New York’s benchmark light sweet crude contract for September delivery fell 16 cents on Monday to $30.89 a barrel.
In London, Brent North Sea crude oil for October delivery dropped 15 cents to $28.66.
Prices had shot higher in early trade, three days after unknown attackers blew up a section of Iraq’s main oil pipeline from its northern oilfields around Kirkuk to the Turkish terminal of Ceyhan.
Prices had leapt in overnight electronic trading, but since then traders had reassessed the risks.
“The market calmed as repairs are going on, and more security measures are enacted,” Refco analyst Jim Still said. “The market is becoming more realistic about what the lack of Iraqi oil really means.”
US forces warned that repairing the pipeline might take up to a month, with the sabotage costing as much as seven million dollars a day.
“People had been waiting for Iraqi exports to build up to 1.5 million barrels per day at some time during August – that looks very unlikely now”
Bruce Evers, Investec analyst
Iraq sits on the world’s second-biggest oil reserves, but decades of conflict as well as United Nations sanctions following the first Gulf War in 1991 have left its oil infrastructure severely dilapidated.
The US-led administration’s efforts to restore the industry have been hampered further following the ousting of Saddam Hussein’s regime by widespread looting and a series of other sabotage attacks on pipelines.
“People had been waiting for Iraqi exports to build up to 1.5 million barrels per day at some time during August – that looks very unlikely now,” said Investec analyst Bruce Evers in London.
“They are saying it is going to be between 10 days and four weeks to repair (the pipeline), and I would have thought Iraq is so lawless now that it is more likely to be four weeks.”
But the early spike had been blunted by the knowledge that the pipeline could be repaired, GNI trader Keith Pascall said.
“There is a definite reluctance not to sell the market, but equally there is a reluctance to really going long,” he said.
Dealers in London also were concerned by escalating conflict between ethnic fighters and security forces in Nigeria’s oil centre of Warri.
Gun battles erupted for the fourth day running on Monday in the southern city, after at least 10 people had been killed in clashes overnight, according to one policeman.
Witnesses told AFP that firing had continued into Monday afternoon and that hundreds of people had spilled out into the streets to seek shelter away from the fighting.
Similar fighting in March forced Anglo-Dutch oil major, Shell, its US rival ChevronTexaco and France’s Total to evacuate most of their facilities in the western Delta area, slashing Nigerian production by 40%.
“The worrying area is an oil producing area so it could result in oil being taken off the market,” said Dresdner Kleinwort Wasserstein analyst Paul Spedding in London.
“Nigeria remains a threat,” he said.