Oil: Price falls under US$70 mark

Oil fell almost a dollar to US$69 a barrel on Monday after major oil exporter Iran said there was a positive atmosphere in the dispute over its atomic work, easing concern about threats to oil supply.

Iranian Foreign Minister Manouchehr Mottaki on Sunday said a "positive atmosphere" may help bridge the gap, but did not say when Tehran would respond to the Security Council plus Germany.

"The comments are more conciliatory and I think that's prompting selling," said Deborah White of Societe Generale. "The direction is down for now."

US light, sweet crude fell 93 cents to US$68.95 a barrel at 1755 GMT, snapping a three-day rising streak. London Brent crude dropped US$1.05 to US$67.75.

Last Wednesday, oil slumped to a more than three-week low of US$68.10 amid a commodities and equities sell-off sparked by inflation concerns, but later rallied with other markets.

Opec said on Monday near-record US$70 a barrel oil was already curbing oil demand and the full effects of higher interest rates would be felt next year.

In a monthly report, the producer group kept its forecast for world oil demand growth at 1.4 million barrels per day, with much of the rise in China and the Middle East.

But it cautioned: "Signs indicate an easing in oil demand, partly due to the high oil prices."

Traders will be focused on Iran as they await reactions to a package of incentives meant to end the row over the world's fourth largest oil exporter's atomic agenda.

"With the Iran issue hanging around, you can't really take too negative a view of (the market)," said David Thurtell of the Commonwealth Bank of Australia.

"I think oil could drop US$6 to US$7 if Iran gives up its nuclear processing ambitions and I think it will. It's just trying to extract some incentives," Thurtell added.

President George W. Bush said on Monday Iran faces the prospect of UN Security Council action and progressively stronger sanctions if it rejects the offer.

Iran's Mottaki said "the positive atmosphere that has been created ... could create the best opportunity to pave the way to reaching an understanding." Iranian President Mahmoud Ahmadinejad on Friday said the package was "a step forward," but also said Iran would not be concerned by possible sanctions if it rejected the June 6 offer.

The West believes Iran's uranium enrichment could be used to make nuclear weapons. Tehran says it is purely for power generation and civilian use.

Oil now sits in the low end of the US$68-US$73 range in which it has traded since early May, pressured by worries about slowing growth and supported by real and threatened supply disruptions.

Crude in New York has surged from less than US$20 at the start of 2002 and hit a record high of US$75.35 in April.

- REUTERS