Oil fell below $70 a barrel after US aircraft killed al-Qaeda's Iraq leader and raised faint hopes for a let-up in attacks on Iraq's wrecked oil industry.
US oil was $1.02 down at $69.80 at 12.37pm (Irish time), its lowest for two weeks. London Brent crude was down 85 cents at $68.34.
Analysts cautioned against reading too much into the killing of Abu Musab al-Zarqawi, who masterminded the death of hundreds in suicide bombings. He claimed responsibility for a foiled suicide boat attack on Iraq's vital Basra oil terminal in April 2004.
Al-Qaeda in Iraq vowed today to fight on.
Opec member Iran's willingness to talk with opponents of its nuclear programme to "solve misunderstandings" was another factor pushing oil away from its $75.35 a barrel record high, market participants said.
Former Federal Reserve chairman Alan Greenspan said high oil prices were starting to have an impact on the US economy.
US oil stocks data showed crude inventories unexpectedly rose last week while gasoline consumption eased.
Traders remain on edge over supply disruptions in Nigeria, the world's eight-largest exporter, after militants attacked a Shell-operated facility in the Niger Delta, killing soldiers and kidnapping five South Korean contractors. A militant group said the South Koreans will be released later today.