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.