LONDON, Aug 29: Oil prices edged higher on Thursday, reversing earlier falls, as traders looked to flatten off their positions ahead of a long weekend in the United States.

The rally came despite comments from an official of the Organization of Petroleum Exporting Countries (Opec) which boosted speculation the cartel could be set to end self-imposed output curbs in place since the beginning of the year.

Reference Brent North Sea crude oil for October delivery rose five cents to $27 per barrel.

In New York, the light sweet crude October contract rose 10 cents to $28.44.

Dealers said the market had recovered after traders in New York, anxious to cover short positions ahead of a long weekend in the United States, turned buyers.

“It’s all down to New York. People there are frightened of being caught short,” one London-based broker told AFP.

Oil prices had fallen back earlier in the session after an Opec source indicated the cartel could be set to agree upon an output hike of between 500,000 and 800,000 barrels per day when member states met in Japan on September 19.

The source indicated Saudi Arabia, the world’s biggest oil producer, was likely to join forces with Algeria and Nigeria in pushing for an output hike, although it would face opposition to such a move from Kuwait, Indonesia and Venezuela.

“The market’s view is that by mentioning a specific number it’s more likely they (Opec members) are going to increase output,” said Prudential Bache oil broker Tony Machacek.

However, Commerzbank oil analyst Steve Turner added that an output hike of such a magnitude would probably have little lasting effect on prices given that it would not alleviate the supply shortages which have been building up since the start of the year.

“Opec is aware that without an increase stocks will continue to decline and would get dangerously low going into next spring,” Turner told AFP.

Turner said that stripping out the war premium from the market, Opec would need to lift output by at least one million barrels per day in order to push prices towards the middle of its targeted range of $22-$28 per barrel.

“We were expecting an increase of one million barrels a day since that would reverse the last cut which went through at the beginning of this year,” Turner told AFP.

Turner said it was possible that Opec was “flying a kite to try and gauge market reaction” to an increase of the scale proposed.

But he added that given the level of Arab hostility to US military action in Iraq, it was far from certain that Opec members would sanction a greater increase in output in the event an attack on Baghdad drove oil prices even higher.

The United States has repeatedly called for higher world output because of concern that rising oil prices would choke off the country’s nascent economic recovery.

Dealers said the prospect of military action in the Gulf continued to prop up prices after US Defence Secretary Donald Rumsfeld on Wednesday signalled the United States may be prepared to go it alone in attacking Iraq.—AFP