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. Last Updated: 07/27/2016

Crude Prices Plunge But Oil Stocks Surge

APOPEC president Rilwanu Lukman being surrounded by reporters as he arrives at a hotel in Osaka on Tuesday.
World oil prices fell as much as 5 percent Tuesday after Iraq agreed to allow United Nations weapons inspectors to return and said the pretexts for an attack by the United States were thwarted.

The offer reduced the threat of imminent action against the Gulf oil exporter which traders had feared could disrupt shipments from a region that supplies a quarter of world oil.

Russia's benchmark Urals blend of crude dropped 0.07 percent to $26.70, $7.69 off its recent peak.

International benchmark Brent crude oil was 66 cents lower at $27.86 per barrel by afternoon in London, having touched a year-high above $29 last week.

Despite the drop in crude prices, No. 2 Russian oil producer Yukos led the oil-heavy benchmark RTS index to a higher close Tuesday after two banks upgraded their recommendations on the stock.

The RTS closed up 1.65 percent at 340.38 on small turnover of $9 million.

Yukos ended the day up 3.75 percent at $8.850.

Top producer LUKoil ended up 1.11 percent at $15.550, while No. 3 Surgutneftegaz closed 0.69 percent higher at $0.3665.

Fast-growing No. 5 Sibneft was up 1.91 percent at $1.8700.

"Iraq's offer has taken some of the war premium out of the market," said Nauman Barakat, a trader at Fimat International Banque in London.

Prices fell as much as 5 percent when Iraq made the offer late Monday night.

Markets rebounded slightly when the United States dismissed the move as a "tactic that will fail."

Washington, which is seeking to overthrow President Saddam Hussein, vowed to work for a tough new UN Security Council resolution forcing the country to disarm.

Iraq said all the reasons for a U.S. attack had been eliminated, and Security Council member Russia welcomed the move as an important step toward a peaceful resolution.

London's Center for Global Energy Studies said the war premium would slowly evaporate if Iraq went ahead with its offer "until the inspections program breaks down again, as it almost inevitably will."

David Thurtell, commodities strategist at Commonwealth Bank in Sydney, Australia, said he was still not ruling out a Washington attack on Baghdad.

But the offer greatly cut the chances that OPEC, which meets on Thursday in Japan, would relax output curbs, he added.

Price hawks in the Organization of the Petroleum Exporting Countries are pushing for quotas to be held in place at their lowest level in more than a decade.

OPEC president Rilwanu Lukman said the balance of supply and demand would determine OPEC policy, which in his opinion, meant there was no need for more oil.

Despite Tuesday's fall, the cost of a barrel remains 40 percent above the price at the start of the year.

Energy costs remain uncomfortably high for oil-importing nations worried about their impact on the recovery.

Some analysts believe as much as $5 a barrel has been added to global crude prices because of the threat of war against OPEC member Iraq, which exports crude under UN supervision.

UN weapons inspectors left Iraq in December 1998 just before the United States and Britain bombed the countiry in a blitz designed to punish Baghdad for its failure to cooperate. (Reuters, MT)