New York's main contract, light sweet crude for delivery in October, sank 1.16 dollars to close at 66.23 dollars a barrel.

The October contract expired Tuesday. The following one for November declined 1.31 dollars to 66.20 dollars.

In London, the price of Brent North Sea crude for November delivery slipped 1.41 dollars to 64.20 dollars a barrel.

On Monday, New York crude had jumped by 4.39 dollars and London Brent shot up 3.80 dollars as tropical storm Rita menaced production in the Gulf of Mexico, which was already battered by Hurricane Katrina.

"The fall in prices has more to do with yesterday's (Monday) huge moves and it's down to profit-taking," said Investec analyst Bruce Evers.

Rita was upgraded to a hurricane Tuesday as it barrelled toward a vulnerable chain of islands in southernmost Florida on a track that would take it over the Gulf of Mexico and possibly close to devastated New Orleans.

Oil prices came off lows Tuesday as Rita was upgraded to a category two hurricane on a five-stage intensity scale, Fimat analyst John Kilduff said.

Most projections have Rita going between Corpus Christi and Houston in Texas, "where many refinery centres are".

"We're expecting some gains in the coming days", Kilduff said of oil prices, "as soon as tomorrow".

Gulf of Mexico production has only just been recovering from shut-ins caused by Katrina late last month.

Now with Rita approaching, according to US government figures Tuesday, more than 58 percent of crude oil drilling and about 35 percent of natural gas production is offline.

Traders dismissed the latest output move by the Organization of Petroleum Exporting Countries, which pledged to make an extra two million barrels per day available from October 1 if there is adequate demand.

"What they have done was widely expected by the market," Evers said.

Elsewhere, OPEC member Iran warned that it could link its oil business and other economic trade with individual countries, based on whose side they take in a dispute over its nuclear programme.

European countries and the United States have warned Iran to immediately return to bargaining over its suspected nuclear arms programme or face being hauled before the UN Security Council for possible sanctions.

Last month, on the back of Hurricane Katrina, New York crude hit a record 70.85 dollars a barrel on August 30. Prices later eased as the United States and other major economies tapped some of their emergency reserves.

International Energy Agency executive director Claude Mandil said Tuesday the IEA "could decide to extend" its earlier plan to release 60 million barrels of oil from strategic reserves over a 30-day period.

"I have said already that we are evaluating the situation," Mandil told AFP at an Oil and Money conference in London.

Despite the IEA and OPEC looking to supply extra crude, analysts say that prices will remain high unless more refineries are built, to allow adequate supplies of high-demand products such as gasoline (petrol) and heating oil.

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