Oil fell nearly 3 percent Monday as Tropical Storm Ernesto was expected to miss U.S oil installations in the Gulf of Mexico, almost a year after they were pounded by Hurricane Katrina.

Ernesto, which had become the year's first hurricane, weakened into a tropical storm Sunday and was expected to hit southern Florida instead of key oil and gas platforms in the Gulf.

"The storm for now looks like it's going to have no impact on oil," said Olivier Jakob of Petromatrix in Zug, Switzerland. "It started to be discounted Friday and now there is a continuation of that."

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U.S. crude settled down $1.90 to $70.61 a barrel after Friday paring much of the day's gain to rise 15 cents. London Brent crude slipped $1.88 to $70.82. U.S. gasoline futures fell 11.20 cents to $1.7831 a gallon.

"The threat to oil is now fading quickly," said Tobin Gorey of the Commonwealth Bank of Australia.

As a precaution, BP (BP), Shell and ConocoPhillips (COP) said they pulled hundreds of nonessential workers from rigs in the Gulf, home to a quarter of U.S. oil production, but production was not significantly affected.

Ernesto pelted southeastern Cuba with heavy rain but diminished winds Monday. It could become a hurricane again over the Florida Straits, the National Hurricane Center said.

Hurricane Katrina roared into the Gulf of Mexico a year ago, toppling offshore rigs, destroying pipelines and flooding coastal refineries.

As of the middle of this year, about 12 percent of the Gulf of Mexico's 1.5 million barrels per day of crude oil production remained offline because of the record 2005 storm season.

IRAN DEFIANCE ADDS SUPPORT

Oil drew support from the dispute over Iran's nuclear work that might prompt sanctions against the world's fourth-largest oil exporter.

Iran said Sunday it would never stop uranium enrichment despite a looming U.N. deadline designed to ensure it cannot develop nuclear weapons.

Also Sunday, Iran test-fired a long-range missile from a submarine during war games in the Gulf. Analysts have viewed such moves in the past as a signal that Iran might disrupt oil shipping if the atomic dispute escalated.

The United States has threatened swift action on sanctions after Aug. 31 if Iran does not heed the U.N. demand. But analysts say divisions between major powers may delay any punitive measures.

U.S. crude is up 15 percent this year on fears over Iran's supplies and reduced Nigerian output. It has fallen from a record high of $78.40, hit in July, after a cease-fire between Israel and Hezbollah in Lebanon.

At least 508,000 barrels per day, or about a sixth of Nigeria's production capacity, has been shut down by militant attacks and pipeline leaks this year.

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