UPDATE 10-Oil drops on U.S. fiscal impasse, Iran talks
* Senate suspends talks till House Republicans have plan
* Republicans struggle to find common ground on impasse
* Iran says world powers have "good" reaction to its plan
* Western powers temper expectations for quick results in Iran talks
NEW YORK, Oct 15 (Reuters) - Oil prices extended losses late on Tuesday after credit rating agency Fitch warned that it could cut the sovereign credit rating of the United States from AAA due to "political brinkmanship" that was increasing the risk of a U.S. default.
Oil benchmarks on both sides of the Atlantic finished the day down about 1 percent, with losses accelerating just before the market's 2:30 p.m. EDT (1830 GMT) close, as Senator Richard Durbin told reporters that U.S. Senate negotiations to lift the U.S. debt limit and reopen the federal government were suspended until House Speaker John Boehner could work out a fiscal plan that can proceed in the House of Representatives.
Those losses were compounded by Fitch's announcement, which came at 4:44 p.m. EDT (2244 GMT).
Oil traded lower throughout the session as the hope for a deal to end the U.S. debt crisis steadily diminished and talks proceeded in Geneva around an Iranian proposal to achieve a breakthrough in a decade-old standoff over its nuclear program.
News of bilateral talks between Iran and U.S. delegations on the sidelines of the Geneva meeting also weighed on prices going into the close.
Brent crude dropped by nearly 40 cents on news that the U.S. Senate would suspend its talks until the House could come up with a plan. Brent crude futures settled down $1.14 at $109.90 a barrel in its third straight losing session.
U.S. oil also fell by nearly 40 cents on the news, and settled down $1.20 at $101.21 a barrel.
Republicans in the U.S. House of Representatives struggled to find a strategy to end a fiscal impasse, complicating prospects for a deal with President Barack Obama to reopen the government and raise the country's borrowing authority.
House Speaker John Boehner said they had not reached any decisions on how to proceed, but were determined not to allow a default.
House Republican leaders proposed a plan to reopen the government and avoid debt default but it was rejected in a meeting with rank and file lawmakers. The plan differed in a few important details from one in the U.S. Senate.
"The market seemed to move forcefully on the Senate suspension," said John Kilduff, partner at Again Capital LLC in New York.
"Oil markets are going to take this hard if we can't get a deal done."
NUCLEAR TALKS BEGIN IN GENEVA
Oil prices were also buffeted by talks in Geneva between Iran and six world powers aimed at resolving the standoff over Tehran's disputed nuclear ambitions.
Iranian Deputy Foreign Minister Abbas Araqchi described a negotiation meeting on Tuesday in Geneva as "good" and said he thought the proposal "has the capacity to make a breakthrough."
However, the White House warned against expecting quick results from international talks in Geneva on Iran's nuclear program, saying the discussions are complex and technical and that economic pressures against Teheran would remain in place.
U.S. stocks hit session lows in afternoon trading as budget and debt-limit talks in Washington broke down.
The talks that started on Tuesday on Iran's nuclear development are the first since the election of President Hassan Rouhani, who has tried to improve ties with the West to pave the way for an end to sanctions that have cut Iranian oil exports by more than 1 million barrels per day.
While oil prices could fall around $10 per barrel if sanctions were removed and Iran resumes full exports, analysts cautioned that it might still take months, if not years, before free-flowing Iranian oil would be back on the world market.
"If you're selling the market based on Iran, it seems to be a little premature because it's a long way to go before sanctions are lifted and barrels come back onto the market," said Andy Lebow, vice president at Jefferies Bache in New York.
GRANGEMOUTH, U.S. OIL STOCKS
Britain's Grangemouth refinery began halting work on Monday ahead of a 48-hour strike. In 2008, a strike there interrupted flows of crude through the Forties Pipeline System and shut in production at 70 North Sea fields, pushing up Brent prices.
BP, which relies on Grangemouth for steam and power for its Kinneil oil processing terminal, said Tuesday it understands there is an intent to keep the Forties oil pipeline operating should the strike proceed, and has advised oil buyers that crude will keep flowing. .
"The Grangemouth refinery shutdown is going to end up being somewhat supportive for the market, so it's a sort of push-pull we're seeing," said Kilduff.
Investors will do without oil inventory data from the U.S. government this week for the first time since 1979, as the Energy Information Administration refrains from publishing its weekly report due to a lack of funds.
U.S. commercial crude oil inventories were forecast to have increased by 2.2 million barrels in the week to Oct. 11, a Reuters poll of analysts showed on Monday.
The American Petroleum Institute, an industry group, will release its weekly inventory report on Wednesday.
- Ukraine president accuses Russian soldiers of backing rebel thrust |
- Video shows Islamic State executes scores of Syrian soldiers |
- In town halls, U.S. lawmakers hear voter anger over illegal migrants |
- U.S. air strikes on Syria would face formidable obstacles
- Ukraine leader says Russian forces are in the country as key town falls