Oil prices had been edging higher prior to the announcement.
Both benchmarks tumbled more than 3 percent on Wednesday after US data showed a smaller-than-expected weekly draw in crude inventories and a surprise build of 2.9 million barrels in gasoline supplies.
Gasoline stocks rose by 2.9 million barrels, compared with analysts' expectations in a Reuters poll for a 1.7 million barrel drop.
Many countries, including U.S. allies in Europe as well as China and India oppose the introduction of new sanctions, but the United States government said it wants as many countries as possible to stop buying Iranian oil.
"Of course, such decisions being taken by the US side are absolutely unfriendly and can hardly be associated with the. constructive atmosphere achieved at the latest meeting of the two presidents", he was quoted by Russian news agency Tass as saying.
"A full embargo seems unlikely and the oil market should remain well balanced in light of rising production and the emerging markets' fuel inflation pains", Norbert Rucker, head of macro and commodity research at bank Julius Baer, said.
U.S. West Texas Intermediate (WTI) crude futures fell $2.23 to settle at $66.94 a barrel, a 3.22 percent loss.
On Monday, WTI for September delivery increased by 1.62 percent and settled at 70.13 dollars a barrel on the New York Mercantile Exchange.More news: Hamas rockets spark wave of strikes on Gaza
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The escalating trade war has rattled global markets.
Crude oil prices extended gains Tuesday as the Trump administration's sanctions against Tehran kicked in, setting the stage for a drop-off in production from the world's fifth-largest producer. The expected paring of India's imports from Iran after this month and the increase in purchases from the United States also raise questions about the politics of oil.
The market was also bolstered by a report on Tuesday from the American Petroleum Institute (API), which said crude inventories fell by 6-million barrels in the week to August 3 to 407.2-million. China companies too are interested to continue trading in Iranian oil and natural gas.
"Many investors were watching oil prices after the USA reimposed sanctions on Iran", said Hussein Sayed, chief market strategist at FXTM.
China is slapping additional tariffs of 25 percent on $16 billion worth of USA imports, from fuel and steel products to autos and medical equipment.
International Olympic Committee and other state firms like Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) enter into annual term import deals with national oil companies of mostly Middle East countries. Iran's oil exports to India rose by more than 40,000 bpd from June to 706,452 bpd in July.
USA crude oil supplies dropped by around 1.35 mbpd last week. Gasoline inventories were seen down by 1.7 million barrels, and distillate inventories were expected to rise by 220,000 barrels.