Oil prices fall as shortage fear ebbs

Oil prices fell yesterday as improving relations between the US and Saudi Arabia reduced the risk of a global shortage of oil supplies in case of war against Iraq.

In a major policy shift, Saudi Arabia indicated that it would let allied forces launch strikes on Baghdad from Saudi military bases if the UN had endorsed the attacks.

"If Saudi co-operates in military issues, then there is no reason to suspect that it will not do the same in economic matters. That reduces considerably the risk of a shortage of oil if an attack on Iraq takes place," according to Mr Lawrence Eagles of British futures broker GNI.

However, the selling was moderate as US officials kept the pressure on Iraq to comply with UN resolutions and traders were waiting to see whether the Organisation of the Petroleum Exporting Countries (OPEC) would raise production quotas when the cartel meets in Osaka in Japan on Thursday.

Venezuelan Minister of Energy and Mines Mr Rafael Ramirez was the first OPEC minister to arrive in Osaka ahead of Thursday's meeting, and he reiterated his position to keep quotas on hold.

OPEC secretary-general Mr Alvaro Silva said world markets were supplied with sufficient volumes of crude and prices had been boosted by the fear of war against OPEC-member Iraq.

Price hawks Kuwait, Indonesia and Qatar have said they also want to hold tight on quotas, which are at their lowest level in a decade.

But OPEC is under pressure to maintain its global market share, which could lead to a production increase from the current 21.7 million barrels a day, but most analysts expect it to leave output increases until after any attack on Iraq.

The Brent crude contract for October delivery had lost 32 cents to $28.35 per barrel on London's IPE late in the session, after rallying by 86 cents on Friday, and October West Texas Intermediate had fallen by 30 cents to $29.51 a barrel on the New York Mercantile Exchange early in the afternoon. - (Financial Times Service)