Crude Price Falls as Iraq Resumes Output

Oil prices eased on Monday as Iraq resumed limited crude exports from its southern terminals after a six-day halt caused by sabotage attacks.

U.S. light crude for July delivery was down 37 cents at $38.38 a barrel at the New York Mercantile Exchange (search), around $4 off 21-year highs hit in early June. London's Brent crude slipped eight cents to $36.13 a barrel.

Prices fell as Iraq resumed oil exports from its two southern oil terminals at a rate of one million barrels per day, just over half normal levels, after a sabotaged pipeline was repaired. Iraq hopes to bring southern exports back to full throttle within a few days, an oil official said.

Last week's attacks were the second major assault in as many months on the southern pipeline network, previously seen as well shielded from sabotage.

"The attacks will likely not be the last," said Washington D.C.-based consultants PFC Energy (search) in a report.

"As the American role in Iraq becomes less overt and the new transitional Iraqi government seeks to establish its own legitimacy, insurgents have every incentive to embarrass the new leaders, cut off their economic lifeblood and maintain chaos in order to show the government cannot control the country."

Fears of further attack against oil facilities in the run-up to the June 30 handover of power to the Iraqis have stemmed a slide that pulled oil prices down 10 percent from record highs hit early this month.

Swelling U.S. crude inventories and extra supply from the OPEC (search) producer cartel spurred selling from the big-money speculative funds that helped drive oil prices to record peaks.

But as a robust economy spurs the fastest oil demand growth in 24 years, there is little spare capacity in oil-producing nations to counter unexpected supply disruptions.

In Norway, the world's third biggest oil exporter, the government said on Monday that it had no plans to order an end to four-day strike by oil workers, which is cutting about 10 percent off the nations' three million bpd output.

The strike has so far stopped about 315,000 bpd of Norway's output and is threatening to expand to 455,000 bpd.

About 200 workers have stopped working in a dispute over pension rights, health problems with overnight shifts and union demands for tighter restrictions on non-union labor.

Saudi Arabia plans to keep pumping about 9.1 million bpd to the 81 million bpd world market during July, the same level as this month, to ease supply worries, an oil industry source inside the kingdom told Reuters on Monday.

The output surge leaves Saudi Arabia with about 1.5 million bpd of unused production capacity, which analysts say is the world's only spare supply cushion to compensate any other unexpected outages.