NEW YORK, Feb 2: US crude oil futures fell below $66 a barrel on Thursday as sanctions against Iran over its nuclear programme were not seen as imminent and as hefty US petroleum inventories continued to pressure the market.

At 1748 GMT, crude for March delivery traded 81 cents lower at $65.75 a barrel on the New York Mercantile Exchange.

NYMEX March heating oil was down 1.90 cents at $1.805 a gallon, while March gasoline fell 4.28 cents to $1.686 a gallon.

In London, March Brent crude was trading down $1.10 at $63.93 a barrel.

The UN nuclear watchdog chief said on Thursday the dispute with Iran was at “a critical phase” as his agency discussed reporting Tehran to the UN Security Council over fears it is seeking atomic bombs.

But US and European Union leaders said Security Council involvement did not mean an end to diplomacy or that Tehran would eventually face punitive sanctions.

“As tough as the talk is, this is a showdown that nobody wants — both sides are going to end up losers when it comes to oil,” said Phil Flynn, analyst at Alaron Trading in Chicago. “The market is hopeful that they’re going to try to find a way out of it.”

Flynn added that free-falling oil prices after Wednesday’s US petroleum inventory report seemed to have found a floor at $65 per barrel.

“We’re getting close to a range for the near term,” he said. “It is difficult to take it much below $65 with the uncertainty on Iran.”

US crude and gasoline stocks rose more than expected last week, according to government data released on Wednesday.

Distillate stocks posted a small draw, but heating oil stocks rose as unseasonably warm weather continued to sap demand.

Warm winter weather will continue through the next five days, with temperatures near or above average in the Northeast and the Midwest, according to forecaster Meteorlogix.

Meanwhile, in Iraq, insurgents blew up a crude oil pumping station feeding one of two export pipelines from northern fields to Turkey, an oil official said on Thursday.—Reuters