“We’ve got a toxic brew for the crude-oil bulls,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. “There’s a lot of news out there and all of it is negative for the oil market.”

The U.S. and Iran hold the key to a nuclear accord between world powers and the Persian Gulf nation, China’s Foreign Minister Wang Yi said in Vienna, where talks on an agreement to return Iran to world markets continue.

“We are not yet where we need to be on several of the most difficult issues,” Kerry said Sunday. The negotiations may extend a day or two beyond Tuesday’s deadline, Iran’s Fars news agency reported, citing a senior diplomat.

Iran remains a long way off from selling more crude, according to Goldman Sachs Group Inc., Bank of America Corp. and Societe Generale SA. Its goal of boosting exports by 50 percent would require an extra 500,000 barrels a day of production, which the banks predicted will take six to 12 months as the nation revives aging oil wells.

The market may see additional supplies from floating storage if a nuclear deal is reached with Iran, Morgan Stanley analysts including Adam Longson said in an e-mailed report dated July 6.

“An agreement with Iran may be near,” Yawger said. “It will probably be November or December before a verification system is in place and 2016 before we see an uptick in oil output. It’s still going to put a lot of downward pressure on prices.”

David Fuller's view

Supply is the key variable with any commodity.  Oil prices had been firmer on optimism regarding somewhat stronger global GDP growth, including from Europe, and concern over smouldering wars in the Middle East.  Today’s sharp drop reflects a more cautious reassessment of economic growth, plus the eventual prospect of more oil from Iran. 

These daily charts for Brent and WTI Crude reflect some capitulation of selling in markets that had been gradually easing for two months.  A quick reversal of Monday’ drop would be required to offset scope for some further test of underlying support.

The negative consequences for the comparatively small number of oil exporters are considerable and quickly evident.  The benefits of cheaper crude oil are widely distributed and have a delayed positive impact on global GDP growth.  Nevertheless, cheaper energy costs are here to stay and very good news for long-term GDP growth potential.