The British government said Sunday it was in direct contact with Iran and examining options for new dialogue over the crew of 15 sailors and marines seized by Iran over a week ago, but the potential for escalation of the standoff remained.
"Nigeria coupled with the ongoing tensions in Iran have provided quite a bit of market-moving news on top of the relatively tight fundamentals," said Victor Shum an energy analyst with Purvin & Gertz in Singapore.
Light, sweet crude for May delivery fell 42 cents to US$65.45 a barrel in electronic trading on the New York Mercantile Exchange by noon in Europe.
The Brent crude contract for May added 46 cents to US$68.56 a barrel on the ICE Futures exchange in London. Vienna's PVM Oil Associates explained the spread between Brent and NYMEX crude in part by "lower U.S. refinery utilization."
Over the weekend, Iranian students pelted the British Embassy in Tehran with rocks and firecrackers and Iranian state television aired more alleged confessions by the seized British marines.
The protesters chanted, "Death to Britain" and "Death to America" as they hurled stones into the embassy's courtyard. Britain's Foreign Office said nobody was hurt and there was no damage to the compound.
In London, a handful of demonstrators protested outside the Iranian Embassy, waving placards reading, "Let them go, Iran."
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.
Still, "some market participants are betting that there won't be any real disruptions to crude oil supply," Shum said.
Prices also remained volatile on reports that gunmen kidnapped a British oil worker in southern Nigeria on Saturday. Nearly 70 foreigners have been taken since the beginning of the year; most are released unharmed after a cash payment. A Dutch construction worker and two Chinese remain in captivity.
The situation in Nigeria - Africa's largest oil producer - will remain in the back of minds of oil traders as the country holds elections next month, Shum said.
In other news affecting the market, workers in the southern port of Marseille agreed on Saturday to return to work after an 18-day strike. The strike left 60 tankers stranded outside the Fos-sur-Mer oil and gas terminal over a dispute as to who would be authorized to discharge gas tankers at an adjacent terminal to open next year - port employees or employees of gas giant Gaz de France.
"With the successful resolution of the dispute, the bulls got their horns capped for now," PVM noted.
In other Nymex trading, heating oil futures for May delivery lost 1.38 cents to sell for US$1.8631 a gallon (3.8 liters) while natural gas prices fell 2.4 cents to US$7.706 per 1,000 cubic feet.