New York's main contract, light sweet crude for delivery in November, slipped 27 cents to 66.57 dollars a barrel.
London's Brent North Sea crude for November lost 34 cents to 65.20 dollars a barrel.
"The geopolitical risk premium to oil markets from the rising tensions between Iran and the West is not as high as we have seen in the past due to the large level of inventories and the much larger spare capacity at the moment," said Sucden Financial Research analyst Nimit Khamar.
"So the loss of crude from Iran would not have as large of a price impact."
Iran, the world's third biggest crude exporter, test-fired missiles on Monday it said could reach targets inside Israel and immediately drew swift condemnation from the United States and other Western nations.
Washington said the missile tests were "provocative" and urged the republic to agree to "unfettered access" to its newly revealed enrichment plant.
Washington and regional ally Israel have not ruled out a military option to stop Tehran's nuclear drive, which the West says is aimed at making nuclear weapons while Iran says it is solely for peaceful ends.
"Any consideration of an outbreak of hostilities immediately calls into focus the Strait of Hormuz, adjacent to Iran, through which flows 25 percent of the world's oil supply," said John Kilduff of MF Global.
"The escalation of tensions with Iran underlines how another element, geopolitics, of the many that caused prices to peak in 2008, can resurface suddenly," he warned.
In a move that may placate the West, Iran on Tuesday said it would soon offer a timetable for UN inspection of its controversial second uranium enrichment plant and was ready to discuss world concerns about the previously undisclosed facility.
Six big powers are due to open long-awaited talks with Iran on its nuclear programme in Geneva on Thursday.
Oil prices tumbled last week on concerns about weak energy demand in the United States, which is the world's biggest oil-consuming nation.
Energy demand has plunged after the global economy slipped late last year into its worst recession since the 1930s.
This sent oil prices tumbling from historic highs of more than 147 dollars in July 2008 to around 32 dollars in December.
Prices have since recovered somewhat but investors remain concerned over the pace of the upturn.
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