Oil falls nearly $2 as Iran diplomacy gathers pace

LONDON (Reuters) - U.S. oil fell nearly $2 on Tuesday after Britain and Iran said they were willing to use diplomacy to end a row over 15 British sailors and marines seized in the Gulf on March 23.
"We're not looking for a confrontation over this and actually the most important thing is to get people back safe and sound. And if they want to resolve this in a diplomatic way the door is open," British Prime Minister Tony Blair told a radio station in Scotland.
Investors interpreted the comments as a favorable response to apparently conciliatory remarks by Iran, the world's fourth-biggest oil exporter, late on Monday.

Ali Larijani, the secretary of Iran's Supreme National Security Council, told Britain's Channel 4 News Iran wanted to resolve the matter through diplomacy and without a trial.
U.S. crude was down $1.83 at $64.11 a barrel by 1446 GMT. which determines the cost of Europe's imports and the selling price of millions of barrels of Middle Eastern and African crude, was down $1.56 at $67.18.
Brent, which is more sensitive to developments in the Middle East because of proximity, commanded a record $3.93 premium to U.S. oil on March 19, according to Reuters data.
"Something will eventually have to give in the current crisis, and when it does, we could be in store for a rather sharp move in either direction," said Edward Meir, an analyst at Man Financial Energy Group in London
Markets have been on edge for months because of a dispute between OPEC member Iran and the U.N. Security Council over Iran's nuclear program. The March 23 detention of the British service personnel propelled U.S. oil above $68 to its highest level in more than six months last week.
Analysts say it would be difficult to replace the roughly 2.5 million bpd of oil exported by Iran.
Iran also borders the strategically important Strait of Hormuz, the entrance to the Gulf from the Arabian Sea and conduit for two-fifths of globally traded oil.

Phil Flynn, an analyst at Alaron Trading, said the "risk premium" associated with Iran was eroding. Prices climbed $6 in the days after the British personnel were seized.
"People think the risk of oil supply from the Middle East being disrupted is diminishing," Flynn said.
U.S. refinery glitches and a drawdown in fuel stocks in the world's top oil consumer ahead of the northern hemisphere's peak summer driving season have also been supporting the market.
Analysts polled by Reuters forecast weekly government inventory data to be released on Wednesday will show declines of 800,000 barrels in gasoline stocks. Crude oil stocks were expected to have risen 1.6 million barrels for the week ending March 30Technical analysts, who study charts to determine price direction, put strong support for U.S. oil at $63.50 and resistance at $66.80