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Oil falls on hopes of peace in Middle East

NEW YORK (AP) -- The price of oil fell sharply Tuesday on signs that Israel and Hamas are close to putting a halt to fighting that has lasted nearly a week.

A senior Hamas official said his group is close to a cease-fire with Israel. But a deal had not yet been reached by Tuesday afternoon in New York.

Secretary of State Hillary Rodham Clinton was on her way to the Middle East to meet with leaders of the two sides and encourage a peace deal. The trip marks the most direct U.S. engagement in the conflict.

Benchmark crude fell $3.06, or 3.4 percent, to $86.22 in early afternoon trading. That wiped out a gain of 2.7 percent from Monday, when oil closed above $89 per barrel for the first time since Oct. 19.

Meanwhile, AAA said gas prices dropped slightly overnight and are now at their lowest point since July 16. The national average is now $3.41 per gallon, down 26 cents from a month ago, although still 5 cents more than this time last year.

Brent crude, which is used to price international varieties of oil, fell $2.48, or 2.2 percent, to $109.22.

Other futures on the New York Mercantile Exchange:

— Heating oil fell 5 cents to $3.04 a gallon.

— Wholesale gasoline fell 7 cents, or 2.4 percent, to $2.69 per gallon.

— Natural gas rose 8 cents, or 2.1 percent, to $3.92 per 1,000 cubic feet.