North Sea benchmark Brent crude futures for August closed a sharp $1.09 a barrel down on the day at $28.30.

While the US Light crude for August closed down $1 at $29.95.Also helping drag prices lower was the news that the US government had released a small volume of oil from its emergency reserves to domestic refiner Citgo.

The US energy department said it released 500,000 barrels to help avert a shortfall in US gasoline supplies. Conoco said it too was to receive emergency supply from government reserves.

Dealers said prices were on the defensive following recent comments from key oil producers. They suggested that Opec at a meeting next week would agree to free up additional crude at the start of the third quarter.

They said Opec looked likely to raise supply by up to one million barrels daily, more than would have been the case.

If the cartel last week had observed an informal mechanism to release 500,000 bpd when Opec crudes rose above $28 per barrel.

"Most likely Opec will agree on an increase of one million barrels a day.Only Iran will oppose but they will raise output anyway to maintain market share," said Roger Diwan of Petroleum Finance Corporation.

Fears of a shortfall in US gasoline supplies in the peak demand holiday season and uncertainty over Opec's next move have driven oil close to levels not seen since the 1990 Gulf War. US crude went over $33 earlier this week.

An official from Opec-member Venezuela said on Thursday that Caracas favoured a production hike of more than 500,000 bpd.

Opec kingpin Saudi Arabia, the world's largest oil producer, says publicly that oil markets are reasonably balanced and that all options remain open to the cartel.

But industry sources have said that Riyadh too believes 500,000 bpd may not be enough to ease prices down to the $25 with which it would be more comfortable.

Its gulf neighbour Iran has said it sees no reason for a hike at this time, then they will blame the firm price on shortages of US gasoline, not crude.Non-Opec member Mexico, a major oil exporter to the US, has said that it would back an Opec production boost.

Mexican oil minister Luis Tellez and his Saudi counterpart Ali Naimi held private talks for several hours in the Netherlands on Wednesday. But they gave no comment afterwards.

Analysts GNI Research said there appeared to be a subtle shift within key Opec members. This is mainly over output policy towards a rise in production in excess of 500,000 bpd. It added. Given that there are a considerable number of traders looking at a no change situation (to Opec output), any production increase is likely to see a severe initial sell off.

Russian oil output seen rising 15% by 2020
Russian oil output will rise 15% to 350 million metric tons a year by 2020, deputy energy minister Anatoly Yanovsky said on Thursday. Output this year will be 305 million tons, he told the St Petersburg Economic Forum, a government-sponsored conference designed to focus on economic relations among the 12 member nations of the Commonwealth of Independent States. Oil output is expected to rise to 325 million tons by 2010, 335 million tons by 2015 and 350 million tons by 2020.

The growth will come as production increases in the Caspian and northern seas, the Timan Pechora region and eastern Siberia, Yanovsky said. The share of west Siberian production in Russian output will fall to 55-58 per cent by 2020, from its current share of 68 per cent, he said. Investment demand in the sector over the next 20 years will be about $43 billion, he said.

-- (The Wall Street Journal)