Oil rises to $57 as Iran talks drag on

Oil bounced back from a three-month low to around $57 a barrel on Wednesday, after an industry report showed a larger-than-forecast drop in US crude stocks and Iran nuclear talks failed to produce a deal.

Negotiations in Vienna between Iran and six world powers dragged on beyond a self-imposed deadline as officials on both sides talked of important differences preventing a deal to lift sanctions and so allow more Iranian oil onto world markets.

"Those market participants who have been betting on a rapid Iranian return to the oil market are now likely to square their positions, which should lend short-term support to prices," said Carsten Fritsch, senior oil analyst at Commerzbank.

Brent crude was up 34 cents at $57.19 a barrel by 1248 GMT. On Tuesday, Brent fell to $55.10, its weakest since April 6. US crude was down 12 cents at $52.21.

Negotiators in Vienna have given themselves at least until Friday to come up with a final deal on the Iranian nuclear programme. A senior Iranian diplomat said Tehran would not show flexibility regarding its "red lines", suggesting financial markets may have been over-optimistic on the prospects of a deal.

Prices also gained support from expectations that the latest weekly US inventory data would show a drop in domestic crude inventories. The American Petroleum Institute's supply report on Tuesday showed a 958,000-barrel decline, more than analysts expected, ahead of Wednesday's official data.

Crude had come under downward pressure earlier on Wednesday as a plunge in China's stock market accelerated and the Greek debt crisis raised concern about fuel demand. Chinese stocks slid after the country's securities regulator warned investors were in the grip of "panic sentiment" and the market showed signs of freezing up as firms had their shares suspended. China is the world's second-largest oil consumer.

In the Greek debt crisis, euro zone members have given Athens until the end of the week to come up with a proposal for sweeping reforms in return for loans that would keep the country from crashing out of the single currency.

"Turmoil in China and Greece may put recent robust demand growth at risk," Morgan Stanley analysts said in a report.

"Investors have justifiable concerns about the outlook for both supply and demand going forward given current events."