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US crude settles down $1.08, or 2.2%, at $47.60 a barrel

An oil-drilling rig operates on Sept. 26, 2014 near Walle, Germany.
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An oil-drilling rig operates on Sept. 26, 2014 near Walle, Germany.

Oil prices fell on Tuesday ahead of a nuclear pact that could release more Iranian crude into the oversupplied market, although prices backed off session lows as the clock ticked towards the talks' self-imposed deadline set for the end of the day with no word of a deal.

U.S. crude closed down $1.08, or 2.2 percent, at $47.60 a barrel. Brent, meanwhile, was 90 cents lower at $55.30 a barrel.

Six world powers, consisting of the United States, Britain, France, Germany, Russia and China, ramped up negotiations with Iran in Switzerland for outline deal on Tehran's nuclear program that would be integral to removing sanctions on its oil exports.

Iranian oil exports have been limited to around 1 million barrels per day by the U.S.-led sanctions.

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Tehran could raise output by around 500,000 bpd within six months if the restrictions are removed, and by an additional 700,000 bpd within another year, according to estimates by Facts Global Energy.

Oil prices have fallen around 7 percent since Thursday's close as fear Iran would achieve a pact with the world powers bringing more crude to a market already swollen with supplies.

But with hours to go to the midnight deadline in Lausanne, Switzerland for the talks, the leaders of France and Germany said they did not want a deal where they could not be certain of stopping Iran from developing nuclear weapons.

"I think the negotiators are playing with words, and the market is seeing through that," said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

"They were originally set to announce a framework agreement by March 31. Now, we expect them to say talks are going to continue to June but that they have a framework understanding. This means they have nothing."

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Brent was on a track to a 12-percent loss on the month and 4 percent for the quarter. U.S. crude showed a 3 percent loss for March and 10 percent for the first three months.

Oil was also pressured earlier by a Reuters survey showing producer group OPEC's crude supply in March at the highest since October.

U.S. commercial crude oil stocks were expected to have risen by 4.2 million barrels last week to a 12th week of record highs, a Reuters poll, ahead of data from the American Petroleum Institute.