Oil prices tumbled Friday as traders, who hoarded oil believing war might break out in the Persian Gulf, rushed to sell.

The drop was triggered by an Iraqi official's comment that the world was looking for a peaceful settlement of the gulf crisis."Some traders are overextended, and they need to get rid of excessive speculative positions now that things seem to be simmering down in the Middle East," said George Nickas of Geldermann Inc.

Iraqi Deputy Prime Minister Taha Yassin Ramadan said, "There is serious thinking to find a peaceful outlet to the crisis, be it on the Arab or European arenas."

This fueled perceptions that war is unlikely in the Middle East, and, as one trader said, "The news just crushed the market."

The November oil contract on the New York Mercantile Exchange closed down $3.01 at $33.79 a barrel after trading early at a low of $33.50.

For the week, crude oil was down $5.90 a barrel.

The by-products plunged in sympathy with oil.

Unleaded gasoline for November delivery in New York closed down 5.05 cents at 87.91 cents a gallon, and for the week 9.22 cents lower. Heating oil for delivery next month ended 8.11 cents down at 88.40 cents, plunging 16.96 cents this week.

Traders said the selloff in crude oil started in the Asian markets, spread to Europe and then hit New York.

"It's a very nervous market," one broker said. "There's a lot of long-term selling coming into the market."

The fundamental problem - oversupply - weighed on prices, and traders detected major rethinking of last week's rally to an all-time high of $41.15 a barrel on the Mideast tensions.

"There's still plenty of crude around, and it's only been up there on expectations of war," a trader said.

Earlier this week, traders discounted reports that the nation's oil inventories had fallen sharply, but demand for crude is expected to weaken as refiners cut production and start their seasonal maintenance programs.

Selling accelerated after the November crude oil contract broke through the key technical barrier of $34 a barrel, analysts said.