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By Bloomberg

Oil fell for a second day as Iranian and Western diplomats worked toward a nuclear deal that may lead to the Islamic Republic boosting crude exports, exacerbating a global supply glut.

Futures dropped as much as 1.9 percent in New York. Diplomats scheduled to meet Monday morning in Switzerland remained divided over the pace of easing sanctions on Iran and the limits to be imposed on its nuclear program. The OPEC producer has been stockpiling oil, which Barclays Plc and Societe Generale SA predict would be the first to be sold abroad if an agreement is reached.

The potential for Iran to increase shipments has bolstered speculation that the global surplus will worsen after the Organization of Petroleum Exporting Countries resisted calls to cut supply. Iran, the group’s fifth-largest producer, could raise exports by 1 million barrels a day if sanctions were lifted, Oil Minister Bijan Namdar Zanganeh said March 16.

“The deadline for an agreement on framework with Iran looms as a market event,” Ric Spooner, a chief strategist at CMC Markets in Sydney, said by phone. “If the parties are successful in moving things to the next stage, that just increases the probability of Iranian supply coming back onto the market, although there’s a very long way to go there.”

West Texas Intermediate for May delivery declined as much as 92 cents to $47.95 a barrel in electronic trading on the New York Mercantile Exchange and was at $48.12 at 12:46 p.m. Singapore time. The contract lost $2.56 to $48.87 on Friday, the biggest slump since Feb. 26. The volume of all futures traded was about 12 percent below the 100-day average. Prices are down 9.7 percent this year.

Iranian Exports

Brent for May settlement slid as much as 84 cents, or 1.5 percent, to $55.57 a barrel on the London-based ICE Futures Europe exchange. It decreased $2.78 to $56.41 on Friday. The European benchmark crude traded at a premium of $7.88 to WTI.

Iran’s oil exports have been constrained to about 1 million barrels a day following sanctions imposed in mid-2012. Daily sales rose to about 1.2 million in February, from 780,000 barrels in January, the International Energy Agency said in its monthly report on March 13.

The “other side must make serious decisions,” Iran’s Deputy Foreign Minister Abbas Araghchi told reporters on Sunday in the Beau Rivage Palace Hotel in Lausanne. U.K. Foreign Minister Philip Hammond said to another group outside the hotel entrance that “Iran has to take a deep breath and take tough decisions.”

Global Glut

Iran may be hoarding 7 million to as much as 35 million barrels of oil, shipbrokers and government officials estimated. Thirteen supertankers operated by National Iranian Tanker Corp. were anchored offshore of Bandar Abbas, Assaluyeh or Kharg Island from March 15 to March 18, according to data compiled by Bloomberg.

OPEC, which pumps about 40 percent of the world’s oil, agreed in November to maintain its output quota at 30 million barrels a day to defend market share. The 12-member group produced 30.6 million a day in February, exceeding that target for a ninth straight month, data compiled by Bloomberg show.

Crude stockpiles in the U.S., the world’s largest oil consumer, climbed to 466.7 million through March 20, according to data from the Energy Information Administration. That’s the highest level in weekly records from the Energy Department’s statistical arm dating back to August 1982. Production expanded to 9.42 million a day, the fastest pace since at least January 1983.

Oil capped a second weekly gain on March 27 after Saudi Arabia and its allies bombed rebel targets in Yemen, elevating the risk of a supply disruption in the Middle East.

“The market is beginning to think the situation is fairly contained and unlikely to go beyond the borders of Yemen,” Spooner said. “In any event, there’s an unusually large surplus buffer in place.”