NEW YORK (CNNMoney.com) - Oil slipped Monday after Iran said it sent a letter to President Bush offering what it said were new ways to resolve the standoff over its nuclear program, but ended well off its lowest levels of the session.

U.S. light crude for June delivery lost 42 cents to settle at $69.77 a barrel on the New York Mercantile Exchange, extending last week's losses when crude sank 6 percent from its recent record high above $75 a barrel.

Iranian President Mahmoud Ahmadinejad at a gathering of a paramilitary group affiliated with the Revolutionary Guards, in Tehran, Iran, Sunday, May 7, 2006.

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Crude was down as much as $1.94 earlier in the day before regaining much of that ground after traders decided the selling had been overdone.

The latest decline brought crude more than $5 below the highs touched two weeks ago, but prices are still up about 15 percent since the start of the year.

Iran said Monday that President Mahmoud Ahmadinejad had written a letter to President Bush proposing "new ways" to end the current situation regarding Iran's nuclear program.

IRIB, the state-run television and radio network, quoted spokesman Gholamhossein Elham as saying Ahmadinejad had "analyzed the current international condition and has pointed out the way to find the root causes ... and has proposed new ways for exiting from the current critical situation."

It's believed to be the first correspondence between the presidents of Iran and the United States since 1980, when Washington broke off ties with Tehran over the hostage crisis.

Analysts were cautious over the impact of the letter on oil prices.

"The news from Iran is certainly bearish, at least immediately anyway. But the extent of how bearish it is going to be depends on the content of the letter, which no one knows as yet," Tetsu Emori, the chief commodities strategist at Mitsui Bussan Futures, told Reuters.

The letter was sent to Bush through the Swiss embassy in Tehran, Elham said.

The announcement came just ahead of a meeting of the five permanent members of the U.N. Security Council in New York to discuss a draft resolution on Iran that was introduced last week by the United States, France and Britain.

The draft resolution, drawn up under Chapter 7 of the U.N. Charter, demands Tehran give up its production of nuclear fuel or face penalties that could include economic sanctions.

Iran has refused to abide by a U.N. Security Council order to stop enriching uranium, which it says is for peaceful power generating purposes. Several nations, including the U.S., France and England, fear that Iran plans to build a nuclear weapon.

But any immediate action on sanctions is unlikely since China and Russia, Security Council members with veto status, don't support sanctions against Iran. Iran has also said it would not use an oil embargo as a political weapon.

Still, oil traders have been worried, and the prospect of confrontation with the country, the world's fifth largest oil producer, is helping keep prices high.

Oil prices have tripled over the last three years, and gasoline prices have soared in the United States this spring.

The surge in gasoline prices has sparked outrage among U.S. consumers. Politicians, some facing re-election in the fall, have responded with a myriad of proposals.

Some of the most talked about measures include a windfall profit tax on oil companies, investigations of price gouging, opening up more areas in the U.S. to oil production, suspending the federal gasoline tax, greater investment in alternative fuels and a recently withdrawn plan to give every American consumer a gasoline rebate check for $100.

But no matter what steps lawmakers eventually take, motorists may have to deal with higher prices in the short term. Analysts say gasoline supplies will tighten as the summer driving season starts despite a surprise rise in gas and oil inventories last week, which helped send oil tumbling more than 6 percent.

Meanwhile, International Energy Agency director Claude Mandil said Monday he expected oil prices to stay high for at least two to three years because of high global demand and tight supply. "They [oil companies] have not invested enough for the last 20 years," Mandil was quoted as saying by Reuters.

"This is a cyclical business. We had low prices in the 1990s, which was unfortunate for investment in future production. We now have accelerating investment, but that will not [see] results overnight," he told reporters in Australia, the news agency said.

In addition to Iran, oil traders have been worried about supply disruptions in Nigeria and governments in Latin America intervening to take greater control or get more revenue from oil and gas properties.

But in a positive Nigerian development, a major oil union on Thursday suspended a planned shutdown of the local unit of Exxon Mobil Corp. (Research) after agreeing to a deal.

Big investment funds, chasing returns with relatively low global interest rates, have invested heavily in all commodities and have helped fuel the rise in oil and other commodities.

And supply and demand remain a bedrock for oil prices: Growing oil use in the U.S., the world's biggest consumer, and a newfound thirst from China, India and other developing countries drives demand; the realization that new discoveries of large, high-quality, easily recoverable oil deposits are probably a thing of the past crimps supply.

Although prices are high, they are still below the inflation-adjusted $80-a-barrel range hit in early 1980 following the Arab oil embargo and Iranian revolution.

-- Reuters contributed to this report

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