LONDON, Oct 22: Oil prices ran up new losses on Tuesday as the so-called ‘war premium’ factored into the market to reflect risks of a war in Iraq continued to unwind on expectations of a UN compromise resolution over Baghdad.

Reference Brent crude oil for December delivery fell 26 cents to $26.33 a barrel in late trading here — levels not seen in one and a half months — following a 1.25-dollar slump on Monday.

In New York, benchmark light sweet crude November futures fell 54 cents a barrel to $27.83 a barrel in early deals, having also plunged by over a dollar the previous session.

“The recent losses are related to a perceived softening of the US stance over Iraq with regard to possible military action, and it looks as if the UN approach is coming more to the fore,” said Prudential Bache trader Tony Machacek.

Crude prices gained around four dollars a barrel through August and September as investors priced in possible disruption to supplies from the Middle East in the event of US-led military action to topple Iraqi President Saddam Hussein.

Singapore fuel oil prices dropped on Tuesday under the weight of earlier losses in benchmark crude oil.

Traders said 180-centistoke material was $4 per ton lower at $156.

US crude oil prices plummeted $1.23 a barrel on Monday in New York to a seven-week low after US President George W. Bush said he believed Iraq could be disarmed peacefully.

Bush’s comments prompted selling by traders who had banked on a military strike against Baghdad to lessen world supply.

The selloff in fuel oil paper overshadowed bullish sentiment stemming from renewed Chinese interest in buying physical cargoes, traders said.

They said the key regional importer submitted bids for 90,000-100,000 tons for early November, a day after shipping fixtures showed Titan Oil moving 60,000 tons of fuel oil to China from November 1.

Outright prices are lower and this will attract a lot of end-users in China, but the paper and crude weighed down the market, said one Singapore-based trader.

Traders said it remained to be seen how much of the estimated two to three million tons of arbitrage fuel oil landing in Asia from the end of October through early November could be absorbed by Chinese importers.

It’s not yet clear how much of the incoming arbitrage is the right quality for Chinese requirements, said a Chinese trader based in Singapore.

Traders said at least half of the incoming arbitrage would not move on to China from Singapore because it was mixed/cracked material from the US Gulf and the Caribbean.

With higher shipping rates from the West to Asia and Singapore’s outright prices down from their mid-September high of $174.50, the window for new arbitrage fixtures remained firmly closed, traders said.

November fuel oil gained in relation to Dubai crude, however, with the fuel oil/Dubai crack, or the discount of the product to a barrel of the crude, pegged at minus $1.30/minus $1.15 per barrel.

On Monday the crack was minus $1.65/$1.55 per barrel.

Traders said the spot market, dominated by five sellers, saw no deals done.—AFP/Reuters