LONDON – World oil prices eased from their highest levels in 10 days on Friday after an Iraqi official said partial exports could resume at the weekend, four days after sabotage attacks cut off supplies.
Prices still remained broadly supported by fears that global oil production is nearing its limits, with the Iraqi halt and a Norwegian strike exacerbating the problem.
U.S. light crude (search) traded down 18 cents to $38.28 a barrel on the New York Mercantile Exchange (search), only partly reversing Thursday's $1.14 surge driven by a wave of speculative fund buying, brokers said.
London's Brent crude was down 26 cents at $36.95 a barrel, off peaks that were the highest since June 8.
Prices fell by more than 10 percent from record highs two weeks ago as speculative players cashed out of oil due to swelling U.S. inventories and OPEC's (search) pledge to pump extra crude this summer.
But simmering fears over Middle East oil security amid increasing violence in Iraq and Saudi Arabia were revived this week by a trio of pipeline sabotage attacks that brought Iraq's 1.6-1.8 million barrels per day (bpd) of exports to a halt on Tuesday.
An oil official in Iraq said on Friday they hoped to resume limited supplies of about 700,000 bpd on Saturday, assuaging fears that the outage could drag on for more than a week.
"They are welding the final piece after encountering some delay. Test runs are due to start later tonight and partial exports should be flowing by tomorrow if there are no leaks and pressure is okay," the official said.
This week's sabotage was the second major attack in as many months on the country's southern pipeline network, previously seen as well shielded from sabotage. The northern Kirkuk pipeline has been beset by bombings since the war ended last year, managing only limited, sporadic exports.
Adding additional stress to an already taut global supply chain, 200 Norwegian oil workers went on strike over pay Friday, forcing oil companies there to begin shutting in nearly 400,000 bpd -- or 13 percent -- of output from the world's third-biggest exporter.
"With the Iraqi pipelines out and this Norwegian strike, we haven't got much of a cushion in the market right now," said a broker from the floor of London's IPE exchange. "How many more barrels can OPEC make up?"
Traders also fear a potential attack on oil facilities in Saudi Arabia, the world's top exporter, which has seen a wave of militant violence this year aimed at ousting the ruling royal family and driving out Westerners.
Saudi Arabia has pledged to supply more than nine million bpd to the world's 81 million bpd market in June to ease worries of tight supplies at a time when robust global economic growth in 2004 has fueled the biggest increase in oil demand in 24 years.
That output surges leaves the kingdom 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.
The latest gains were also fuelled by an unplanned shutdown at a gasoline-producing unit at ExxonMobil Corp's (XOM) 538,000 barrel-per-day (bpd) refinery in Baytown, Texas, which raised fears of a summer supply crunch during peak holiday season.
U.S. gasoline prices plunged by more than 20 percent from record highs in late May after traders reckoned rising inventories, although still marginally below last year's levels, would be sufficient to last through the peak demand summer driving season.
Prices inched lower on Friday to $1.1850 a gallon, having earlier climbed as much as five cents since Wednesday.
"The sharp reaction in the product markets highlights just how tight the supply situation is in these markets at the moment, and serves to highlight the point that the sell-off in gasoline had been rather overdone," said Barclays Capital in a report.
According to a filing with the Texas Commission on Environmental Quality (search), ExxonMobil's unit will be closed for at least two days, although traders in the Gulf Coast gasoline market said it would more likely be shut for 10 days.