Crude Hovers at $65 as Iraqi Exports Stop

VIENNA -- Oil prices fell but held above $65 per barrel Monday as saboteurs forced Iraq's southern pipeline exports to a halt but Ecuador partially resumed crude production.

Analysts cautioned against putting too much emphasis on the effect of the Iraqi outages, saying it was too early to say how long the shortfalls in output would last.

Light, sweet crude for September delivery was down 25 cents at $65.10 per barrel on the New York Mercantile Exchange by Monday afternoon in Europe. The September contract, which expires later Monday, ended Friday at $65.35, up $2.08 after U.S. warships were fired upon in Jordan and production in Ecuador shut down.

October Brent was at $64.20 a barrel, down 16 cents from Friday's close after server problems forced a trading halt for several hours.

Iraqi and foreign oil officials said Iraq's oil exports were shut down Monday by a power cut that darkened parts of central and southern Iraq, including the country's only functioning oil export terminals.

Exports through the country's other main route, the northern export pipeline to Turkey, have long been halted by incessant sabotage. Iraqi officials said sabotage was also responsible for Monday's blackout, which prevented oil from being pumped into tankers waiting at berths.

But chief analyst Ehsan Ul-Haq of PVM Oil Associates in Vienna said the Iraqi supply disruption was not yet a major market factor because "it's still not quite clear whether [Iraqi] exports will be affected for a long time."

He said the next snapshot of supplies presented later this week by U.S. inventory figures could send prices up should they show a further decline in gasoline stocks. "People will also be looking to China and India," Ul-Haq said.

Chinese consumers have been hit by fuel shortages due to the profitability of exporting refined products, and in India, demand has been less than expected recently, in part because of the monsoon season.

Some stability came from South America, where Venezuelan President Hugo Chavez said his country would loan oil to Ecuador until its domestic production stabilized, easing concerns that the nation's export commitments to the United States might not be met.

"Chavez's move was quite good news for the market," said chief commodities strategist Tetsu Emori at Mitsui Bussan Futures in Tokyo, Japan. "It came as something of a surprise to most because Chavez has always been bullish. But it's a welcome move."

Violent protests erupted in Ecuador last Tuesday, bringing oil production to a standstill. Production partially resumed Saturday when demonstrators and the government declared a truce.

Ecuador's state-run oil company Petroecuador on Saturday restored 33,167 barrels of crude output in the northeast Amazon, but that was still about 168,000 barrels short of normal daily capacity.

Such an amount does not hurt actual supply, but the thin layer of spare capacity has markets on edge for any unexpected outage that could derail deliveries in a time of high demand. Ecuador said production would not return to normal until October at the earliest.