The price of Brent North Sea crude oil for delivery in October dropped 33 cents to 42.36 dollars a barrel in early deals in London.

Prices were almost two dollars below Monday's all-time high of 44.11 dollars in London, largely because of the expiry of the September contract which was replaced by the October contract as the new benchmark.

New York's reference contract, light sweet crude for September delivery, slipped 30 cents to 45.75 dollars per barrel in electronic trading, pulling away from a record of 46.91 dollars set on Monday.

Traders breathed easier after news that Venezuelan President Hugo Chavez had comfortably won a recall referendum, easing fears of instability in the country's oil industry.

"A Chavez victory is viewed as the best result for the oil market since it will maintain the status quo and reduce the chances of disruption within state oil company PDVSA, which is heavily pro-Chavez," said Barclays Capital analyst Kevin Norrish.

The Venezuelan leader had warned an opposition victory in the referendum would lead to the privatization of the state oil firm Petroleos de Venezuela (PDVSA) and prompt oil workers to strike.

Venezuela is the world's fifth largest crude exporter with daily production of 2.5-2.6 million barrels.

However, worries about turmoil in Iraq and a financial crisis at Russian energy giant Yukos continued to underpin prices, analysts said.

"Downside to oil prices looks limited with the situation in Iraq still very bad," said Norrish.

An oil well near the southern Iraqi city of Amara was set ablaze over the weekend after coming under attack by assailants with rocket-propelled grenades.