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UPDATE 7-Oil down on possible Iran nuclear agreement next week

Jeanine Prezioso
Friday, 15 Nov 2013 | 12:25 PM ET

* Dovish Yellen comments support oil

* U.S. crude weighed down by bulging stockpiles

* IEA says market well supplied in short term

(Adds details on Iran negotiations, updates prices)

NEW YORK, Nov 15 (Reuters) - Oil futures turned lower on Friday on reports that Western powers may reach a deal with Iran as early as next week on its nuclear program.

Sanctions against Iran because of its nuclear program have kept some 1 million barrels of oil off the global market. Any agreement among nations could mean sanctions will be lifted, increasing market supply and depressing prices.

World leaders were scheduled to meet in Geneva to negotiate beginning on Wednesday.

Brent crude was 47 cents lower at $107.81 at 12:04 p.m. EST (1704 GMT) after trading as high as $108.65.

Brent still looked set for a weekly gain of 2.6 percent as supply outages in Libya and comments from President Barack Obama's nominee to lead the Fed supported prices.

U.S. crude was down 1 cent to $93.75 per barrel, after trading as high as $94.55. The contract was on track for its sixth straight week of losses as supplies remain high.

U.S. crude prices were trying to "develop a little bit of a base," said Tariq Zahir, managing member of commodity fund Tyche Capital Advisors in Laurel Hollow, New York.

"There's nothing out there right now that could sustain higher prices over the long run," he said.

The discount of U.S. Gulf Coast cash gasoline prices to gasoline futures narrowed following news of a fire that caused one death at Chevron's 330,000 barrel-per-day refinery in Pascagoula, Mississippi. There was minimal impact to the actual gasoline futures price.

U.S. gasoline futures were last trading 1.3 percent lower at $2.6492 a gallon.

FED AND LIBYA SUPPORT, SUPPLY WEIGHS

Janet Yellen, likely to be the next Fed chief, defended the U.S. central bank's commodity-friendly economic stimulus measures, suggesting that any tapering would not be imminent under her watch.

While her comments provided a boost to risk appetite, with most commodities and equities scaling higher, big stockpiles kept U.S. crude in check.

The U.S. Energy Information Administration reported crude inventories in the United States rose by 2.6 million barrels last week, far more than the 1 million barrels analysts surveyed by Reuters had expected.

Brent's premium to U.S. oil futures <CL-LCO1=R> was more than $13 per barrel after reaching an eight-month high of $15.87 on Thursday.

The International Energy Agency said that while oil markets look well supplied in the short term, prices could rise in the next few months due to a seasonal increase in demand and output disruptions in some OPEC nations such as Libya and Iraq.

Libyan oil output is down to a fraction of its capacity of 1.25 million barrels a day. Protests at oil ports have cost Libya more than $6 billion and started hitting power supplies in the North African country.

In Iraq, the government has moved swiftly to restore calm at its giant southern oilfields following violent protests. Schlumberger Ltd, the world's top oil services company, is expected to return to work next week at Iraq's biggest field, Rumaila.

(Reporting by Jeanine Prezioso; Additional reporting by Peg Mackey in London and Jacob Gronholt-Pedersen in Singapore; Editing by Dale Hudson, David Evans, John Wallace and Bob Burgdorfer)