05/22/2012 08:30 EDT | Updated 07/22/2012 05:12 EDT

Potential recession in Europe, easing tensions over Iran push price of oil near low for 2012

NEW YORK, N.Y. - Oil prices dropped near their lows for the year Tuesday following warnings of a "severe recession" in Europe and an apparent easing of tensions over Iran's nuclear program.

Benchmark West Texas Intermediate crude lost 91 cents to end the day at US$91.66 a barrel in New York, while Brent crude fell by 40 cents to end at US$108.41 a barrel in London.

Both contracts hit a low for 2012 on Friday at US$91.48 and US$107.14, respectively.

Oil has declined almost every day this month as elections in Greece and France threatened existing plans to fix the eurozone economy.

A top economist for the Organization for Economic Co-operation and Development warned Tuesday that the eurozone could fall into recession this year if leaders fail to stimulate the economy. If that happens, it would stunt growth in world oil demand at a time when supplies are expanding.

Saudi Arabia, Iraq and Libya are producing and exporting more oil this year. And analysts say Iran's oil exports could keep flowing if it lets international inspectors into its nuclear facilities as part of a new deal announced Tuesday.

Western leaders fear Iran is building a nuclear weapon. They've been trying to cut off Iran's oil exports this year to pressure the country to allow in nuclear inspectors. Many countries have already stopped buying Iranian crude and Europe is expected to embargo all oil imports from Iran in July.

Iran says its nuclear program is for peaceful purposes only, but it so far has barred independent inspectors. If it allows them in, Europe may reward Iran by cancelling the embargo, said Michael Lynch, president of Strategic Energy & Economic Research.

"If they don't end it, it could be significantly delayed," Lynch said.

Fears of a protracted standoff with Iran had helped push benchmark crude near US$110 a barrel in February. Prices have since fallen below levels of early November, when the United Nations first warned of a potential nuclear threat from Iran.

Uninterrupted Iranian exports could boost world oil supplies to an average of 89.15 million barrels a day, according to the latest projections from the Energy Information Administration. That would be more than enough to meet world demand.

In other futures trading, natural gas added 9.8 cents, up four per cent, to finish at US$2.707 per 1,000 cubic feet. Natural gas prices have jumped by 42 per cent since hitting a 10-year low on April 19 as supplies declined. Weather forecasters also predicted a toasty Memorial Day weekend across much of the U.S., which implies that people will crank up their air conditioners and power plants will burn more natural gas for electricity.

Heating oil and wholesale gasoline were both flat, ending the day at US$2.8614 and US$2.937 a U.S. gallon (3.79 litres), respectively.