Updated from 11:04 a.m. EDT
Oil fell Friday as traders fretted over inflation and the prospect of lower energy demand. A break in the impasse with Iran over its nuclear ambitions was also driving down prices.
Light, sweet crude for July delivery was last off 40 cents at $69.10 a barrel, reversing a two-day increase in commodity futures.
Energy shares were following crude lower, with oil and natural gas drillers and service companies down 1% to 2%.
, the biggest publicly traded oil company, fell 47 cents, or 0.8%, to $58.65.
On Friday, Iran's president, Mahmoud Ahmadinejad, called a package of incentives designed to entice his country to end its nuclear enrichment program "a step forward," and said he would respond to the western proposal in "due time," the
"Generally speaking, we're regarding this offer as a step forward and I have instructed my colleagues to carefully consider it," Ahmadinejad told reporters Friday, the
There have been conflicting signals from Iranian officials this week regarding the package, with some officials refusing to halt uranium enrichment and shrugging off the threat of economic sanctions, while others have welcomed the deal with some reservations.
Should Iran reject the plan, it sets the stage for the U.N. to pursue economic sanctions against the country. The possibility American-led military strikes against Iranian nuclear sites have also been floated.
Mixed messages from the
have also contributed to the recent selloff in crude futures. On Friday, William Poole, the president of St. Louis Fed, said that high energy prices may have yet to seep into current economic data and that the country may "face more inflation pressure than currently shows up in formal data."
Already, surging energy prices have boosted domestic consumer and producer prices in government reports released this week. The Federal Reserve has raised interest rates 16 times in a bid to rein in inflation without harming the economy. Rates now stand at 5% and may be raised another quarter percentage point when bank officials meet later this month.
But on Thursday, Federal Reserve Chairman Ben Bernanke soothed traders who are worried that soaring energy prices have boosted inflation and slowed the economy. He did caution, however, that the economy could slow if oil prices remain high.
Traders are focused so much on the Federal Reserve's intentions because further rate hikes would mean slower economic growth and lower demand for oil.
Oil prices have skyrocketed 14% this year on global supply problems and the specter of more to come. There are razor-thin margins of inventories and only 2 million barrels to cover any short-term spikes in demand.
Lower production from the Gulf of Mexico, a standoff with Iran and rebel attacks on oil installations in Nigeria and Iraq have boosted energy prices. In April, oil hit $75 a barrel on concerns that an escalating standoff with Iran would slash world crude inventories.
Despite the geopolitical problems, domestic supplies of crude remain high. There is over 4% more oil and nearly 9% more distillates in storage than last year. Gasoline inventories, while 1% below last year, have risen in the past seven weeks straight as refiners increased production and imports soared.
The decline in crude and robust supplies were helping drive down prices of heating oil by 1 cent to $1.91 a gallon and gasoline by 4 cents to $1.99 a gallon. Natural gas was declining 13 cents to $7.07 per million British thermal units.
Meanwhile, in trading Friday, the Amex Oil Index and the Philadelphia Oil Service Index were losing 2%.
were leading declines among drillers and refiners on the Amex Oil Index.
Oil service companies
Global Santa Fe
National Oilwell Varco
were posting the largest drops on the Philadelphia Oil Service Index, down over 2% each.