Crude oil fell from near a record after Iran said it gave a "constructive'' response to incentives intended to persuade the country to stop uranium enrichment.

A compromise may allay concern that Israel is ready to attack Iran's nuclear installations, starting a conflict likely to cut supply from OPEC's second-largest oil producer. Futures climbed to a record $US145.85 a barrel yesterday on speculation that tension in the Middle East may worsen.

"For both sides to show they can give up something could calm down political risk in the area,'' said Thina Saltvedt, an analyst at Nordea Bank AB in Oslo. Prices may "in the immediate term drop one or two dollars'' if a compromise is reached.

Crude oil for August delivery fell $US1.25, or 0.9%, to $US144.04 a barrel in electronic trading on the New York Mercantile Exchange.

The government in Tehran has prepared and presented its reply "with a focus on common ground and a constructive view,'' state television cited Saeed Jalili, secretary of Iran's Supreme National Security Council, as saying today in a telephone call with European Union foreign policy chief Javier Solana.

Tensions with Iran, which borders the Strait of Hormuz waterway used to channel 20% of world oil supply, may still send oil to $US200, according to independent energy adviser Cornelia Meyer.

``Whatever happens in Iran, it will affect Iraq and it will also affect Saudi Arabia and Kuwait,'' Ms Meyer said today in a Bloomberg Television interview. It "would be difficult for OPEC to keep output stable since it is about the Strait of Hormuz, which is a geopolitical bottleneck.''

Brent crude oil for August settlement was at $US144.42 a barrel, down $US1.66, on London's ICE Futures Europe exchange. Futures climbed to $US146.69 yesterday, a record intra-day price.

Brent traded higher than its US equivalent for a third day, at a premium of 38 US cents, on expectations that seasonal maintenance this month would curb output from North Sea fields.

"The whole Iran nuclear issue seems to have lost some steam,'' Martin King, an analyst at FirstEnergy Capital in Calgary, said today. "This might prompt additional selling with the return of regular trading'' on July 7.

Crude supply issues in Nigeria, Mexico, Russia and the North Sea will limit any down move by oil, Mr King said.

Oil set new highs in the past three days as money managers bought futures, shunning stocks as global equity indexes fell for a fifth week. Crude may rise further next week, according to analysts surveyed by Bloomberg.

"Investment demand has been driving prices higher,'' Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt, said. "Longer-term pension funds, investment funds, but also banks and insurance companies are pouring their money out of the equity market, out of the U.S. dollar and into commodity markets and especially oil.''

Natural gas for August delivery fell 0.9 cents, or 0.1%, to $US13.568 per million British thermal units in New York electronic trading. It has gained 81% this year.

Caijing magazine reported today that China had scrapped a 75% rebate on value-added taxes levied on crude-oil imports.

The move took effect on July 1 after the government increased domestic fuel prices last month, Caijing said, citing an official from China National Petroleum Corp. The government had refunded VAT on imports since April to help narrow refiners' losses, according to the report.

Nymex electronic trading continues today as other US markets are closed for the Independence Day holiday in the US.

Bloomberg