Crude oil fell almost 2 percent after the UN Security Council extended the terms of Iraq's oil export program for a month to allow more time to negotiate possible changes to sanctions on the country.
The council extended the agreement so it could debate a UK and US-backed proposal to tighten restrictions on Iraqi military imports. Iraq wanted a 180-day renewal of the agreement without any changes, though Iraq's UN ambassador said the country would honor existing oil con-tracts, worth about five months of exports at current rates.
"For the moment, Iraq has agreed to honor their contractual obligations, so that means the Iraqi crude oil will be flowing at least through the end of the summer," said Michael Fitzpatrick, an oil trader and broker at Fimat USA Inc in New York.
Crude oil for July delivery fell US$0.44, or 1.6 percent, to US$27.93 a barrel on the New York Mercantile Exchange. Prices are down 1.6 percent this week and about 7 percent from a three-month high reached on May 21.
In London, Brent crude oil for July settlement fell US$0.27 to US$29.07 a barrel on the International Petroleum Exchange.
Iraq opposes moves by the US and UK to introduce so-called smart sanctions into the rules regarding Iraqi oil exports. The new rules would ease controls on most imports while tightening them on military equipment.
"Baghdad will not deal with the extension of the United Nations resolution if the Security Council adopted it," Deputy Prime Minister Tariq Aziz told Iraq's official news agency INA today, before the council voted to adopt the extension.
Iraqi UN Ambassador Mo-hammed al-Douri said the country would not sign any new oil contracts after Sunday, when the existing six-month phase of the sanctions program was originally scheduled to expire.
Earlier this week, Iraqi Oil Minister Amer Mohammed Rasheed said Iraq would "respond positively" if the Security Council adopted a six-month renewal of the oil-for-food program, though he said the country would stop exports if the UN extended the current agreement.
Such comments have kept open the possibility that Iraq may still halt exports altogether.
"With Iraq, nobody knows what they're going to do," said James Fiedler, a senior oil broker with Man Financial Inc in New York. "They're talking from both sides of their face: Some people think exports might stop come June 3, and on the other hand, there could be no change in exports at all."
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