US oil prices steadied on Monday after sliding sharply from record highs late last week but 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 34 cents, or 0.7 percent, to $47.06, after losing almost 2 percent 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 Shiite militias could be near as a US AC-130 gunshot attacked rebel positions in the holy city of Najaf after tanks reinforced the siege at Iraq's holiest Shiite Muslim shrine.
Fierce fighting broke out in Najaf on Monday, with numerous blasts and gunfire echoing around the shrine held by followers of Shiite cleric, Moqtada-ul-Sadder, Reuters witnesses said.
"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 John Killdeer, senior vice president at Fiat 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 Shiites and fuel hostility to the American presence in Iraq, traders feared.
Authorities also kept a main oil pipeline in southern Iraq shut on Sunday rather than risked it being attacked. The pipeline from the Basra oilfields has been shut since a sabotage attack on August 9, limiting exports to about a million barrels daily, half the normal rate.
"The market probably more than anything hates uncertainty," said John Brady, a New York-based broker with ABN Amro. "Until there is some finality to it (the fighting in Najaf) and until there is some kind of resolution to the YUKOS crisis, the market will be supported."
The Financial Times said on Monday Russian authorities were considering launching a tax demand of up to $3 billion against a YUKOS subsidiary. A fresh escalation of pressure on the embattled oil group would reinforce fears of disruption to exports from a firm that pumps 1.7 million barrels of oil daily.
The paper, quoting an unnamed official, said the tax ministry had prepared additional tax claims against Yuganskneftegaz, YUKOS' main oil production unit in Siberia. That could slash the market value of Yuganskneftegaz and ease the way for moves to strip out the groups core oil producer.
Yet, the oil market could start to turn bearish, Brady said, after oil prices hit all-time highs in all but one of the last 16 trading sessions on the New York Mercantile Exchange but failed to touch $50.
Traders also noted an apparent shift of tone from US President George W. Bush's economic advisers, who cautioned that high-energy prices had become a drag on the American economy.
Gregory Manikin, chairman of Bush's Council of Economic Advisers, in a letter published in The New York Times said high-energy prices were also a strain on family budgets. That followed Treasury Secretary John Snow's comments on Friday that, "we're seeing some slowing in the United States directly attributable to high energy prices". So far, the Bush Administration has insisted it would continue to fill the nation's Strategic Petroleum Reserve (SPR), which now holds about 670 million barrels. Democratic presidential rival John Kerry has urged Bush to temporarily stop-putting crude into the stockpile, to help lower gasoline prices.
Traders said if the Bush Administration would indeed cease putting crude into the stockpile and release oil to the market, it would knock the market slightly. But the effect would not be immediate.
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