Oil fell to a seven-month low below $91 a barrel Wednesday after Iran agreed to allow the U.N. nuclear agency to restart an investigation into the country's nuclear program.
By early afternoon in Europe, benchmark oil for July delivery was down 88 cents to $90.97 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.01 to settle at $91.85 in New York on Tuesday.
In London, Brent crude for July delivery was down $1.30 at $107.11 per barrel on the ICE Futures exchange.
International Atomic Energy Agency chief Yukiya Amano said Tuesday that his investigators will have access to Iranian sites, scientists and documents in an effort to ensure the Middle Eastern country isn't developing nuclear weapons. Iran insists its nuclear program is only for power and medical applications.
The deal came a day before talks are scheduled to begin Wednesday between Iran and six world powers. The U.S. and Europe have imposed sanctions against Iran that are restricting its oil exports and have threatened to tighten them in the coming weeks.
"If there were to be further rapprochement between the conflicting parties, or indeed if the prospect of an easing of sanctions were to be raised, the risk premium would be likely to fall further, bringing oil prices down accordingly," said analysts at Commerzbank in Frankfurt.
Crude prices have plunged about 14 percent from $106 earlier this month as fears eased that the U.S. or Israel would launch a pre-emptive attack on Iran's nuclear facilities, a move that would likely disrupt global oil supplies and push prices higher.
Signs of slowing economic growth and weakening crude demand in the U.S., Europe and China have also contributed to the fall in the crude price.
The stronger dollar also helped push down prices by making commodities like crude oil more expensive - and a less attractive investment - for traders using other currencies. On Wednesday, the euro slid to $1.2635 from $1.2756 late Tuesday in New York.
"A downward revision to Chinese growth estimates ... and the perceivable easing in crude demand is further weighing on sentiment," said a report from Sucden Financial in London. "In the absence of any significant European measures (which seems likely), we continue to expect a moderation in crude prices in line with broader weakness in economic growth and the likelihood things will get worse in Europe before they get better."
The latest U.S. crude supply numbers were mixed. The American Petroleum Institute said late Tuesday that crude inventories rose 1.5 million barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted an increase of 750,000 barrels.
However, inventories of gasoline fell 4.5 million barrels last week while distillates tumbled 200,000 barrels, the API said.
The Energy Department's Energy Information Administration reports its weekly supply data - the market benchmark - later Wednesday.
In other energy trading, heating oil was down 2.84 cents at $2.8371 per gallon and gasoline futures fell 2.18 cents at $2.8374 per gallon. Natural gas slid 2.2 cents at $2.685 per 1,000 cubic feet.
Alex Kennedy in Singapore contributed to this report.