World oil prices (search) extended losses on Tuesday as Iraq restored oil exports and hedge funds continued to take profits from record highs.

U.S. light crude (search) settled down 13 cents to $42.15 a barrel after falling as low as $41.45, nearly $8 below record highs of $49.40 hit Aug. 20.

London Brent crude settled down 99 cents to $39.61 a barrel after dropping as low as $39.20, the lowest in a month.

"Funds are being forced out but many of them still have deep long positions," said brokers Refco of the investment funds who helped spur U.S. crude to the Aug. 20 record.

Exports of southern Iraqi Basra crude ran near full capacity at 1.7 million barrels a day after repairs following sabotage attacks and the first shipment for three months of northern Iraqi Kirkuk crude was loading at Turkeys export terminal Ceyhan.

An Iraqi official said Baghdad aimed to sell up to 300,000 barrels per day of Kirkuk crude via term contract deals. That was read as a sign Iraq is having some success in thwarting attacks that have all but idled exports from its northern pipeline since the U.S.-led war began in March last year.

A number of European refiners are following the lead of Turkeys Tupras, the first company to seal a post-war term contract for Kirkuk oil.

"We hope to sell about 10 million barrels of Kirkuk a month through term contracts," the official told Reuters. "Were concentrating on Europe and have already had a number of requests from refiners there."

Despite the price drop, crude is still nearly 30 percent higher than at the start of the year as producers pump close to full tilt to meet the fastest world demand growth in 24 years.

OPEC President Purnomo Yusgiantoro said on Monday the group which controls more than half of world exports aimed to increase spare output capacity by about 1 million barrels per day (bpd) in the next few months in help bolster stretched supplies.

The Organization of the Petroleum Exporting Countries (search) is already pumping close to 30 million bpd, its highest level since 1979.

Only Saudi Arabia has any significant spare capacity within the 11-member cartel, which is due to meet on Sept. 15 in Vienna to review output policy.

Weekly U.S. government inventory data due on Wednesday is forecast in a Reuters poll to show an average increase of 1.2 million barrels in crude stocks in the week to Aug. 20 on heavy imports.

Predictions for inventories of distillates, including winter heating oil, were for a 800,000-barrel stockbuild, while expectations for gasoline were for a million barrel draw as distributors stockpiled ahead of the Labor Day holiday weekend.