Oil prices ease from new highs in late trading

Oil prices eased from new highs yesterday as dealers pocketed profits from a long record-breaking run after escalating violence in Iraq took US crude close to $50 (€40.59) a barrel.

US light crude fell $1 in late trade to $47.70 a barrel on profit-taking from a record $49.40 a barrel on the last day of the September futures contract. It later closed at $47.86.

Crude oil prices on the New York Mercantile Exchange set all-time records in all but one of the last 16 trading sessions but failed to break $50.

"Nothing goes in a straight line. When you have a bull market, people are going to take profits," said Mr Peter Schiff, chief executive of private brokerage Euro Pacific Capital.

"Anyone who's tried to pick a top to this market has lost some money." London Brent crude set a new record of $45.15 a barrel before diving 79 cents to settle at $43.54.

Yesterday's push to new peaks came after US warplanes attacked Iraqi militia in Najaf in an attempt to quell a two-week Shi'ite uprising, killing at least 77 fighters in 24 hours.

But oil prices fell amid confusion over the fate of the rebel leader, cleric Moqtada al-Sadr. Reports late in the day were that police had failed to gain control of the Najaf mosque occupied by Sadr and his followers.

Oil dealers fear further attacks by Sadr's Mehdi Army militia on Iraqi oil infrastructure after insurgents set fire on Thursday to the headquarters of the state company that operates Iraq's southern oilfields, South Oil Co.

"Al-Sadr and his supporters have indicated a willingness to directly target oil production and transport, thus potentially endangering what oil there is coming out of the southern port," said brokerage Refco.

The main southern pipeline from Iraq's Basra oilfields has been shut since a sabotage attack on August 9th, curbing exports to about one million barrels daily, half the normal rate.

However, that outage will not trigger a release from the billions of barrels of emergency reserves held among major importing nations. US treasury secretary Mr John Snow said there had not yet been a large enough disruption to warrant tapping US emergency stockpiles.

"The president has made it clear that the Strategic Petroleum Reserve is to be used for the purposes for which it was intended, a disruption of such proportions that it's called for. I don't think we're there yet," Mr Snow said.

Hedge fund manager Mr Peter Thiel, president of Clarium Capital LLC, said a change in US president George W Bush's administration policy about the SPR was only probable if oil prices went as high as $55 or $60 a barrel.

"Prices would have to go higher, to $55 or $60, to start getting enough pressure on the SPR issue. At $55-$60 the US economy goes into a recession and you could then have a major political intervention." Rising oil demand has left no room among producer countries to cope with disruptions from Iraq, but there is little sign high prices are slowing the fuel demand that is fed by global economic growth.

"Today it's Iraq, but next it might be Venezuela or Nigeria, or strike in Norway," Mr Thiel said. "We're now living in a world where there is no extra supply and that's why there's so much volatility when these specific incidents occur."

International Monetary Fund director Mr Rodrigo Rato was quoted yesterday as saying he still expected world economic growth this year of 4.6 per cent. Global oil demand growth this year is running at a 24-year high of nearly 3 per cent.

China's oil demand shows no evidence of easing, despite a government bid to slow its economic boom. Chinese crude imports for July jumped 41 per cent with imports for the year to end July up 40 per cent, new customs data showed yesterday.

India's top refiner, state-run Indian Oil Corp, said it expected national crude oil imports to rise 11 per cent in 2004/05 as demand rises by nearly 4 per cent. An oil ministry official said India's crude oil import bill was expected to rise 50 per cent to $27 billion this fiscal year. Moves in Asia to protect consumers by cutting energy taxes and duties may backfire by helping bolster demand.