Oil Prices Ease, but Still Near $41

LONDON – Oil prices eased slightly but held near $41 on Monday as the threat of further disruption to already stretched global supplies supported prices.

U.S. light crude (search) shed 16 cents to $41.09 a barrel — 71 cents below Friday's six-week highs on speculative fund buying, and $1.36 off a 21-year peak in early June.

Brent crude (search), traded in London, ebbed 20 cents to $37.80 a barrel.

"Oil prices are still strong because demand is strong, capacity utilization is high, and we've still got concerns over security of supply," said Commerzbank analyst Steve Turner.

With world spare capacity at its lowest level for more than a decade, worries over supply disruption have kept prices well over $35 a barrel for most of the year.

In its first forecasts for next year, the Organization of the Petroleum Exporting Countries (search) (OPEC) said on Monday it saw slower but still firm growth in worldwide appetite for oil.

The oil cartel said demand for its crude would rise 340,000 barrels per day (bpd) to an average 27.36 million bpd in 2005, against an increase of 590,000 bpd this year.

World oil demand would grow two percent to 82.56 million bpd in 2005, after this year's unusually sharp growth of 2.7 percent, OPEC said.

Commerzbank's Turner said OPEC's confirmation last week that they would lift official output levels from August 1 by 500,000 bpd would have little effect.

"Most OPEC members that are not constrained by capacity are already over-producing their August 1 quotas, so this will have very little impact on physical supply," Turner said.

OPEC, which controls 50 percent of global crude exports, is thought to be pumping at its highest levels since December 1979.

Consultants Petrologistics estimated OPEC output, excluding Iraq, at 27.81 million bpd in July, almost two million bpd above the new August ceiling of 26 million bpd.

Iraq exports from the south were running at just under 1.7 million bpd, shipping sources said on Monday, down from nearly two million bpd before last year's war.

Analysts said a drop in the dollar was also encouraging speculators to switch into oil from relatively low-yielding fixed income and foreign exchange markets.