U.S. oil futures edged higher, but Brent crude fell sharply after talks with Iran left the door open to a diplomatic solution to the standoff over Tehran's nuclear program.
Meanwhile, an updated timeline on the reversal of a key Midwestern oil pipeline also helped ease Brent prices and boost the U.S. benchmark, according to traders.
Light, sweet crude for May delivery settled 10 cents, or 0.1%, higher at $102.93 a barrel on the New York Mercantile Exchange. Brent crude, the European benchmark, settled $2.53, or 2.1%, lower at $118.68 a barrel.
Brent prices retreated after talks between global powers and Iran last weekend concluded with a decision to hold another round of discussions May 23 in Baghdad. No firm commitments emerged from Saturday's talks, which centered around Tehran's nuclear program. But analysts and traders said the decision to continue dialogue reduces the risk of war or of an imminent supply disruption.
"We see a little bit of a relief because the Iranian nuclear talks have been going smoothly," said Carl Larry, president of the trading advisory firm Oil Outlooks and Opinions.
Oil prices have risen sharply in recent months over tensions with Iran, which has been developing a nuclear program that Western countries worry is aimed at developing a nuclear weapon. Tehran says its program is for peaceful purposes.
Europe has historically had a high dependence on Iranian crude, and Brent crude has been more sensitive to headlines out of Iran.
"The negotiation process will continue for some time, extending through several rounds, minimizing the risk of disruption near term," said Lawrence Eagles, oil analyst at J.P. Morgan, in a research report.
With Brent and Nymex crudes moving in opposite directions, the gap between the two benchmarks narrowed to its lowest level since February. The move was helped by news that the Seaway pipeline will begin its long-anticipated reversal in late May, earlier than expected.
Currently, Seaway brings oil from the Gulf of Mexico to the oil hub of Cushing, Okla., the delivery point for the Nymex contract. A glut of oil at Cushing has depressed the price of WTI versus Brent, sending the spread between the two benchmarks to nearly $21 a barrel earlier this month.
The reversal is expected to ease the glut and bring the two crudes closer to parity. Seaway, a joint venture between Enterprise Products Partners LP and Enbridge Inc., was previously expected to reverse starting June 1. Enterprise disclosed in a filing Friday that the pipe would reverse flow southward on or around May 17.
"Certainly an earlier shift in that pipeline would account for more selling in the Brent," said Tom Bentz, director at BNP Paribas Prime Brokerage.
Front-month May reformulated gasoline blendstock, or RBOB, settled 7.91 cents, or 2.4%, lower at $3.2670 a gallon. May heating oil settled 5.80 cents, or 1.8%, lower at $3.1166 a gallon.