By Peg Mackey1 hour, 26 minutes ago
Oil slipped under $71 on Monday as investors balanced higher supplies from Iraq against demand in China and the United States that remains robust despite costly fuel.
Iraq's oil minister sketched a positive production outlook on Sunday, saying output had recovered to 2.5 million barrels a day -- the highest since the fall of Saddam Hussein -- and would rival top exporter Saudi Arabia within a decade.
At the same time, Baghdad offered a batch of crude from its troubled north -- the second sale this month after nearly a year's halt due to sabotage on the Iraq-Turkey pipeline.
But analysts said Oil Minister Hussain al-Shahristani's bold targets should be treated with caution.
"Shahristani announced that Iraq hoped to be producing 4.3 million bpd by 2010, and perhaps less convincingly, suggested that Iraq would be challenging Saudi Arabia by 2015," investment bank Citigroup said.
"Few would choose to attribute a high level of confidence to these supply forecasts in the current environment."
U.S. crude traded down 19 cents at $70.68 a barrel by 1244 GMT. London Brent crude slipped 16 cents to $69.77.
Prices have climbed 16 percent in 2006 as pension and hedge funds pile money into oil and investors fret over supply disruptions, whether real or anticipated.
OPEC's number two producer, Iran, repeated on Sunday it stood ready to use its 2.5 million barrels per day (bpd) of oil exports in self defense if threatened by an international dispute over its atomic programmeprogram.
But Oil Minister Kazem Vaziri-Hamaneh said: "But using such a weapon in the normal situation in the country and oil markets would mean confronting the world and we do not have such a policy."
Oil, when adjusted for inflation, is at its most expensive since 1980, the year after the Iranian Revolution. It is within sight of its $75.35 record high hit in April.
But high prices have yet to check buying from the world's two biggest consumers -- the United States and China.
Implied oil demand in energy hungry China surged 13.5 percent in May from a year ago, according to Reuters calculations on Monday, based on official data.
And U.S. drivers are buying more gasoline than last year, despite paying almost $3 a gallon at the pump.
OPEC producers worry high prices are fuelling inflation that could hit economic growth and dampen demand for their oil. Further evidence of higher inflation arrived on Monday courtesy of the Bank for International Settlements.
"Inflation risks are now seen to be greater than they have been for some time," BIS General Manager Malcolm Knight said.
"To achieve and to continue to achieve low and stable inflation, central banks do need to bring interest rates back into positive real territory."
(Additional reporting by Neil Chatterjee in Singapore)