Oil prices come down from two-year highs

OIL prices fell yesterday from two-year highs set last week as international divisions widened over whether to wage war on Iraq.

Sentiment also weakened after the Organisation of the Petroleum Exporting Countries said it would likely suspend output quotas and pump at will should war halt Iraqi crude supplies. On London’s International Petroleum Exchange (IPE), benchmark Brent crude fell 40 cents to $31.98 a barrel. The US market is closed for Presidents’ Day.

Traders said the market was weakening following the steep gains of last week, but that oil traders still believed war on Iraq was likely despite deep divisions in the international community and mass popular protests over the weekend against a US-led attack.

“I think the market was overbought,” said Christopher Bellew of Prudential Bache brokerage. “I think a war in the middle of March is still quite probable.” Fierce opposition to military action was demonstrated by a weekend of anti-war protests across the globe.

As the divisions rumbled on, European Union leaders gathered for an emergency summit on Iraq, with most stressing war could only be a last resort and seeking more time for UN arms inspections. On Sunday, President George W Bush’s national security adviser Condoleezza Rice said talk of more time simply eased pressure on Iraq to comply with UN demands.

But Rice, speaking in a series of interviews with US television networks, left the door open for a compromise.

Traders fear a war could disrupt supplies from the oil-rich Middle East, although analysts believe that if military action were swift and decisive, prices could spike, then fall sharply.

An OPEC source said the cartel would probably agree to suspend temporarily output limits and pump at will if Iraq attacked.