Oil slipped towards $72 today after Iran said a proposal by world powers to end a dispute over its nuclear programme had positive points, easing fears over potential supply disruption from the Middle East.
Traders also expect a rise in US gasoline stockpiles in data due today to provide a more comfortable supply cushion against any fuel shortages during peak summer demand in the world's top consumer.
US crude oil traded 26 cents down at $72.24 a barrel by 0232 GMT, after slipping 10 cents yesterday. London Brent lost 23 cents to trade at $70.58.
Iran assessed a package of incentives yesterday put together by world powers. Its chief negotiator said the proposals had some positive steps in them but also contained some ambiguities that should be removed.
Prices had rallied towards $74 on Monday after Iran's Supreme Leader Ayatollah Ali Khamenei said on Sunday oil flows from the Gulf would be endangered if Washington made a "wrong move." The dispute helped drive oil to a record $75.35 in April.
Iran said it would study the proposal in detail and afterwards have a round of talks and negotiations.
Details of the proposal have not been made public but Iranian officials said incentives included access to aircraft parts for its civilian fleet and the chance to purchase US agricultural technology.
Western diplomats have also suggested it might include offers of nuclear reactor technology, with an arms embargo among the possible penalties if Iran refuses to give up uranium enrichment.
US President George W. Bush said he was encouraged by Iran's initial response though remained cautious, while US Energy Secretary Sam Bodman said the world economy could handle any cutoff in Iranian oil exports "for a while".
Analysts said oil prices would be hostage to Iran headlines for the foreseeable future.