World oil prices retreated today after a 10 per cent gain this week as tensions subsided in the Middle East.
The Israeli army's withdrawal from some Palestinian-controlled towns in the West Bank eased market fears of the conflict spreading further into the oil-rich Gulf region.
International Brent crude oil fell 43 cents to $25.34 per barrel by mid-afternoon in London, and US crude futures shed 45 cents to $25.73.
Saudi Arabia, the world's top exporter, said oil was not a weapon in the conflict, laying to rest any lingering concern that it might consider backing an Islamic oil embargo in support of the Palestinian cause.
"There is still a premium because of tensions in the Middle East, but it is less intense as the Israelis are pulling out from some towns," said Mr Tony Machacek of brokers Prudential-Bache International in London.
"It is a natural pull-back after a pretty extreme recovery since Monday," he added.
Volatile world prices have risen by a fifth since the beginning of March when violence flared on the West Bank. Having hit a six month high at the beginning of April, they subsided in the first week of April, but turned around again this week.
Iraq has already suspended its oil exports to the West in protest at Israel's incursion in several Palestinian controlled areas. Neighboring Iran has also called for a one-month oil embargo, but on condition that all Islamic producers do so.
Worries over the violence in the Middle East have combined with stringent output cuts by the Saudi-led OPEC, and independent producers including Russia, to lift Brent crude from $20 to $25 a barrel.
The United States, which consumes one quarter of world oil supply, has said supply is ample despite the halt in Iraqi supply.
But economists fear that oil could still dampen consumer spending and hit company profits if it rises further.
"The volatility in the oil market has become a significant potential risk to the recovery, especially if the security situation in the Middle East were to deteriorate further," the International Monetary Fund said yesterday.