Oil prices balance out on mixed Iraq news

Oil prices steadied yesterday, ending a five-day rout as the close of a three-week uprising in the Iraqi city of Najaf was balanced against renewed pipeline attacks.

US crude was down five US cents to $43.05 a barrel, and was over $6.50 below a record peak struck last Friday after a week of heavy losses. London's Brent crude traded up 27 cents at $40.60 a barrel.

Prices have fallen 13 per cent from last week's peak, when profit-taking began after prices failed to breach $50. Crude prices are still up nearly 40 per cent since the turn of the year.

Morning gains on yesterday were cut back in the afternoon amid signs of funds moving money into the rallying dollar, which rose as US consumer sentiment beat forecasts.

In Iraq, Shi'ite fighters left the Imam Ali mosque in the holy city of Najaf as the bloody uprising was ended by a peace agreement between the government and the rebel cleric Moqtada al-Sadr.

Despite the peace deal, confidence in the reliability of Iraq's crude exports remained shaky after renewed sabotage attacks on the country's oil infrastructure on Thursday and yesterday.

Turmoil in Iraq has underpinned oil price strength in recent months, adding to worries over a lack of spare production capacity from other OPEC nations and flourishing demand growth in China and India.

A US government report on Wednesday showing higher-than-expected gasoline inventories at the tail end of the vacation season in the world's largest energy consumer also knocked prices lower.

Analysts say that while prices have been due to correct lower they may not fall far as global demand growth is running at the fastest rate in 24 years.

OPEC has signalled that it plans to increase production to combat high oil prices, saying output would reach 30.5 million barrels per day in September from 29.6 million barrels per day in July.

OPEC will meet on September 15 in Vienna to discuss a possible further increase in production quotas. - (Reuters)