Crude oil fell for a third day as US President George W. Bush seeks an Israeli withdrawal from Palestinian-controlled territory.
Prices surged 21 percent in March on concern that fighting between Israel and the Palestinians, and a possible US attack on Iraq, would disrupt supplies from the Middle East, where about a third of the world's oil is produced.
"Israel can ignore what Europe and the Arabs think but when it comes to the United States it's another story," said Mordechai Abir, director of energy and geopolitical research at Burnham Securities Inc in New York. The Bush administration "can twist Israel's arm and get what it wants."
Crude oil for May delivery fell US$0.37, or 1.4 percent, to US$26.21 a barrel on the New York Mercantile Exchange. Prices were down 0.4 percent this week and have rallied 32 percent this year.
In London, crude oil for May settlement fell US$1.32, or 4.8 percent, to US$25.99 a barrel on the International Petroleum Exchange. Prices in London were little changed this week.
US Middle East envoy Anthony Zinni met with Yasser Arafat today for the first time since Israeli troops surrounded the Palestinian leader's West Bank office a week ago, Israel's Ha'aretz newspaper reported. US Secretary of State Colin Powell arrives in the region next week.
Six members of the terrorist group Hamas were killed by Israel yesterday, including the suspected mastermind of last week's suicide bombing of a Passover dinner, in which 26 people were killed, the Associated Press and Agence France-Presse reported.
There is mounting skepticism that Middle East oil producers will be able to organize an embargo as a show of support for the Palestinians in their fight against Israel.
Most OPEC members say they will keep exports moving even though Iranian leader Ayatollah Ali Khamenei said Islamic oil-producing nations should suspend exports for one month to countries that support Israel. Iraq called for an embargo earlier this week.
"The Iranians wouldn't dare cut supplies without the cooperation of Saudi Arabia, Kuwait and the UAE," Abir said. "All they would accomplish would be to lose market share."
Iran and Iraq, OPECs' second-and fourth-largest producers, are the only exporters to suggest using oil as a "weapon" against the US, the biggest energy consumer.
Saudi Arabia, OPEC's largest producer, had increased April oil production by 430,000 barrels a day to take advantage of higher prices, according to Dow Jones.
OPEC expects crude oil prices to decline once Powell arrives in the Middle East. The producer group dismissed the call for a one-month embargo against supporters of Israel.
Speaking from OPEC's Vienna headquarters, Secretary-General Ali Rodriguez said that political tensions in the Middle East had added a premium to oil prices. "I believe the premium in this market is between US$5 and US$6, distorting the real price," he said.
"The market is overestimating the chances of a supply disruption," said Doug Leggate, an oil analyst at Commerzbank Securities in London. "OPEC doesn't want US$35 a barrel. They're not going to use the oil weapon."
OPEC reduced output quotas starting Jan. 1 to the lowest level in a decade in an effort to boost prices, which fell 26 percent last year. Weak demand means the group "probably" will not open the taps when it meets on June 26, said Rodriguez, a former oil minister for Venezuela.
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