Iraq oil back on line

Oil should be arriving at the Ceyhan terminal

Iraq has begun pumping crude oil to Turkey for export to world markets, according to Turkey's energy ministry.

The move is seen as a vital step in the reconstruction of Iraq's shattered economy.

The northern pipeline has been closed since the US-led occupation of the country.

The news sent oil prices lower, with reports of an increase in US crude oil reserves also easing concern about tight supplies.

'Different equation'

Benchmark New York oil futures fell 51 cents to $31.41 a barrel, while in London Brent crude futures were 37 cents lower at $29.50.

"The return of Iraq creates a different equation on world oil markets, and the result is price altering," said Peter Gignoux of Citigroup.

Officials said Iraq began pumping oil to Turkey's southern port of Ceyhan at 1330 GMT, with the first batch to arrive at about 1900 GMT.

But one Turkish industry source told Reuters it would take at least 10 days to build up enough supplies at Ceyhan for exports to begin to world markets.

Damage

The resumption of oil exports in Iraq has been hit by looting, sabotage and power failure, sources say.

Flows through Iraq's other export route, via the Mina al-Bakr oil terminal in the south, have been interrupted this week by power shortages.

However, the US Army has said exports from the northern fields should rise to 500,000 barrels per day by the end of the year.

Exports from the south are scheduled to reach 645,000 barrels per day in August.

The northern pipeline used to have capacity to transport more than a million barrels per day, but corrosion and damage have brought it down to half that level.