Updated from 12:09 p.m. EDT

Oil futures fell for a second day Wednesday, pushed lower by Iran's positive comments over an incentives package that the U.S. hopes will end the country's nuclear program. A report on U.S. fuel inventories was also moderately bearish.

Light, sweet crude dipped $1.68 to settle at $70.82 a barrel, pulling down the rest of the energy sector. Shares of oil service exploration and service companies were dropping from 3% to 4%.

On Tuesday, oil futures closed down 10 cents at $72.50 after Iran's top nuclear negotiator said the proposal included some "positive steps."

While the contents of the package were not released publicly, the

New York Times

reported they include the waiving of trade sanctions and the purchase of aircraft parts from

Boeing

(BA) - Get Report

. Iran has been unable to buy new parts for its aging civilian airline fleet since the U.S. imposed trade sanctions on the country following the 1979 revolution.

Russian Foreign Minister Sergei Lavrov told

Ria Novosti

, a Russian state news agency, that the offer also called for Iran to stop enriching uranium while the two sides hammered out a solution. At the same time, the U.N. Security Council would temporarily drop discussion of potential penalties against the country.

Iran has a few weeks to respond to the proposal, and Iranian negotiators have suggested another round of talks to hammer out the details. U.S. President Bush said the Iranian response to the package sounds "like a positive response to me," and offered again to negotiate directly with them.

The energy markets have been fixated on the impasse with Iran over its nuclear ambitions, because, as the world's fourth-largest crude producer, it can retaliate with cuts in global supplies. Iran also controls the Strait of Hormuz, a waterway through which 17 million barrels of crude, or 20% of the world's supply, travels every day.

Oil prices have risen 16% this year on the back of the Iranian crisis, production losses in Nigeria, where rebels have blown up oil installations to gain a share of the country's oil wealth, insurgent attacks in Iraq and lost output in the Gulf of Mexico from two hurricanes last year.

The world consumes around 85 million barrels of crude per day, and there is only 2 million barrels of spare capacity. That means any supply problems quickly force oil prices up.

Thus far, the U.S. economy has been able to absorb the costs of lofty oil prices, but recent data shows that they are finally have "some impact," former

Federal Reserve

Chairman Alan Greenspan said on Wednesday. He laid the blame for skyrocketing energy costs at the feet of market speculators, refiners and oil-producing countries.

"The balance of world oil supply and demand has become so precarious that even small acts of sabotage or local insurrection have a significant impact on oil prices," said Greenspan in comments before the Senate Foreign Relations Committee.

At its meeting last week in Caracas, the Organization of the Petroleum Exporting Countries kept daily output quotas the same at 28 million barrels to help bring down prices and ease global supplies. The group, which pumps 40% of the world's crude, is not comfortable with oil prices above $70 a barrel.

"OPEC has been doing its very best to ease the situation and will continue to do so," said Edmund Daukoro, president of OPEC and Nigeria's oil minister, at an E.U. meeting in Brussels on Wednesday.

Worries over inventories have consumed traders and made the weekly stockpile update from the U.S. Energy Department all the more important. The markets have been particularly focused on gasoline stockpiles this year as refiners grappled with a May 5 deadline to add ethanol to their stockpiles and switched over to summer blends.

For the sixth week in a row, inventories of gasoline rose in the Energy Department's weekly report, released Wednesday. They were up 1 million barrels to 210.3 million barrels, allaying fears of a shortage during the peak summer driving season. The decline was less than the projected 1.5-million-barrel drop analysts surveyed by

Bloomberg

had expected. Stockpiles now stand 2.4% below last year.

Although lower supplies have helped prop up gasoline prices 28% this year, demand rose 0.7% over the past four weeks. Traders were focusing on this week's inventory report to see if high gasoline prices would crimp demand during the Memorial Day weekend, which marks the beginning of the summer driving season.

Distillates increased by 1.8 million barrels to 120.7 million barrels as production picked up at refineries. Stockpiles are almost 9% above last year.

Higher production didn't result in lower stockpiles of crude, which analysts had been expecting. Instead, supplies rose by 1.1 million barrels to 346.6 million barrels. Traders had expected to see crude supplies to fall by 600,000 barrels as refiners increased production and made more gasoline and distillates.

Last week, refiners operated at 91% of their capacity, down from 91.4% the previous week.

Slumping crude prices hit the other fuels on the Nymex Wednesday. Heating oil closed down 1 cent at $1.99 a gallon, while gasoline shed 2 cents to $2.12 a gallon. Natural gas lost 4 cents, or 6%, to $5.97 per million British thermal units.

On the Amex Oil Index, down 2.7%,

Valero Energy

(VLO) - Get Report

,

Occidental Petroleum

(OXY) - Get Report

,

Marathon Oil

(MRO) - Get Report

and

Kerr-McGee

(KMG)

were leading the declines from

On the Philadelphia Oil Service Index,

Nabors Industries

(NBR) - Get Report

,

Noble

(NE) - Get Report

,

Weatherford International

(WFT) - Get Report

and

Tidewater

(TDW) - Get Report

were posting the largest declines of more than 5%.