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NEW YORK (CNNMoney.com) -- Oil prices extended a post-July 4th descent Tuesday - falling more than $9 a barrel over two days - as Iran's president downplayed concerns about possible war in the Middle East and investors anticipated falling demand due to high gasoline prices.

The price of light sweet crude for August delivery tumbled $5.33 to settle at $136.04 a barrel on the New York Mercantile Exchange. It was the lowest level in nearly two weeks, and followed a drop of $3.92 Monday.

Iran:Concerns over supply disruptions in the oil-rich Middle East eased after Iranian president Mahmoud Ahmadinejad said he did not believe there would be an armed conflict between Iran and Israel or the United States.

At a summit of Muslim nations in Malaysia on Tuesday, Ahmadinejad said he believed the United States and Israel have been using propaganda and psychology against Iran, but that he did not see war in the future, the Associated Press reported.

"A lot of tension baked-in over Iran...has dissipated," said Tom Orr, head of research at Weeden & Co. in Connecticut.

Demand predictions: Investors were concerned that a government report scheduled for release Wednesday may indicate there was lower demand for fuel over the Fourth of July weekend.

The government's petroleum inventory report is expected to show an increase in gasoline stocks, which are normally flat or lower over the holiday.

"People are still very much concerned about demand destruction," said Neal Dingman, senior energy analyst with Dahlman Rose & Co.

Fuel prices above $4 a gallon continued to weigh on U.S. consumers and businesses, which many investors fear has damaged demand for fuel products.

A daily survey from motorist advocacy group AAA showed the price of gasoline at the pump remained at the record high price of $4.108 a gallon, first reached Monday. The price of diesel, which fuels most trucks and commercial vehicles hit a new high of $4.807 a gallon.

While oil use in emerging economies such as China and India continue to increase rapidly, the United States still uses nearly three times as much oil as China, the second largest crude consumer, according to the CIA's world fact book. A dip in U.S. demand can have an amplified effect on the oil market.

"The U.S. sneezes, everybody catches a cold," said Dingman.

Dollar: A strengthening dollar also helped pull down oil prices.

The U.S. currency inched upward versus other major currencies, raising hopes for a slow economic recovery.

"People have been using oil as a hedge against systemic risk in the economy," said Phil Flynn, senior market analyst with Alaron Trading in Chicago.

Oil is also traded in dollars, so when the dollar rises it becomes a more attractive investment.

Hurricane miss: Meanwhile, investors breathed a sigh of relief after computer models predicted the newly formed Hurricane Bertha would not reach the Gulf of Mexico, where a lot of the U.S. oil production and refining infrastructure is located.

G-8: Internationally, leaders of the top eight economic powers, known as the G-8 nations, expressed concern over the high price of oil and other commodities at a 3-day summit in Japan, and called for increased production.

The G-8 - which consists of France, Germany, the U.K., the U.S., Russia, Italy, Canada and Japan - said it was important to "improve energy efficiency as well as pursue energy diversification."

Other energy prices: Also on the NYMEX, heating oil fell more than 14 cents to $3.8202 a gallon and gasoline futures tumbled nearly 12 cents to $3.3631 a gallon. Natural gas also pulled back.