Benchmark crude prices dipped below US$65 Tuesday as tensions in the Britain-Iran standoff eased.
Prices had risen steadily since 15 British sailors and marines were detained March 23 by Iran for allegedly entering Iranian waters. On Monday, crude fell below US$66 a barrel after Iran's chief international negotiator called for an end to "the language of force" in the dispute.
Light, sweet crude for May delivery fell 97 cents to US$64.97 a barrel in electronic trading on the New York Mercantile Exchange by afternoon in Europe. Two weeks ago, the contract was trading under US$60 a barrel.
On London's ICE Futures exchange, Brent crude for May sank 87 cents to US$67.91 a barrel.
"The market seemed to believe statements by Iran's secretary of the Supreme National Security Council, Ali Larijani, could ease tensions between the Islamic Republic and the U.K.," said Vienna's PVM oil Associates.
Still, Victor Shum, of Purvin & Gerz in Singapore warned of potential market volatility.
"There's no clear indication one way or the other how it's going to be resolved," Shum said. "There could be price swings in either direction depending on how this situation develops."
The fear that Iran could disrupt the oil trade is causing traders to add a risk premium, especially as they see less of a cushion after the Organization of Petroleum Exporting Countries' production cuts.
Iran is located along the Strait of Hormuz, through which tankers ship about 17 million barrels of crude oil a day, according to the U.S. Energy Information Administration. That accounts for two-fifths of the world's crude oil traded by tanker, and about one-fifth of total oil production.
Nigeria is another geopolitical concern, as two foreign workers - said to be Lebanese - were kidnapped Monday in Nigeria's southern oil-producing region. This followed the weekend abduction of a British oil worker.
Nearly 70 foreigners have been taken since the beginning of the year in Nigeria's oil-rich but impoverished Niger River delta region. Most are released unharmed after a cash payment. A Dutch construction worker and two Chinese also remain in captivity.
Africa's largest oil producer holds elections next month, which could bring about more political turbulence.
In other Nymex trading, heating oil futures for May delivery fell 2.64 cents to US $1.8361 a gallon (3.8 liters), and natural gas prices dropped 11.7 cents to US$7.625 per 1,000 cubic feet.
The discovery of the submarine has unveiled a few "inconsistencies." For example, how can one explain the fact that the sub was found where it needed to be searched for from the start?