Crude oil futures tanked more than 4% Monday as traders unwound bullish positions in the wake of Iran's decision to release 15 detained British sailors and marines.

As a result, all of the gains made in the crude market since the crisis began on March 23 have been erased. Oil peaked slightly above $66 on March 29 before easing when Iran and the U.K. adopted a diplomatic posture in the standoff.

The May light sweet crude contract fell $2.77 to $61.51 a barrel in trading at the New York Mercantile Exchange. Reformulated gasoline slipped 4 cents to $2.09 a gallon, and heating oil was down 4 cents at $1.82 a gallon.

The near-term natural gas contract closed a penny lower at $7.55 per million British thermal units.

Energy traders appeared to shrug off an announcement from Iranian President Mahmoud Ahmadinejad that his country has begun to enrich uranium "on an industrial scale" with a system of 3,000 networked centrifuges. It was previously thought that Iran had fewer than 200 centrifuges.

With as many centrifuges as it claims to have, Iran could produce enough weapons-grade uranium to build a nuclear weapon within one year, according to analysts. Worries over Iran's nuclear ambitions have boosted energy prices in recent months.

The retraction of the May crude contract back below the $62 level suggests that traders are being complacent in thinking that U.N. sanctions against Iran over its advancing nuclear program won't invite supply disruptions, according to Tim Evans, an energy analyst at Citigroup Global Markets.

"The British hostage situation was basically a fire drill for the energy markets," Evans said. "There is definitely renewed potential for buying if new bullish geopolitical headlines develop."

Additionally, a widening of the gap between the May and June crude futures contracts suggests that technical trading was partly responsible for Monday's sharp selloff, Evans said. "Some large players were bailing out of the market ahead of the May contract's expiration next week," he said.

The fundamentals behind the crude oil market remain firmly bullish, according to Evans. "Crude inventories are 2.9% lower than the same period a year ago, and demand for oil products like gasoline remain strong."

Meanwhile, energy stocks were mixed. ConocoPhillips ( COP) climbed 0.7% to $68.42. Chevron ( CVX) shed 0.2% to $75.49. Exxon Mobil ( XOM) slipped 0.5% to $76.80.

Goldman Sachs raised its price targets for a large group of energy stocks before trading started at the New York Stock Exchange. It bumped up its target for Valero ( symbol) to $71 from $63, and it raised Tesoro's ( TSO) target to $100 from $90.

The firm also raised its price targets for Sempra ( SRE), Sunoco , ( SUN), Marathon ( MRO) and a handful of other firms.

Elsewhere, electricity provider Mirant ( MIR) rose 8.5% to $44.08 after saying it was reviewing strategic options that could lead to a merger or sale.

E&P firm Pogo Producing ( PPP)was upgraded by Deutsche Securities to hold from sell and its price target was raised to $50 from $40. Shares of Pogo advanced 1.4% to $49.56.

Peabody Energy ( BTU) was upgraded by Friedman Billings to outperform from market perform, lifting its stock 4.9% to $45.87.

Among downgrades, Hess's ( HES) rating was lowered by Lehman Brothers to underweight from equal weight, and shares were down 2.2% at $55.08. Lehman also cut Murphy Oil ( MUR) to equal weight from overweight. Murphy was 1.3% lower at $53.16.

Natural gas producer Williams Partners ( WPZ) was downgraded by Credit Suisse to underperform from neutral, but its shares still climbed 2.7% to $50.

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