Updated from 10:49 a.m. EDT

Iran's refusal to halt its nuclear program might logically have been expected to lift crude futures, but oil fell below $70 Friday as a reduced hurricane forecast helped temper prices.

Despite pledges from the government in Tehran that it wouldn't suspend atomic research, Iran still had until midnight Thursday to meet a United Nations demand to stop enriching uranium. However, the deadline passed, and a report by the U.N.'s nuclear watchdog confirmed that the Islamic republic has stepped up nuclear-development activities.

"Exploitation of peaceful nuclear energy is our obvious right," said Iranian President Mahmoud Ahmadinejad Friday, the

Associated Press

reported. "We will never give up our legal right."

Light, sweet crude slipped $1.08 to close at $69.19 a barrel on Nymex. Gasoline and heating oil each lost 4 cents to $1.73 a gallon and $1.96 a gallon, respectively.

Although the U.N.'s deadline passed, sanctions won't be imposed on the world's fourth-largest oil producer until the European Union's foreign policy chief meets with Iran's nuclear negotiator next week. U.N. Security Council members are considering travel restrictions on Iranian officials and limited access to the world's financial markets.

"A strange mindset is descending on the energy markets, as participants cannot seem to decide which direction the next $10 on crude will take," said Edward Meir, an energy analyst with Man Financial in Darien, Conn. "The various crosscurrents evident within the energy markets are no doubt contributing to the whippy action of late."

Trading was muted because the Nymex closed at 1 p.m. in advance of the Labor Day holiday. Trading will reopen on Tuesday.

Natural gas gave back 17 cents to $5.87 per million British thermal units amid cooler weather and robust supplies. The U.S. Energy Department reported on Thursday that domestic supplies were 11% higher than last year. Mild temperatures have lowered the need for air conditioning and boosted natural gas inventories, which are used by some utilities to generate electricity.

"Unless a storm appears on the horizon and makes a direct threat to production facilities in the

Gulf of Mexico there is little in the way of the weather to prevent the market from falling to new lows," said Guy Gleichmann, president of United Strategic Investors Group in Hollywood, Fla.

This week, natural gas futures have been declining after Tropical Storm Ernesto veered away from the Gulf Coast's oil installations and came onshore considerably on the Florida peninsula. Traders have been concerned a hurricane could steam through the Gulf and destroy recently restored oil platforms and pipelines. A year after hurricanes Katrina and Rita, 12% of the region's oil production is still offline.

The hurricane season this year has been noticeably quieter than last year, when there were 28 named storms and hurricanes.

For the second time in a month, forecasters at Colorado State University lowered their storm projections. They now expect five hurricanes this year, down from their previous estimate of seven. They estimate 13 tropical storms, down from 15.

Energy shares were following the rest of the market higher, boosted by job growth in August and a lower unemployment rate. Among drillers and refiners

Anadarko Petroleum

(APC) - Get Report

,

Sunoco

(SUN) - Get Report

and

Marathon Oil

(MRO) - Get Report

were leading the advances, up about 1%.

BP

(BP) - Get Report

was the only share in the 13-company Amex Oil index that was falling, down 0.2% to $67.90. Federal officials asked for more information Friday before agreeing to allow the company to return the Prudhoe Bay oil field in Alaska to full production. Transportation Department officials need more data from a pipeline inspection to make sure they're not in danger of another spill.

BP is looking at bypassing corroded pipelines and temporarily using others to return output at the country's largest oil field to 400,000 barrels per day. Right now, output is half that amount.

Shares of

Transocean

(RIG) - Get Report

were up 5.5%, to $70.45 after the rig contractor was awarded a five-year contract to build a drill ship for

Chevron

(CVX) - Get Report

worth up to $862 million. Late Thursday, a federal jury ordered

GlobalSantaFe

(GSF)

to pay $3.6 million in damages for using Transocean's patented drilling technology.

Devon Energy

(DVN) - Get Report

shares were rising 2.8% to $64.26 after investment bank Morgan Stanley increased its rating on the oil driller from equal-weight to overweight, citing the discovery of oil at a deepwater well in the Gulf of Mexico and increased exploration in Texas' Barnett Shale. The new price target for the shares is $73.