Iraq war fears lift oil prices

As the inspectors got down to business, oil industry officials took the view that a war against Iraq remained a strong possibility.

"There are concerns [about] whether Iraq will comply completely with inspections," said ABN Amro's Paul Ashby.

During early trade, one of the benchmark's of the world oil market, Brent crude oil futures, added 32 cents to Monday's near $1 (63 pence) price rise. One barrel of Brent crude oil now costs $24.60.

"Fundamentally the oil price is probably $22 to $24 a barrel, so there's still a war premium for some sort of disruption to supplies," Mr Ashby said.

In the US, futures contracts for the delivery of crude oil in December rose more than $1 to $26.54, their highest level in more than two weeks.

Less oil available

The main concern for energy traders with regards to a war in the Middle East would be its effect on oil supply from the region.

Also fuelling oil prices were concerns that the cartel of oil exporting countries, Opec, was mulling production cuts that would further restrict world supply and push prices higher.

"We are concerned about overproduction," Opec President Rilwanu Lukman said on Monday, estimating that the 10 Opec members are producing about 23.7 million barrels per day - 2 million barrels more than they have agreed to under their formal production quotas.

"The whole of Opec is trying to restrain it. Everyone is on board," said Mr Lukman.

Winter demand

Oil prices may well continue to rise during the weeks ahead, though such price rises would be caused by rising demand for heating oil for winter, by political uncertainty in Venezuela, which is a major oil producer, and by heightened tension in the conflict between Israelis and Palestinians.

"The [Iraqi war] premium is not as big as it was," said Mr Ashby.

"Now it is probably $2 to $3 a barrel, whereas before it was $6".