Oil prices fell midafternoon as Iranian president Mahmoud Ahmadinejad announced at a press conference in Tehran that he intends to free the 15 British Navy servicemen who have been held by the Islamic Republic for 13 days.
"While insisting on our rights, these 15 sailors have been pardoned and we offer their freedom to the British people," Ahmadinejad told a news conference.
At 2.41 pm, London Brent crude for May delivery was down 65 cents at 67.16 usd per barrel, while New York crude for May delivery was down 88 cents at 63.76 usd.
"This news could really take the sting out of the market and send prices down," said Sucden Research analyst Michael Davies.
And while more bullish factors are continuing to underpin prices, he said, "there is the potential for more downside".
The seizure of the sailors, and the diplomatic stand-off that ensued, had sparked supply fears in the oil market.
Iran is the world's fourth-biggest oil producer and controls the strategically important Straits of Hormuz, through which tankers ship about 17 mln barrels of crude oil a day.
Oil prices moved sharply higher as the face-off progressed, gaining nearly 12 pct since March 22, the day before the sailors were seized.
Oil dipped slightly this morning on the news that the UK has had direct contact with Iran's National Security chief Ali Larijani, boosting hopes of a diplomatic resolution to the crisis, but they moved briefly higher as the conference got underway.
While traders are focused on Iran, they are also eyeing the weekly snapshot of US inventory data due to be released this afternoon by the Energy Information Administration, the statistical arm of the Department of Energy.