Already reeling from excess supply, crude oil prices may fall further if sanctions on Iran are eased, since supplies from Iran would double the surplus, currently estimated at 1.2 million barrels a day.
Oil prices, which rallied last week following Saudi Arabia's military attacks in neighbouring Yemen to suppress the Houthi rebels, gave up all the gains on Monday as talks progressed on Iran's nuclear programme.
Traders had believed that the escalation of geo-political tensions in the Middle East would lift prices up. However, oil prices extended their losses to hit $56 per barrel on Monday.
Discussions are underway between officials from Iran and six world powers to curb Tehran's nuclear programme and both the parties will have to reach an agreement by next Tuesday. If there is a deal, sanctions on Iran will be lifted and the country will be allowed to export oil.
"Iran is very important in terms of market balances because they can add in another million barrels. However, just to give you numbers again the current oil markets surplus about demand and supplies already 1.2 million barrels a day. So when Iran is also allowed to come back in to the market once the sanctions are removed that would double the market surplus," said Miswin Mahesh, energy analyst, Barclays, to CNBC-TV18.
Saudi Arabia, the world's largest oil exporter, has recently rejected the idea of cutting oil production to shore up prices, even as some members of Organization of the Petroleum Exporting Countries (OPEC) lobbied for cutback in supply.
"We think Brent could easily fall into the $40-50 per barrel range again in terms of barrel per dollar and obviously with the WTI discount I would mean WTI in the late 30's early 40's that is the levels that we see as a point where you need that price at least for some of the low cost producers to actually make a good sizable return," Mahesh added.