monday.

The spread "became very, very crowded last week as everyone jumped in" when Brent began fetching a premium above $9, said Ola Vines at Eagle Commodities Brokers Ltd in London.

(Additional reporting by Robert Gibbons in New York, Christopher Johnson in London and Florence Tan in Singapore; Editing by David Holmes, Pravin Char and Marguerita Choy)