Oil prices tumble nearly $4

True cost of cheap online gas

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NEW YORK (CNNMoney.com) -- Oil prices, after hitting a record high last week, fell nearly $4 a barrel Monday as the dollar gained strength and traders reacted to an apparent easing of Mideast tensions.

Light, sweet crude for August delivery settled down $3.92 to $141.37 a barrel after falling by as much as $139.50 on the New York Mercantile Exchange Monday.

Oil prices were pulled down as currency investors pushed up the value of the greenback. Oil is traded in dollars, and a weaker U.S. currency can make crude oil contracts less expensive for foreign investors.

The dollar was up against the 15-nation euro as the top eight economic powers, known as G-8 nations, began meeting to address the nuclear ambitions of nations such as Iran and North Korea, as well as global warming and the high price of oil.

Many observers expect the G-8 to voice support for the dollar, which has helped buoy the dollar and pull down oil prices, said Phil Flynn, senior market analyst with Alaron Trading in Chicago.

Middle East fears. On Thursday, oil settled at a record $145.29 a barrel as investors hedged against the heightened possibility of Mideast conflict and other events that might have disrupted the flow of oil over the weekend when the markets were closed.

"Obviously those fears were overblown," said Flynn.

Indeed, concerns about a nuclear Iran eased slightly over the weekend.

Iran gave a confidential response to the international community Friday regarding incentives to suspend uranium enrichment, which can produce fuel for nuclear reactors or atomic bombs.

In a CNN interview Sunday, Iranian foreign minister Manouchehr Mottaki said his country was in a "new environment" concerning talks with the West over its nuclear program. He also said Iran wouldn't launch an unprovoked attack against Israel.

Mottaki's remarks were "as much of an olive branch as the Iranians can really extend," said Tom Orr, head of research at Weeden & Co.

Gasoline. Meanwhile, consumer gasoline prices hit a new record high in the United States.

Regular unleaded hit an average of $4.108 a gallon on Monday, according to a daily survey from motorist advocacy group AAA. The price of diesel fuel, which is used to power trucks and commercial vehicles also hit a new record high at $4.801 a gallon.

Gas prices were the highest in Alaska at $4.621 a gallon. Prices remain over $4 a gallon in 38 states.

Supply and demand. Looking ahead, the U.S. Energy Department will release its weekly petroleum supply report on Wednesday morning.