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Crude oil slides in Asia but rebound expected

TOKYO: Crude oil prices in Asia tumbled on Monday, extending sharp losses made in New York last week as continued profit-taking overwhelmed news that talks between the United Nations and Iraq may have hit an impasse, traders said.

"Traders here are nervous about the sharp fall on Friday in New York and recent high price levels," a trader at a trading house said. "The outlook is so unclear."

Traders said the market was focussing on the Iraq-U.N. talks, but any impact in response to the news was expected to emerge after the opening of the London and New York markets.

Iraq's chief negotiator said on Sunday that the United Nations, presumably under U.S. and British pressure, had made last-minute changes to an oil-for-food plan that could jeopardise a final accord.

"Traders are keeping a low profile today, unable to decide how to interpret the news on the Iraq-U.N. impasse," a broker said. "The market will continue to be jittery until concrete news emerges," he said.

The oil-for-food offer is based on U.N. Security Council resolution 986, adopted in April 1995. It is aimed at easing the devastating impact on civilians of U.N. trade sanctions imposed after Baghdad's troops invaded Kuwait in August 1990.

The offer allows Iraq to sell $2 billion worth of oil over six months to raise money for necessities such as food and medicine. Iraq's return to world markets would put downward pressure on global oil prices as supplies would grow.

Most traders, while sticking to the sidelines, expected prices to resume an upward trend in the short-term, and analysed Friday's fall in New York as a correctionary move in preparation for another shot at $25 per barrel.

News of a breakdown in Iraq-U.N. talks would certainly generate upward momentum, traders said.

However, traders agreed the recent rally had been driven by U.S. investment funds, and its fate lay in their hands.

"It is unlikely U.S. funds will suddenly decide to desert the market unless they find a financial instrument to invest in more attractive than oil," a second trader said.

He said prices were likely to stay at high levels for a while but cautioned the market was nearing its rational limit.

"The recent rally in crude oil has yet to be reflected in oil product retail prices," he said. "There is a limit to how far retail prices can be hiked in a short span of time."

West Texas Intermediate (WTI) benchmark May crude futures briefly touched $24.00 in Asian trade, after Iraq's chief negotiator said oil talks with the U.N. appeared deadlocked.

The contract failed to hold on to the gains, slipping back about 20 cents to around $23.81 for the rest of Asian trading hours.

On Friday, May WTI lost a sharp $1.05 on the New York Mercantile Exchange, ending at $24.39 in a correction to the week's gains.

Spot crude prices rallied to a fresh five-year closing high on Thursday of $25.34.

Prices have charged higher on good demand from a colder than normal winter in the United States and Europe, accompanied by a delay in the return of Iraqi oil to world markets, which has postponed a one percent rise in world oil supply.-Reuter