Tuesday, May 9 2006 10:41 Hrs (IST) - World Time -

New York: Crude oil futures prices dropped below $70 a barrel today on rising US gasoline supplies and a letter from Iran's leader to President George W Bush proposing 'new solutions'' to escalating tensions.

The possibility of diplomacy allayed some of the market's fear that Iran, the Organization of Petroleum Exporting Countries' No. 2 producer, could cut supplies because of international pressure to modify its nuclear programme. That fear has helped boost the price of oil in recent weeks.

"At least there's a sign that maybe there's some hope for some discussion, a way to avoid a showdown with Iran,''said Phil Flynn, analyst at Alaron Trading Corp.

Oil futures have also fallen since last week, whenthe US government showed an increase in US refining and gasoline supplies. Domestic supplies of gasoline had fallen for several weeks straight as refiners worked to switch over from the gasoline additive MTBE found to be a groundwater pollutant to corn-based ethanol.

On Friday, Bush said he would work with Congress to suspend some or all the import tax on ethanol in an effort to stabilize prices.

Still, oil prices rebounded from the day's lows, as concerns remain about Iran, as well as unrest in Nigeria, violence in Iraq and rising resource nationalism in South America.

Light, sweet crude for June delivery lost 42 cents to settle at $69.77 a barrel, after falling as low as $68.25 a barrel today on the New York Mercantile Exchange. The contract had lost about $4 last week.

Gasoline futures, meanwhile, fell 3.7 cents to settle at $2.0036 a gallon.