Oil: Prices hold above US$71 after volatile week

LONDON - Oil held gains above US$71 on Friday after a roller coaster week as investors balanced ample US petrol supplies and inflationary fears against strong economic growth and concern over possible supply disruption.

US crude rose 5 cents to US$71.37 a barrel, after Thursday's US$1.46, or 2 per cent, rally. London Brent crude eased 12 cents to US$70.59.

Traders said market was winding down ahead of a long holiday weekend in many European countries and the United States.

Commodities have yo-yoed since touching record highs in April, with investment funds fearing the high prices they have supported may be unsustainable if they are creating inflation.

A key US inflation report released on Friday did little to clear up the question of whether the Federal Reserve will raise interest rates next month.

Core US prices rose 0.2 per cent in April, matching Wall Street expectations but came close to being rounded up to a 0.3 per cent increase that would have set off alarm bells.

The volatile July US crude futures contract has swung between US$68 and US$75 during May in a shifting demand-and-supply outlook. It remains below April's record US$75.35, but is still up 17 per cent this year.

Opec output seen unchanged

Opec has been pumping close to capacity for a year but has failed to subdue prices. The cartel is expected to keep its production levels unchanged when it meets in Venezuela's capital Caracas next Thursday.

"The market situation does not justify neither a ceiling increase nor a cut of the Opec output level," Algeria's Energy and Mines Minister Chakib Khelil said on Thursday.

Concern over possible supply disruption from Opec members Iran and Iraq continued to support oil prices.

World powers are likely to meet in Europe next week to finalise a package of proposed threats and incentives to stop Iran's nuclear programme, which some believe is for weapons despite Tehran's insistence it wants nuclear power.

Officials are said to have made progress at a first meeting in London on Wednesday, but Russia is yet to be convinced on some sanctions proposed to maintain oil supply from the world's fourth-biggest exporter. US President George W. Bush said he would consider incentives for Iran if it suspended uranium enrichment.

In Iraq, Fadhila, a small Shi'ite party with a power base in the Gulf port of Basra, could halt oil exports as part of a power struggle with the new government in Baghdad, Iraqi oil officials and political sources told Reuters on Friday.

"Fadhila employees will do a minimum of work to satisfy domestic needs of 400,000 to 500,000 barrels a day," the source told Reuters. "As for exports and boosting output, let the ministry deal with that." Basra is the main export point for nearly all of Iraq's 1.5 million barrels per day of oil exports vital for the economic survival of the nation. Shipping agents said on Friday there was no disruption to oil loadings.

- REUTERS