Oil: Price falls as US takes step to end Mideast war

NEW YORK - Oil prices fell more than a dollar today as the United States and Britain sped up diplomacy for a UN resolution aimed at halting a 17-day war between Israel and Lebanese Hizbollah guerrillas.

The move eased fears that the conflict would spread to major oil producing countries in the region, a concern that had pushed crude oil prices to a record over US$78 a barrel earlier this month.

US crude futures fell US$1.30 to US$73.24 a barrel while London Brent crude fell US$1.62 to US$73.39.

President George W. Bush told a news conference after talks with British Prime Minister Tony Blair that Secretary of State Condoleezza Rice would return to the Middle East this weekend for talks on a United Nations resolution to end the fighting.

"We share the same urgency to stop the violence," said Bush, with Blair at his side.

The energy market was also hit by a report showing weaker-than-expected economic growth in the United States during the second quarter, raising expectations that the world's biggest oil consumer may slow its energy demand.

Economic growth in the United States slowed abruptly during the second quarter to a 2.5 per cent annualized rate in the April-June quarter. That was less than half the robust 5.6 per cent rate registered in the first quarter.

Oil dealers added that a big sell-off in petrol futures on the US market was also pressuring crude. Petrol futures fell 7.10 cents to US$2.2250 a gallon.

"There was a huge speculative sell-off in petrol, which pressured crude," said Jim Ritterbusch of Ritterbusch and Associates. "The feeling is we're through the worst of the driving season in good shape."

Brent, which traditionally trades at a discount to US crude maintained a slight premium, which analysts said was at least in part because Brent is seen as a more direct substitute than US oil to disrupted Nigerian supplies.

"Brent is a direct competitor to Nigerian crude. They are very similar grades," said Deborah White of SG CIB in Paris. "And US crude stocks are more than adequate."

Oil major Royal Dutch Shell's Chief Executive Jeroen van der Veer said the company did not expect production closed off in Nigeria to make a significant recovery this year.

Shell is losing 653,000 barrels per day (bpd) of the output it operates in Nigeria, most of it because of militant attacks.

Chevron has also reduced exports by 43,000 bpd.

The total amounts to around a quarter of production from the world's eighth biggest exporter.

(additional reporting by Barbara Lewis in London)

- REUTERS