LONDON, (Reuters):
WORLD OIL prices plunged yesterday on signs the United States was ready to compromise over a UN resolution on Iraq, causing speculators to dump positions built up on fears of an imminent strike on Baghdad.
Dealers said any compromise resolution, which may not explicitly sanction the use of force, reduced the likelihood of a US attack and deflated a war premium that has already added 40 per cent to the price of oil since the start of the year.
Benchmark Brent crude oil slid $1.25 to $26.59 a barrel in London, equivalent to a four per cent fall, while US crude futures dropped $1.30 to $28.30.
"An attack appears not to be imminent at this stage, and I think there is room for prices to fall further," said Nauman Barakat, a trader at FIMAT International Banque.
The threat of war in the Middle East and disruption to oil supplies has kept crude close to $30 a barrel since August.
US Secretary of State Colin Powell said Washington would introduce a compromise resolution to the United Nations Security Council this week, after its initial proposal was rejected.
"It is clear that the United States will have to compromise to meet the requirements of the other Security Council members, and that compromise is perceived to be bearish," Barakat said.
The initial US draft resolution, proposing the automatic use of force against Iraq if any member of the council judges that Baghdad has impeded weapons inspections, met stiff opposition from other permanent council members.
So far only Britain has backed the US draft, while the three other veto-wielding members France, China and Russia have yet to go along with the US proposal.
Barakat said that if the US is forced to return to the United Nations to sanction a strike with a second resolution, consensus could be even more elusive next time.
The steep rise in energy costs has hit a fragile global economic recovery and hiked fuel prices at the pump.
Iraq ranked as eighth largest oil exporter last year, but its sales have been running below that for most of this year due to disputes over pricing.
Traders fear that an attack on Iraq might disrupt crude exports from other Middle East producers, which together supply about a third of world oil.
