* Seaway pipe reversal targeted to begin 2 wks earlier
* Brent premium to WTI narrows sharply
* Iran talks trim geopolitical risk premium
* Coming up: API U.S. petroleum data, 4:30 p.m. Tuesday (Updates throughout)
By Gene Ramos
NEW YORK, April 16 (Reuters) - Oil futures tumbled more than 2 percent o n M onday after news a major pipeline reversal that will alleviate a large U.S. bottleneck may start ahead of schedule sparked heavy spread trading.
The premium of international benchmark Brent to U.S. oil futures crashed by more than $2.50 a barrel to the lowest level since February after filings by Enterprise Product Partners and Enbridge showed they planned to reverse the Seaway pipeline on May 17, two weeks ahead of schedule.
Traders have been closely eyeing the start up of the pipeline, which will send crude to the U.S. Gulf Coast refining hub from the Cushing, Oklahoma delivery point of U.S. crude futures. A glut of crude in the Midwest from rising Canadian and North Dakota oil production has inflated inventories there and depressed U.S. oil futures relative to Brent for over a year.
"The earlier-than-expected reversal of the Seaway pipeline has triggered selling of the WTI-Brent spread," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.
Oil prices were already under pressure from euro zone worries triggered by Spain's debt problems and weekend talks between Iran and six world powers about its disputed nuclear program.
The market has been balancing the risk of the euro zone crisis on oil demand against the potential for a large supply disruption from OPEC nation Iran due to U.S. and EU sanctions that come into effect over the summer this year.
In London, Brent crude for June delivery fell $2.53 to settle at $118.68 barrel in average trade volumes, after dropping to a session low of $118.20, the lowest for front-month Brent since Feb. 15.
U.S. crude for May delivery which expires on Friday, traded higher, settled up 10 cents at $102.93 a barrel, after rebounding from a low of $101.80 that threatened a dip below the 100-day moving average.
June Brent's premium against to June U.S. crude futures CL-LCO1=R dipped to just over $15 a barrel in post-settlement activity, down from near $18 a barrel on Friday, marking the biggest one-day drop since November.
The losses carried across the oil complex, with RBOB gasoline futures off more than 2 percent and heating oil futures off 1.7 percent. Additional support came from unseasonably warm weather in the U.S. Northeast, the world's biggest heating oil market, with heating demand forecast to average 55 percent below normal this week.
Market focus remained on Iran as traders awaited a breakthrough in the talks with the West over its nuclear program. Tensions sent Brent crude prices up to more than $128 a barrel this year ahead of European Union import ban on Iranian oil that come into effect on July 1.
Following talks over the weekend, negotiators from Iran and the six nations agreed to reconvene on May 23 in Baghdad. Iran's foreign minister said his country was ready to resolve all nuclear issues in the next round of talks if sanctions against Tehran were lifted.
The United States remained on guard and President Barack Obama said more sanctions would be imposed against the Islamic Republic if there was no breakthrough in nuclear talks with global powers in the coming months. (Additional reporting by Matthew Robinson and David Sheppard in New York; Claire Milhench in London; Editing by Marguerita Choy)