JP/13/Oil

JP/13/Oil

Oil prices reach new zenith as Iraq peace hopes fade

Agence France-Presse
London

World oil prices set new records on Thursday as hopes of an
easing of tensions in Iraq faded and Iraqi forces prepared for a
new assault on the forces of Shiite militia leader Moqtada Sadr.

New York's main oil contract, light sweet crude for September
delivery, climbed 53 U.S. cents to a new all-time peak of
US$47.80 per barrel in pre-opening electronic trading.

The contract closed Wednesday at record settlement of $47.27.

In London Brent North Sea crude for October delivery gained
surged 72 U.S. cents to $43.75 per barrel in early afternoon
deals.

Prices shot higher as an Iraqi government minister threatened
an offensive against the forces of Sadr within hours.

"We have been preparing for a military offensive for five days
to put an end to this crisis," said Minister of State Kassem
Daoud.

The Iraqi government accused Sadr of failing to act on a
reported promise to disarm and abandon his shrine in Najaf. "The
market is still strong on concerns that this Iraqi uprising looks
to be carrying on," said Robert Laughlin, a trader with GNI-Man
Financial.

"There is talk about Sadr wanting to negotiate an end but
there seems to be a lot of talk but nevertheless no action," he
added.

The financial troubles of Yukos, Russia's largest oil
producer, were also still worrying traders.

On Wednesday, a spokesman said Sadr had accepted three
conditions laid down at a key national conference, namely to
disarm his militia, leave the Imam Ali shrine, one of the holiest
in Shiite Islam, and join the political process.

But an aide to Sadr, Sheikh Aws al-Khafaji, told Al-Jazeera
television on Thursday: "We will not hand the keys of the
mausoleum to the American forces because it will be a shame that
will haunt us forever."

Exports of crude from Iraq's southern oil terminals have been
cut by half to around 40,000 barrels per hour for a week because
of threats to infrastructure from Shiite Muslim militia,
according to Southern Oil Company officials.

Oil prices reached new highs on Wednesday on the back of
"Iraqi supply disruptions, lingering doubts over Yukos, and
speculative activity pushing", Standard Chartered bank said in a
note to clients.

But it argued that the "news flow is getting better".

"U.S. inventory data showed levels are about normal for
August, and OPEC's monthly report confirmed output is more than
sufficient to meet forecast demand through 2004 and 2005, with or
without Iraq output.

The U.S. Energy Department said on Wednesday crude oil
inventories in the week to Aug. 13 dropped 1.3 million barrels to
293.0 million.

Gasoline stocks declined 2.6 million barrels to 205.7 million.
Distillates -- mostly diesel and heating oil -- climbed 2.1
million barrels to 124.6 million.