US oil prices steadied this morning after sliding sharply from record highs late last week, although the tightening siege on rebels holed up in a shrine in Iraq heightened uncertainty in the market.
US light crude for October, the new prompt month contract, gained 18 cents, or 0.4 per cent, to $46.90, after losing almost 2 per cent on Friday.
The September contract fell 84 cents to expire on Friday at $47.86 a barrel, hit by profit taking after it failed to strike the $50 mark and by a sell-off in gasoline futures.
Some traders believe the end of an almost three-week insurgency by Shia militias could be near as a US AC-130 gunship attacked rebel positions in the holy city of Najaf after tanks reinforced the siege at Iraq's holiest Shia Muslim shrine.
"The new fighting will probably have the impact of raising oil prices a bit, but should the mosque be taken by US troops, there will be a finality that will have a downward effect," said Mr John Kilduff, senior vice president at Fimat USA in New York.
But others worried the rebels will fight to the last and that the violence could mount. Comments by a senior militia commander that a wall of the shrine had been hit by US fire might enrage millions of Shias and fuel hostility to the US presence in Iraq, traders feared.
Authorities also kept a main oil pipeline in southern Iraq shut yesterday rather than risked it being attacked. The pipeline from the Basra oilfields has been shut since a sabotage attack on August 9th, limiting exports to about a million barrels daily, half the normal rate.