The US announcement that Uday and Qusay Hussain had been killed in a gun battle on 22 July prompted an immediate drop in prices. Traders speculated that the news would dampen the appetite of those still loyal to the deposed Iraqi leader for continued resistance and thus allow the rehabilitation of the hydrocarbons infrastructure to proceed more swiftly. Whether such faith is justified was cast into doubt by the death of two more US soldiers in separate ambushes the following day.

Iraq's State Oil Marketing Organisation (SOMO) on 23 July signalled that it intended to boost output significantly from August and announced official selling prices for term contracts. A senior SOMO official said that exports of Basra Light from the Gulf terminal of Mina al-Bakr would rise to 645,000 barrels a day (b/d) next month from about 450,000 b/d in July. The offer of term contracts was immediately taken up by a number of oil majors. ChevronTexaco and ConocoPhillipsof the US, the UK's BP, the Royal Dutch/Shell Groupand China's Sinochem each signed up for 2 million barrels a month. SOMO is seeking to expand this list to absorb exports of at least 20 million barrels a month. However, there remains no word on when exports from the northern Kirkuk fields will resume.

A decision at the late July OPEC meeting to lower the current 25.4 million-b/d output ceiling appears unlikely in light of continued strong prices. US gasoline demand and low stocks are still driving the market. Crude inventories fell again in the week to 18 July to 276.3 million barrels, 11 per cent lower than at the corresponding point in 2002. Overall gasoline and in particular reformulated gasoline stocks are also lower than the seasonal norm during the period of peak summer demand, although the gap narrowed slightly over the week. Demand in Europe is strong as a result of summer driving and the hot weather, which is creating strong fuel oil demand to power air-conditioning units.

'There were valid reasons in June [for OPEC] to want to meet again, but the course of events has ultimately rendered the meeting somewhat superfluous,' says JP Morgan analyst Paul Horsnell. 'Demand will end this month looking far healthier than the tales of doom, that were spun widely off last week's [US stocks] data, might have implied.'