Oil dropped below $70 (€54.8) yesterday after US petrol stocks rose more than expected and weakness across commodities added momentum to the sell-off.

Adding to pressure, world powers said they had made progress on proposals to stop Opec member Iran from being able to build a nuclear bomb.

US crude dropped $1.90, or 2.7 per cent, to $69.86 a barrel, after rebounding 2.6 per cent on Tuesday.

London Brent fell $1.88 to $69.22 Some analysts saw the losses in oil as part of a wider correction in commodities, with gold down 5 per cent and copper off 7 per cent, and they said it would soon regain strength.

"The bull market for oil is not over because the factors that have caused it are still in place: tight spare capacity for refining and crude production," said Michael Wittner, head of energy market research at investment bank Calyon.

But in the immediate term, dealers were focused on swelling petrol inventories in the world's biggest energy consumer.

US petrol stocks rose by 2.1 million barrels last week against expectations for a 1.2 million barrel build.

US oil companies have cranked up output and imports ahead of the Memorial Day holiday on May 29th, the traditional launch of the US summer driving season.

World powers who met in London on Wednesday said they had made progress in deciding on ways to defuse tension with Iran over its nuclear programme - a factor that had helped oil climb to new peaks in April.

Recent losses have been driven by investors' growing belief that costly oil is taking a toll on demand growth, especially in the United States.

US crude was off its peak of $75.35 hit in April, but was still 17 per cent up on the start of the year.

More evidence of demand erosion may emerge after China, the world's second-biggest consumer, raised state-capped retail petrol and diesel prices, pushing them up 15 per cent so far this year. But even slower consumption growth could strain supply.

The US National Oceanic and Atmospheric Administration said there could be up to 10 hurricanes this year.

The US gulf has yet to recover from a lashing last year, with 20 per cent of crude and 13 per cent of natural gas production not yet recovered.

US energy secretary Sam Bodman said up to 10 per cent of that output might be lost forever.