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Monday, 16 September, 2002, 19:44 GMT 20:44 UK
Oil prices slip back from highs
A North Sea oil platform
Oil prices have risen 40% so far this year
Oil prices slipped back from their highest level in 18 months amidst market speculation that members of the Opec oil producers' cartel would increase production in the event of a second Gulf War.

Close talks on military issues between the US and Opec's leading producer, Saudi Arabia, were seen by some as a sign that the cartel could comply for calls for higher production levels.

"If Saudi cooperates in military issues, then there is no reason to suspect it will not do the same in economic matters," Lawrence Eagles of oil brokers GNI Research wrote in a research note.

"That reduces considerably the risk of a shortage of oil if an attack on Iraq takes place."

Profit taking

But some brokers said market forces, rather than international politics, had driven prices lower on Monday.

So far this year the price of a barrel of oil has risen about 40%.

So many traders have been tempted to cash in the profits and sell, some brokers said.

Indeed, Opec's own view suggested that Saudi Arabia would go along with the majority of Opec and stick to its lowest production quotas in a decade.

Opec Secretary-General Alvaro Silva said that enough oil is being supplied to the market and said the recent price surges were solely caused by concerns about a war with the Opec member Iraq rather than by real shortages.

Confusion

Many market watchers were left scratching their heads.

"We have been expecting Opec to raise [production] quotas," said Deutsche Bank's Adam Sieminski.

"But the political base for Saudi's resolve appears vulnerable, and the Kingdom's commitment seems fragile."

US crude prices hit an 18-month high of $29.77 a barrel early on Monday before slipping back 13 cents to end at $29.68.

International benchmark Brent crude oil dropped 15 cents to $28.52 per barrel in London, down from its one-year high of $29.02 last week.

See also:

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