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Bush says Iraqi oil will not cover costs

"I don't think we can count on much in the short term."

US President George W. Bush

Oil prices slipped on Friday capping a week-long slide, as peak summer driving season came to a close and US petroleum supplies grew slightly.

Markets slumped nearly 9 percent on the week, shortened one session by the US Labor Day holiday, amid signs that tight supplies in the world's top consumer, the US, have eased and that Iraqi output is starting to recover six months after the US-led invasion.

Having peaked at nearly US$32 per barrel last month, WTI crude oil on the New York Mercantile Exchange settled at US$28.88 per barrel, down US$0.10 on the day. London Brent crude was also US$0.10 weaker at US$27.21.

The US market is key to global petroleum prices as it consumes some 25 percent of the world's oil.

US spare supplies of gasoline rose less than 1 million barrels last week to 192 million barrels, the government said on Thursday, but stocks were still 13 million barrels less than last year.

"We were on the fast lane to the downside on gasoline in recent days and today, people found some reason to buy back, with the small [stock] rise hardly changing inventory levels," said a NYMEX trader.

Oil market analysts had been expecting further price falls as big-money investment funds switch out of oil and back into better performing bonds and shares.

The selling subsided somewhat on Friday when a major Nigerian oil union threatened to withdraw its members from oil production sites run by Royal Dutch Shell.

The dispute over feared job cuts puts at risk 800,000 barrels of oil pumped daily by Shell in Africa's top oil producer, equivalent to one percent of global production.

Meanwhile, US President George W. Bush acknowledged on Friday that the US cannot count on Iraqi oil revenues in the short-term to cover the country's reconstruction needs.

Bush, in an interview with CNBC, said he would "look at" one congressional proposal under which Washington would be paid back with future Iraqi oil revenues.

"But first of all, the oil revenues in Iraq really aren't as steady as they will be in the future. I mean I don't think we can count on much in the short term," Bush said.

The Bush administration is putting together a massive spending package for postwar Iraq expected to total about US$65 billion, though sources said the final number was still in flux. One source said it could be expanded to US$80 billion.

The White House asserted in the run-up to the war that Iraqi oil reserves would pay for reconstruction, but critics said Bush's budget office was overly optimistic.

Bush said US authorities in Iraq have done a "pretty darn good job of getting ... this dilapidated system back up and running."
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