Oil Prices Slip Below $69 on Iran Letter

Crude-oil prices dropped below $69 a barrel Monday on rising U.S. gasoline supplies and a letter from Iran's leader to President Bush proposing "new solutions" to escalating tensions.

Click here to visit FOXBusiness.com's Energy page.

The possibility of diplomacy allayed some of the market's fear that Iran, the Organization of Petroleum Exporting Countries' No. 2 producer, could cut supplies because of international pressure to modify its nuclear program. That fear has helped boost the price of oil to record levels in recent weeks.

"At least there's a sign that maybe there's some hope for some discussion, a way to avoid a showdown with Iran," said Phil Flynn, analyst at Alaron Trading Corp.

Oil futures have been on a sharp down-swing since last week, when the U.S. government showed an increase in U.S. refining and gasoline supplies. Still, concerns about Iran, unrest in Nigeria, violence in Iraq and rising resource nationalism in South America underpin oil prices.

Light, sweet crude for June delivery lost $1.49 to $68.70 a barrel in late morning trading Monday on the New York Mercantile Exchange. The contract had lost about $4 last week.

Ed Silliere, vice president of risk management at Energy Merchant LLC in New York, said he expects the pullback in oil futures to lower pump prices, driving them down to about $2.60 to $2.70 in the coming weeks.

The average U.S. price of a gallon of unleaded regular gasoline was $2.902 on Monday, down half a cent from a day earlier, according to AAA's daily fuel gauge report.

"It's good news for Average Joe this week," Flynn said. "Refiners seemed to be getting things turned around last week ... In the near term, prices are going down."

June Brent crude futures on London's ICE Futures shed $1.28 to $69.67 a barrel.

Gasoline futures fell nearly 5 cents to $1.992 a gallon, while heating oil prices slipped more than 2 cents to $1.929 a gallon. Natural gas prices lost 16.5 cents to $6.61 per 1,000 cubic feet.

Iran's president Mahmoud Ahmadinejad wrote to Bush proposing "new solutions" to their differences, in the first letter from an Iranian head of state to an American president in 27 years, a government spokesman said Monday.

Spokesman Gholam-Hossein Elham, asked whether the letter could lead to direct U.S.-Iranian negotiations, he replied: "For the time being, it's just a letter."

He did not mention the nuclear dispute, in which the United States is leading Western efforts to pass a U.N. Security Council motion censuring Iran for refusing to stop enriching uranium.

On Sunday, Iran renewed its threat to withdraw from the Nuclear Nonproliferation Treaty, with its president saying sanctions would be "meaningless" and its parliament seeking an end to unannounced inspections of its nuclear facilities.

The U.S. ambassador to the United Nations, John Bolton, said he believed the resolution would move to a vote this week, with or without support from Moscow and Beijing.

Venezuela's oil minister added to potential concerns about oil supplies, saying Monday that OPEC is not likely to decide on a production increase at its June 1 meeting in Venezuela because the group has little additional capacity it can summon.

"There is not much OPEC can do," said Oil Minister Rafael Ramirez in a television interview in Caracas.

Other concerns affecting the market include some 500,000 barrels per day of Nigerian production, most of it operated by Royal Dutch Shell PLC, that remains off-line because of violence there, and more than 300,000 barrels per day still shut down in the Gulf of Mexico since Hurricane Katrina battered offshore platforms in August.

Prices have fallen more than $6 from their intraday peak of $75.35 reached April 21 on the Nymex, but remain roughly 40 percent higher than a year ago.

Click here to visit FOXBusiness.com's Energy page.