U.S. crude for May delivery fell 46 cents to $64.18 a barrel, having fallen as low as $63.56 after Iran President Mahmoud Ahmadinejad announced his decision to release the 15 detainees as a "gift" to Britain.
And there may be more room for crude oil to fall in the coming weeks.
"There was at least $3 to $4 added to the price of oil as a result of the seizure," Rick Mueller, an analyst with Energy Security Analysis Inc. in Tilburg, the Netherlands, tells Bloomberg. "This won't suddenly lead to a recovery of Iraqi production or OPEC increasing its output but it does reduce a lot of concern about the flow of oil through the Strait of Hormuz."
Ahmadinejad also reportedly said Iran would reconsider its relations with the U.S. if President Bush and his administration changed its behavior.
Iran sits on the Strait of Hormuz, a shipping route for about a quarter of the world's globally traded oil, and oil investors were well aware of the possible implications on oil exports from the Middle East if tensions had heightened. Iran exports about 2.5 million barrels per day of oil.
The decrease in oil prices though were tempered by a tightening U.S. inventory report. Gasoline inventories reportedly fell 5 million barrels to 205.2 million barrels, a greater decline than the market had expected, news sources stated.
The Energy Information Administration said gasoline inventories are now in the lower half of the average range.
Inventories of distillates, which include heating oil, were unchanged at 118 million barrels. Refineries operated at 87 percent of capacity for the second consecutive week.