Oil dropped well over US$1 on Wednesday after Washington said it would talk to major Opec producer Iran and forge a "new and positive" relationship -- provided it stopped uranium enrichment.
A long-running dispute between the West and Iran over Tehran's nuclear programme has stoked prices beyond US$70 as investors
fear potential disruptions from the world's fourth biggest oil exporter.
"If the US were to get involved in even indirect dialogue it would result in a significant decrease in tensions," said Nauman Barakat of investment bank Macquarie in New York.
US crude fell US$1.48 to US$70.55 a barrel by 1447 GMT, while Brent crude dropped US$1.40 to US$69.65.
But some analysts say the downturn may be short-lived.
"Today's price action aside, there has been constructive news from the two key demand countries, the United States and China," said Michael Wittner of investment bank Calyon.
With oil's four-year rally still intact, a pledge by Opec countries to keep pumping flat out rang hollow with investors who fear a vicious US hurricane season could damage refineries and create another petrol supply crisis.
Opec ministers meet in Caracas on Thursday. "The Opec meeting is a non-event. The market has priced in no change," said Wittner.
"But the official start of hurricane season is June 1 and that's on the back of the minds of market participants." Noted US storm forecaster William Gray said there could be five "major" hurricanes with sustained winds over 110 miles per hour (177 km per hour) during the Atlantic hurricane season.
Opec ministers admit the 11-member group that controls a third of world production has been left powerless by a global shortfall in refining capacity and geopolitics.
"Opec is becoming an audience," said Qatari Oil Minister Abdullah al-Attiyah.
But Iran, the group's second biggest producer, has become a major player in world politics as it pursues a nuclear programme the West fears may allow it to build an atomic bomb.
In a policy shift towards a long-time enemy, US Secretary of State Condoleeza Rice said on Wednesday the United States would join three European Union powers in negotiating with Iran if Tehran suspended its nuclear enrichment.
Washington's move came as senior officials from major powers and Germany prepared to meet in Vienna on Thursday to approve incentives for Iran to not to pursue nuclear technology with arms potential.
Iran says its nuclear programme is purely for producing energy.
Dealers' attention will shift on Thursday to supply data from the world's top consumer, with US petrol stockpiles expected to have risen by 1.4 million barrels last week, a fifth consecutive build, a preliminary Reuters poll showed.
The data will be released a day later than usual due to Monday's holiday, which marked the start of the US summer driving season, when petrol demand peaks.
- REUTERS
Oil dropped well over US$1 on Wednesday after Washington said it would talk to major Opec producer Iran and forge a "new and positive" relationship -- provided it stopped uranium enrichment.
A long-running dispute between the West and Iran over Tehran's nuclear programme has stoked prices beyond US$70 as investors
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