LONDON, Oct 14 (Reuters) - Global oil prices fell towards $110 per barrel on Monday on expectations that Iranian nuclear talks will ease tensions, while a looming deadline to head off a U.S. default stoked worries about the outlook for demand.
Brent futures fell by a dollar to $110.28 before paring some losses to trade down about 83 cents at $110.45 at 1039 GMT. U.S. oil pared early gains and was down 75 cents at $101.27 a barrel.
"Oil is falling on the possibility of talks with Iran bearing fruit. That possibility is the main factor. The U.S. budget deadlock is also weighing," said Christopher Bellew, an oil trader at Jefferies Bache.
Talks about Iran's nuclear programme are due to start in Geneva on Tuesday and will be the first since the election of Iranian President Hassan Rouhani, who has tried to improve ties with the West to pave the way for an end to sanctions.
Iran's nuclear negotiator voiced hope on Monday that his country and world powers could agree on a road map to resolve a standoff that has helped support oil prices for nearly a decade.
Years of sanctions have cut Iranian oil exports by more than 1 million barrels per day (bpd).
Bellew said declines in Brent would be limited, however, by expectations that any easing in sanctions will not come quickly.
Citi analysts said in a note to clients that hopes for the Iranian talks were probably running too high.
"There are several large obstacles that need to be confronted before a significant lifting of sanctions could be at hand. These obstacles are both regional and domestic," they said.
The spread between Brent and WTI has widened in the past two weeks as the U.S. budget crisis has weighed more heavily on its domestic contract than on Brent.
Weekend talks to avert a U.S. government debt default showed signs of progress on Sunday, but there were still no guarantees that a government shutdown was about to end.
The prospect of a debt default in one of the world's largest oil consumers has had an adverse effect on the demand outlook, though a weaker dollar has offered some support for oil by making the dollar-denominated commodity cheaper for importers.
"Markets are hamstrung by what's going on in the U.S. If they go over the deadline, that will make people really nervous," Michael Hewson, an analyst at CMC Markets in London, said.
CHINA EXPORTS
An unexpected decline in Chinese exports in September also weighed on oil prices. Exports fell an annual 0.3 percent in September versus market forecasts for a rise of 6 percent, reflecting weak global demand and going against a recent slew of data that pointed to a stabilising Chinese economy.
Nevertheless, data over the weekend showed China's crude oil imports rebounded in September to a record high of 6.25 million bpd, up 28 percent on the year and topping the previous record of 6.15 million bpd in July.
"While the rebound was in part due to restocking and pre-holiday front-loading, underlying demand will likely remain healthy in the fourth quarter on year-end manufacturing activity," Sijin Cheng, commodity analyst at Barclays in Singapore, said in a note.
Chinese GDP data will be released on Friday. (Additional reporting By Jacob Gronholt-Pedersen; editing by Keiron Henderson and Jane Baird)
