Oil: Price falls before Iran nuclear talks

Oil dropped more than US$1 to US$73 a barrel on Monday, extending the previous session's fall from a record high due to expectations of progress in talks this week on Iran's nuclear programme.

Prices in New York hit a record high of US$75.78 on Friday before easing later in the day on profit taking. European Union foreign policy chief Javier Solana is set to meet Iranian representatives on Tuesday.

"We saw a big drop on Friday night as the Iranian talks kicked off," said Tobin Gorey, commodities strategist at the Commonwealth Bank of Australia.

"It's hard to want to short this market, but perhaps some of the reasons that drove us above US$75 were seen to be flimsy, and investors locked into some profits." US crude futures fell US$1.04 to US$73.05 a barrel by 1636 GMT. London Brent crude was down US$1.25 to US$72.26, having touched a record peak of US$75.09 on Friday.

The European Union said on Friday it expected a "substantial response" from Iran this week on a package of incentives to end the nuclear standoff. Iran's representatives said Friday's talks were "very fruitful." Strength in oil prices this year has been fueled in part by tension arising from accusations that Iran has a secret programme to build nuclear weapons.

Iran, the world's fourth-largest oil exporter, denies the charge and says its nuclear work is solely for power generation.

Oil in New York is up about 20 per cent this year because of the Iranian dispute, supply cuts in Nigeria and a flood of investment fund money into commodities. North Korea's missile tests last week added to global tensions.

But prices could fall by as much as US$5 a barrel if Iran ultimately indicates it is willing to go along with the proposals, Man Financial said in a report.

"There is still a lot of an Iranian-related geopolitical premium embedded in current values," the report said.

Western powers have demanded Iran make a full reply to an offer of a package of incentives for it to halt nuclear enrichment by the time of a July 15 Group of Eight summit in St. Petersburg.

Iran will not give its final answer on Tuesday, an Iranian nuclear official said on Monday, repeating earlier remarks. By repeating the comment a day before the meeting, the official undermined any prospects of a breakthrough.

- REUTERS