Oil fell 1.7 percent to below $70 for the first time in two weeks on Thursday after the death of al Qaeda'a leader in Iraq, where crude exports have been curbed by frequent sabotage attacks and instability.

Abu Musab al-Zarqawi (L), leader of al Qaeda in Iraq, in footage obtained by the Pentagon and released on May 4, 2006. Oil fell to below $70 for the first time in two weeks on Thursday after the death of al Qaeda'a leader in Iraq, where crude exports have been curbed by frequent sabotage attacks and instability. [Reuters]

The plunge deepened losses from a day ago, when U.S. data showed rising crude and fuel inventories, easing concerns about summer supplies in the world's biggest consumer.

U.S. crude oil fell $1.21 to $69.71 a barrel by 0818 GMT after losing $1.68 or 2 percent on Wednesday. London Brent crude fell $1.10 to $68.09 a barrel.

Iraq's Prime Minister Nuri al-Maliki told a televised news conference on Thursday that Zarqawi had been "terminated."

Oil exports from Iraq have failed to return to pre-war levels due to frequent sabotage attacks on the country's northern pipeline and deteriorating security that has prevented significant investment in aging southern oilfields.

Those curbs -- coupled with the ongoing loss of a quarter of Nigeria's output and growing anxiety over Iran's supplies -- have helped fuel a near 15 percent rise in oil prices since the start of the year, extending a rally that began after the U.S. invasion of Iraq more than three years ago.

Iraqi Deputy Prime Minister Barham Salih said separately on Thursday that Iraq would produce 4.3 million barrels per day (bpd) of crude oil by 2010, more than double its current levels, but analysts say those targets may be optimistic.

Baghdad is struggling to pump 2 million bpd, down from about 2.5 million bpd before the U.S.-led invasion in 2003.

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