LONDON, Sept 17: Oil prices plunged on Tuesday after Iraq agreed to the unconditional return of UN arms inspectors, raising expectations that an attack on Baghdad could be averted.

Traders said that Opec energy ministers were now likely to rebuff calls from oil-importing nations for an increase in oil production when they meet in Osaka, Japan on Thursday.

Oil prices in London and New York plummeted by over a dollar a barrel at one point before clawing back some of their losses.

Reference Brent North Sea crude for November delivery was down 67 cents a barrel in late trade at $27.85.

In New York, the light sweet crude October contract dived 87 cents a barrel to $28.80 in early deals.

Prices slumped after UN Secretary General Kofi Annan said late Monday he had received a letter from Iraqi Foreign Minister Naji Sabri informing him of the government’s decision to allow the return of the weapons inspectors for the first time since 1998.

But the negative impact on prices was tempered by the fact that the White House immediately dismissed the offer as a tactical ploy and called for a tough new Security Council resolution to deal with Iraqi President Saddam Hussein.

“The move has caused a violent plunge in oil prices overnight as the threat of imminent military action against Iraq is averted,” said Lawrence Eagles of GNI.

Commerzbank analyst Steve Turner said that the price fall of around one dollar had erased nearly half of the so-called war premium caused by concerns about an invasion of Iraq.

“The market is taking a very pragmatic view that this may prevent war or it may only delay a war in the Middle East and we’ve got to see how these discussions about the weapons inspectors go forward.

Qatar’s energy and industry minister Abdullah bin Hamad Al Attiyah said Tuesday that there was no need for Opec to raise oil production. “I believe strongly that with our statistics and numbers there is no shortage of supply,” he told reporters in Osaka ahead of the meeting.—AFP