U.S. crude oil futures may break below $100 a barrel this week as Iran continues diplomatic overtures towards the West, according to CNBC's latest market survey of traders, analysts and strategists.
Market uncertainty over the U.S. budget impasse and the debt ceiling will likely hasten any move below triple digits, survey respondents said.
Iranian President Hassan Rouhani and U.S. President Barack Obama spoke by telephone on Friday in the highest-level contact between the two countries in three decades, raising hopes of a breakthrough in Western efforts to prevent Iran from building a nuclear bomb, Reuters reported. Rouhani seeks to lift international sanctions which have cut Iran's crude oil exports by more than half since early 2012
"With Syria silent and Iran mellowing down" U.S. crude futures may drop towards $95 before finding support, said Sankalp Shangari of Shangari Ventures, a Singapore-based commodities trading, advisory and debt raising firm.
(Read more: First top-level US-Iran talk since 1979)
Advancing diplomacy further, Iranian Foreign Minister Mohammad Javad Zarif joined nuclear talks with six world powers on the sidelines of the United Nations General Assembly last Thursday, taking a seat next to U.S. Secretary of State John Kerry, according to Reuters, the first meeting between a top U.S. diplomat and an Iranian foreign minister since a brief encounter in May 2007.
Despite the progress some traders warned that the oil market's interpretations of the recent diplomatic events may be too optimistic.
"Iran's language has certainly softened recently and Kerry's meeting yesterday with his Iranian counterpart was historic," said David Nevin, a London-based broker with XConnect Trading Ltd. "However, with the next round of nuclear talks scheduled for October 15-16 any return to the market for Iranian oil is still a long way off. To begin pricing in a return of Iranian oil to the market at this stage is jumping the gun."
More than half of the respondents in CNBC's latest poll of oil market sentiment (about 53 percent, or 10 out of 19) believe prices will fall this week, 26 percent (or 5 out of 19) say prices may gain and four out 19 - or 21 percent - expect prices to trade around current levels.
U.S. crude for delivery in November fell in choppy trading on Friday, finishing the session down 16 cents to reach $102.87, Reuters reported. Brent crude oil for November slipped 58 cents to settle at $108.63 on Friday, and extended losses to almost $1 a barrel in post-settlement trading following Obama's comments on Iran. Brent's fall capped the third straight week of losses for international benchmark, with prices dropping by about 7 percent since hitting a six-month high above $117 in early September.
Last week's CNBC oil sentiment correctly predicted prices would decline. (See: Oil focus returns to Syria, Iran at United Nations assembly)
"The focus currently seems to be more on the supply picture especially oil returning to the markets from Libya and Sudan," said Vandana Hari, Editorial Director, Asia at Platts. "That, coupled with record-high Saudi output, the disappearance of the Syria premium, and cautious optimism over a diplomatic solution - no matter how distant - to the U.S. and Iran nuclear stand-off, lend a bearish tone to the market."
However, latest data from IG Markets shows its clients leaning marginally towards the bullish end of market expectations. It shows 53 percent of as much as 250 IG clients with open positions in U.S. crude futures expect prices to climb while the remaining 47 percent are betting on price falls.
A deepening impasse over the U.S. budget negotiations and fears of a looming government shutdown loom may add to volatility in the oil markets, traders said.
"Washington issues will dominate and I expect we will see many gyrations in all markets because of this," said Mark Waggoner, president of Excel Futures, a commodities-trading firm based in Bend, Ore. "Oil should test $97.00."