Oil prices retreated Friday as the Norwegian government stepped in to resolve a strike that has hit output from the world's third-largest exporter.
The price of benchmark Brent North Sea crude oil for delivery in August fell by US$0.38 to US$34.92 in late trading here.
New York's reference light sweet crude for August delivery dropped by US$0.58 to US$37.35 in early deals.
The Norwegian government intervened to halt a week-long escalating strike in the country's oil sector by enforced mediation between unions and employers.
"The dispute on the Norwegian shelf is over," the Labor and Social Affairs ministry said in a statement.
"In parallel, it has been decided that continued strike action and the lock-out are prohibited," it said.
The trade union Oljearbeidernes Fellessammenslutning (OFS) on Wednesday vowed to step up its action from midnight today.
The move would have forced the daily Norwegian output down to just 75 percent of the usual capacity of around 3 million barrels per day (bpd). Employers meanwhile announced Thursday a lock-out of striking workers.
Even before news of the Norweigan government's intervention traders had been optimistic about the chances of a swift resolution.
"There is a building feeling that the strike in Norway will be short-lived and that the government will intervene and therefore the interruption of supplies will be very limited," Commerzbank analyst David Thomas said.
He added that the market was also reassured by the prospect of the Organization of Petroleum Exporting Countries pressing ahead with a planned output boost on Aug. 1 despite a recent fall in world prices.
At a meeting on June 3, OPEC decided to raise its output ceiling to 25.5 million bpd on July 1 and to 26 million bpd from Aug. 1 to try to push down high world prices.
"There are talks going on about OPEC invoking their 500,000 barrels a day production increase from August. That is easing concerns about supply," Thomas said.
"Pressure is still on OPEC to follow through on its commitment to put more oil" on the market.
The market was also nervous about the potential for more attacks by insurgents in Iraq in the run-up to the planned June 30 transfer of power to a new interim government in Baghdad.
"Iraq will continue to be the focus because there are potential supply disruptions and exports are still lower than their previous levels before the recent pipeline attacks," said Thomas.
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