Oil dropped almost $4 a barrel on profit-taking and signals that Iran will be more flexible in negotiations over its nuclear program.
Oil received additional pressure from news Hurricane Bertha will likely avoid damaging Gulf of Mexico energy facilities.
U.S. crude settled at $141.37 a barrel, down $3.92 and below Friday's low of $143.22. Brent crude settled at $141.87 a barrel, down $2.55.
The New York Mercantile Exchange did not issue an official Friday closing price due to the July 4 holiday.
"Crude prices are down on profit-taking as the fears that brought prices up before the July 4th holiday didn't materialize — there was no attack on Iran and the storm Bertha does not appear to be a threat to oil production," said Phil Flynn, an analyst with Alaron Trading in Chicago.
Oil hit a record $145.85 Thursday, but later eased as traders anticipated lessening tensions between Iran and the West after Tehran responded to a package of incentives to try to resolve the dispute.
Tehran's foreign minister Sunday expressed optimism about what he said was a "new environment" for talks.
"Iran shows signs of improved lines of communication," said Barclays Capital in a report.
But Iranian President Mahmoud Ahmadinejad said Monday Iran would not abandon its right to enrich uranium and rejected a major powers' demand to do so as "illegitimate," the official IRNA news agency reported.
Earlier Monday, oil prices were boosted by a gain in the dollar, which reached a one-week high against a basket of major currencies earlier Monday, benefiting from a European Central Bank tone that has reduced expectations of further interest rate rises.
Strength in the U.S. dollar can reduce the appeal of oil and other commodities to investors as a hedge against inflation.
Oil has gained almost 50 percent this year, driven partly by tension over Iran's nuclear program and expectations that global supply will fail to keep pace with demand from fast growing Asian economies such as China.
The rally has led to fuel protests worldwide and begun to dampen demand in some consumer nations, including the United States, the world's biggest energy user. World leaders are concerned prices could move even higher.
Leaders of the Group of Eight nations gathering for a summit in Japan fear further rises, Italian Prime Minister Silvio Berlusconi said.
"There are fears oil prices could increase further. Some people fear they could reach $200," Berlusconi told reporters on the sidelines of the summit.