Oil price dips on sanctions talks

Consumers will again call on Opec to resist calls for cuts

Oil prices have surrendered much of the gains made following the Iraqi air strikes, as fears of rising tension subsided.

Futures in Brent crude - the world benchmark oil class - shed $0.68 cents in late trading on Tuesday to stand at $26.63 a barrel, for April delivery.

The price had earlier risen above $27.40 a barrel.

In New York, futures in light crude, which had cleared $29.50, ended at $28.65, $0.51 lower on the day.

"We were up mainly on Iraq concerns, but the lack of news from there has dampened the market in the past few hours," said one trader.

Supplies continue

Investors had realised that Iraqi supplies were unlikely to be affected by the latest programme of US and UK air raids, begun over the weekend.

The strikes were launched in response to Iraqi attacks on allied planes, US and UK politicians have said.

But while the US Pentagon said on Tuesday that Iraq had resumed firing at Allied warplanes, Iraqi oil was still being loaded at the Gulf port of Mina-al-Bakr.

And diplomats from the US and UK, which have been strongly criticised for the action, are expected to begin switching punitive efforts to "smart sanctions", which focus on curbing trade in areas such as arms sales, and are designed to have only limited implications for civilians.

Cartel meeting

Oil prices have also been underpinned by the threat of a cut in production by members of the producers' cartel Opec.

Rodriguez: Output cut inclination

Opec secretary general Ali Rodriguez had said on Monday there was "an inclination, almost a conviction" among Opec members that they should cut output in March to shore up prices

But dealers on Tuesday said that markets had already accounted for an output cut.

Opec's stated aim is for the price of a basket of seven crudes to remain within a $22-28 a barrel range. And it says it will cut or raise output to achieve this.

Mr Rodriguez said the maximum production cut Opec would consider would be one million barrels a day (b/d), representing about 1.3% of January global oil demand.

But the cartel has faced criticism from major oil consumers for not doing more to keep prices down, with major economies already facing the strain of slower growth.

Several members, including Venezuela, are known to view $30 a barrel as a "reasonable" price while some economists in consuming countries argue this is unrealistic, especially in light of more signs of economic slowdown.

Opec ministers are next due to meet on 17 March. At their January meeting, they agreed to slice 1.5 million b/d, or 5.6%, off their supplies.