Oil declines nearly 3% on signs of progress in US-Iran talks, demand fears

Oil prices fell nearly 3% on Monday on signs of progress in talks between the U.S. and Iran, while investors remained concerned about economic headwinds from tariffs which could curb demand for fuel.

Brent crude futures were down $1.84, or 2.7%, at $66.12 a barrel by 10:48 a.m. EDT (1448 GMT), after closing up 3.2% on Thursday.

U.S. West Texas Intermediate crude fell $1.73, or 2.7%, to $62.95 a barrel, after settling up 3.54% in the previous session. Thursday was the last settlement day last week because of the Good Friday holiday.

"The U.S.-Iran talks seem relatively positive, which allows for people to start thinking about the possibility of a solution," said Harry Tchilinguirian, group head of research at Onyx Capital Group.

"The immediate implication would be that Iranian crude would not be off the market."

Markets also have lower liquidity due to the Easter holiday, which can exacerbate price moves, he added.

In the talks, the U.S. and Iran agreed to begin drawing up a framework for a potential nuclear deal, Iran's foreign minister said, after discussions that a U.S. official described as yielding "very good progress".

The progress follows further sanctions by the U.S. last week against a Chinese independent oil refinery that it alleges processed Iranian crude, ramping up pressure on Tehran.

Markets also came under stress on Monday after U.S. President Donald Trump repeated criticisms about the Federal Reserve. The U.S. economy could slow down unless interest rates are lowered immediately, President Donald Trump said on Monday.

Gold prices rose to another record, with jitters rippling into energy markets due to concerns about demand, according to analysts.

Wall Street's main indexes lost more than 1% each. [.N]

"The risk-off feel in the market because of stocks is driving us lower today," said Phil Flynn, senior analyst with Price Futures Group.

Meanwhile, OPEC+, the group of major producers including the Organization of the Petroleum Exporting Countries and allies such as Russia, is still expected to increase output by 411,000 barrels per day starting in May.

However, some of that increase may be offset by cuts from countries that have been exceeding their quotas.

A Reuters poll on April 17 showed investors believe the tariff policy will trigger a significant slowdown in the U.S. economy this year and next, with the median probability of recession in the next 12 months approaching 50%. The U.S. is the world's biggest oil consumer.

Investors are watching for several U.S. data releases this week, including April flash manufacturing and services PMI, for direction on the economy.

"This week's series of PMI releases could further underscore the economic impact of tariffs, with both manufacturing and services conditions across major economies expected to soften," IG's Yeap said, adding oil prices face resistance at the $70 level.

(Reporting by Stephanie Kelly in New York; additional reporting by Anna Hirtenstein in London, Florence Tan and Trixie Yap in Singapore; Editing by Kate Mayberry, Chizu Nomiyama, Kirsten Donovan and Jan Harvey)