U.S. crude oil futures fell sharply in electronic trading Thursday as news that U.S. forces killed al Qaeda's Iraq leader raised hopes for an improvement in security in the country.
Crude for July delivery was down $1.03 at $69.79 per barrel on the New York Mercantile Exchange.
In London, July Brent crude fell 82 cents to $68.37 a barrel.
NYMEX July gasoline was down 4.15 cents at $2.0825 per gallon, with July RBOB bid at $2.2367.
July heating oil was down 2.42 cents at $1.9712 a gallon.
Abu Musab al-Zarqawi's death in an American air strike raised hopes that sabotage against the oil industry would diminish, leading to more production and exports.
Meanwhile in Iran, President Mahmoud Ahmadinejad said on Thursday threats would not work in any talks to solve a dispute over the country's nuclear program, but said Iran was ready to clear up misunderstandings with the world.
Some analysts said his speech reflected a greater readiness in Tehran to hold talks over the country's atomic ambitions.
"This row is not going to end any time soon, but the comments ... indicate an apparent softening of Tehran's position," said Addison Armstrong, manager of exchange traded markets at TFS Energy.
Signs of slowing demand growth coupled with hefty stockpiles in the United States also pressured prices. Amid inflation worries, former Federal Reserve Chairman Alan Greenspan said high oil prices were starting to have an impact on the U.S. economy.
Prices fell sharply on Wednesday after the U.S. Energy Information Administration said domestic crude stocks rose by 1.1 million barrels to 346.6 million barrels last week, putting inventories 14.1 million barrels higher than a year ago.
Gasoline stocks rose by 1 million barrels to 210.3 million barrels even as production and imports declined. Implied demand slipped to 9.37 million bpd.
Distillate stocks rose by 1.8 million barrels to 120.7 million barrels.