Oil prices slipped Thursday as OPEC appeared set to maintain current crude output and a day after the United States signaled a willingness to hold direct talks with Iran on its nuclear program.

Traders deal in oil futures at the New York Mercantile Exchange Wednesday, May 31, 2006. Plunging oil prices pushed stocks sharply higher Wednesday as the United States' latest move to settle the dispute over Iran's nuclear arms program eased worries about a supply cutoff from the petroleum-rich nation. [AP]

The U.S. Energy Department was also expected to release a report on U.S. inventories later Thursday.

Light sweet crude for July delivery on the New York Mercantile Exchange fell 42 cents to $70.87 a barrel in electronic trading at midday in Europe. It fell 74 cents a barrel on Wednesday.

July Brent crude at London's ICE Futures exchange fell 53 cents to $69.88 a barrel on Thursday.

In Caracas, Venezuela, major oil-producing countries are set to keep crude output unchanged at the OPEC meeting Thursday despite Venezuela's calls for cutting production. However, some cartel members hinted at the possibility of trimming supplies down the road.

Antoine Halff, oil economist at Paris-based Fimat, said there was not a strong case for OPEC to tighten production.

"Prices averaged at their highest levels in nominal terms in May, a fact that many OPEC oil ministers like to blame on geopolitics and financial players," Halff said. "But in fact, market fundamentals have shown signs of strength in recent weeks."

Yasser Elguindi, senior managing director at Medley Global Advisors in New York, said that just beneath the surface of OPEC's accommodative stance is the fear of being caught off guard in the second half of the year, if weaker economic growth cuts into oil demand or if improved diplomatic relations between the West and Iran help ease the so-called fear premium in the price of crude.

On the possibility of direct negotiations with Iran, U.S. Secretary of State Condoleezza Rice said Iran first must agree to stop disputed nuclear activities that the West fears could lead to a bomb.

But Iran rejected this latest diplomatic effort after oil markets closed, calling the offer "a propaganda move."

Before Iran dismissed the U.S. offer, BNP Paribas Commodity Futures broker Tom Bentz said oil prices would "go right back up again" if Rice's effort failed.

Gasoline futures dipped to $2.0830 a gallon, down 1.3 cents, and heating oil prices fell 1.3 cents to $1.9821 a gallon in electronic trading on Thursday. Natural gas prices rose 4.1 cents to $6.425 per 1,000 cubic feet.

Last week, U.S. inventory data showed domestic natural gas inventories swelling by 83 billion cubic feet in the past week to 2.16 trillion cubic feet, or 50 percent above the five-year average for this time of year.

Natural gas futures are near a one-year low and some analysts say that if inventories continue to grow at this pace, the United States could run out of natural-gas storage capacity before winter, a prospect which should further exert downward pressure on prices.