LONDON (Reuters) -- Oil fell below $70 a barrel on Tuesday, extending a steep sell-off the previous session, although Iran's determination to press ahead with its nuclear program was expected to check the slide.
U.S. crude for October delivery sank $1.11 to $69.50 on the New York Mercantile Exchange while Brent crude in London lost $1.08 to $69.74 a barrel.
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U.S. crude sank $1.90 Monday after Ernesto, which was briefly the first hurricane of the U.S. season, was downgraded to a tropical storm.
Last year hurricanes Katrina and Rita temporarily knocked out all of the Gulf's offshore production and pushed oil prices to then record highs.
The hurricane season continues until around November, but analysts say the oil supply situation is comfortable and some predict oil prices, which hit an all-time peak of $78.65 early this month, will struggle to regain previous strength.
"The highs are not going to be repeated unless we get a really damaging hurricane," said Olivier Jakob of Petromatrix.
"The tensions in Iran are going to be there for a while, but for now there's nothing that says there's going to be any threat to our supply."
The United Nations Security Council has told Iran to suspend atomic fuel work by Thursday or face possible sanctions, but Iran has repeatedly said it will not stop uranium enrichment.
"Peaceful nuclear energy is the right of the Iranian nation. The Iranian nation has chosen that based upon international regulations, it wants to use it and no one can stop it," Iranian President Mahmoud Ahmadinejad said on Tuesday.
Analysts have voiced concerns Iran, the world's fourth largest oil exporter, might disrupt oil supplies in response to any sanctions against it.
U.S. slowdown
For now fuel supplies are healthy and there are some signs of lower demand growth as a result of high prices, which are also prompting concern about a slowdown in U.S. economy.
The U.S. government's Energy Information Administration (EIA) on Monday released data showing U.S. gasoline demand grew in June by less than half the rate implied by previous figures.
U.S. gasoline demand rose by 60,000 barrels per day (bpd), or 0.64 percent, to 9.44 million bpd, compared with weekly data that had showed an increase of more than 120,000 bpd, the EIA said.
The next set of data to be released on Wednesday was expected to show a 1.2 million barrel decline in crude stocks last week after refineries increased activity.
Distillate stocks, including heating oil, were expected to rise by 1.2 million barrels, according to a Reuters analyst poll.
Gasoline stocks were predicted to fall by 800,000 barrels, but analysts are decreasingly concerned about gasoline inventories given the U.S. summer driving season is considered to end with next week's Labor Day holiday.
"The recent gasoline market sell-off and increasing attentiveness of the market to the U.S. slowdown supports our forecast that after peaking in the third quarter, crude prices will fall into the fourth quarter and 2007," Eoin O'Callaghan of BNP Paribas wrote in a research note.