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UpstreamOnline: Crude slips on Iran offer

By Upstream staff

Oil prices edged lower to under $73 a barrel today, as world powers studied Iran’s offer of more talks to resolve a nuclear dispute before it leads to sanctions being imposed on Tehran.

US crude for October delivery was 30 cents down at $72.80 a barrel by 0255 GMT, after falling 20 cents yesterday. The September contract expired 18 cents up at $72.63 yesterday after a three-day rally. London Brent crude for October slipped 33 cents to $72.91 a barrel.

Last night Iran said its reply to a package of incentives by world powers contained ideas that would allow serious talks about its standoff to start straight away. But it was not clear whether the response went far enough to avert United Nations sanctions.

“The risk to the market is to the downside, since the market has factored in Iran being intransigent,” Michael Coleman, managing director of Singapore-based hedge fund Aisling Analytics told Reuters. “Fundamentally, crude should be under pressure.”

The UN Security Council has demanded that Iran halt its nuclear work by 31 August, but there was no sign that Tehran had agreed to a key demand to halt uranium enrichment.

Traders fear that Tehran may use its oil exports of more than 2 million barrels per day as a weapon to defend itself in the row. Officials have said sanctions will harm the West more than Iran by sending oil prices even higher.

Iran’s answer was likely to be designed to divide Security Council members Russia and China, both key trade partners of Tehran lukewarm on sanctions, from the US, France and the UK who have all backed tougher measures.

US crude prices have fallen back from a record $78.40 in July after a ceasefire between Israel and Lebanon eased the risk of violence spreading in the Middle East.

But prices remain 19% up this year on the fear of disruption to Iran’s exports and reduced Nigerian supplies.

At least 508,000 bpd or about a sixth of Nigeria’s output capacity has been shut in due to militant attacks and pipeline leaks this year, with its largest producer, Shell, most affected.

A partial outage at BP’s Prudhoe Bay oilfield was expected to lead to a 1.2 million barrel crude drop last week in US inventory data, due for release later today, a Reuters survey showed

Traders are keeping an eye on Tropical Storm Debby in the far eastern Atlantic, the fourth of the 2006 hurricane season, though forecasters saw it moving towards Bermuda and not threatening the US Gulf.

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