Crude futures fell this morning after China announced an interest rate rise as it sought to cool its economic growth.
Light, sweet crude for June delivery declined 36 cents to $70.61 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 96 cents to settle at $70.97 yesterday.
Traders speculated that Chinese oil demand might slow after that nation's central bank said it will raise benchmark one-year lending rates to 5.85 per cent from 5.58 per cent, a move aimed at cooling the overheated economy. China is the world's second-largest oil consumer after the United States.
Also helping to cool prices slightly was the easing of worries about US gasoline supplies ahead of the peak summer-driving season.
Those worries abated somewhat after the US Energy Information Administration on Wednesday reported a sharp recovery in American refinery operations and President Bush directed the Environmental Protection Agency to grant fuel requirement waivers to states experiencing spot shortages amid a transition to a new blend of motor fuel.
Gasoline futures dropped 1.29 cents to $2.0590 a gallon, while heating oil declined 1.02 cents to $1.9755 a gallon. Natural gas lost nine cents to $6.715 per 1,000 cubic feet.
But strong global demand for crude, limited spare production capacity and geopolitical uncertainty look set to keep a high floor under oil prices, which are about 38 percent higher than a year ago.
The West's diplomatic standoff with Iran, Opec's second-largest oil producer, over its nuclear ambitions, remains the most serious geopolitical concern affecting oil prices.
Iran is facing a deadline today set by the United Nations to cease all activities linked to uranium enrichment due to concerns that Iran could use the material to make nuclear warheads.