Oil prices slip as Iraq nearer crude exporting

Oil prices slip as Iraq nearer crude exporting

LONDON (Reuter): Oil prices slipped yesterday as Baghdad took a step nearer resuming limited crude exports and on further evidence that a spring surge in U.S. gasoline demand is waning.

Late on Tuesday Iraq gave the United Nations a preliminary draft of its food procurement and distribution plan, essential for the resumption of crude exports suspended since late May.

American Petroleum Institute (API) data released late on Tuesday showed gasoline consumption eased last week ahead of the July 4 holiday weekend, traditionally seen as the heaviest period of demand for motor fuels.

World benchmark Brent Blend crude futures for August delivery on London's International Petroleum Exchange shed 19 cents to US$18.19 a barrel by 1053 GMT.

"It's partially API-led...but the Iraqi news is also a step in the right direction," said Peter Gignoux, head of the energy desk at Smith, Barney in London.

The U.N. coordinator in Baghdad, Staffan de Mistura, told Reuters the distribution plan required further work before it could be submitted to U.N. Secretary-General Kofi Annan for approval, but he gave no indication how long this would take.

Under the terms of the U.N. plan implemented last December, Baghdad is allowed to sell $2 billion of oil over 180 days to raise money for humanitarian imports.

The deal was renewed on June 8 but Iraq has suspended exports pending the completion of improved arrangements for getting food and medicines to central and southern parts of the country.

Iraqi exports between December and May averaged 660,000 barrels per day (bpd). Oil Minister Amir Muhammad Rasheed said late last month they would resume at around 730,000-750,000 bpd once the aid plan is finalized.

"As soon as the aid plan is completed I can't see there will be further delays in terms of signing new contracts. A lot of preparations have been made," said a senior trader for a European oil company which bought Iraqi crude earlier this year and is keen for more.

Analysts say Iraq's return could push Brent crude back towards the 13-month low of $17.32 a barrel posted in mid-June as the extra barrels flow into heavily swollen stocks.

International Energy Agency (IEA) data released on Tuesday showed strong U.S. gasoline demand in May was already evaporating in June, a trend which appeared to be continuing into July according to the API report.

Gasoline stocks fell a modest 137,000 barrels in the week to July 4, well below analysts' expectations.

With inventories of other products, notably distillates or heating oil and diesel, soaring far above year-ago levels in both the U.S. and Western Europe, oil refineries are beginning to feel the pain of a margin squeeze.

U.S. refinery operating rates fell back last week, contributing to a 4.70 million barrel build in crude stocks which are now seven million barrels higher than at the same point last year.

And worse could come later this summer, analysts said.

"(If) the gasoline season fizzles early, and as a consequence refiners reduce their crude throughput, the glut will appear in the crude market faster than in the product markets, maybe even as soon as early August," said Washington-based Petroleum Finance Company.