Oil prices dipped below US$30 a barrel yesterday as Iraqi crude output slowly increased, but many traders stayed out of the market ahead of an OPEC meeting later this week.

US benchmark crude was down 21 US cents at US$29.96 per barrel.

Prices are down about 5 per cent from their highs in early July after hedge funds last week took profits from a rally that had pushed up crude nearly 25 per cent since early May, traders said.

Traders were playing it safe ahead of the Organization of Petroleum Exporting Countries (OPEC) meeting in Vienna on Thursday, although the producer cartel, which controls half of the world's oil exports, is not expected to change output levels.

OPEC is likely to maintain its current ceiling of 25.4 million barrels per day (bpd) because prices have held in its US$22-US$28 target range, an OPEC oil minister said on Sunday.

On Thursday the price of OPEC crudes was US$27.33 per barrel.

"The likelihood is that the meeting will continue the production ceiling as it is at present,'' Unite Arab Emirates (UAE) Petroleum & Mineral Resources Minister Obaid bin Saif al-Nasseri was quoted as saying by the UAE state news agency WAM.

Traders said OPEC was also counting on a return of oil exports from Iraq to keep prices capped.

Iraq's oil production has risen to just over 1 million bpd from steady levels of 800,000 bpd, a senior oil ministry official said on Sunday.

"I'd expect that to apply downward pressure on prices, but it's still a fairly precarious situation. All you need is one good hit on a pipeline and you're back to square one,'' said David Thurtell, commodities strategist at Commonwealth Bank in Sydney.

Iraq has signed new crude export contracts with foreign oil companies, the second set of such deals since the overthrow of Saddam Hussein.

An official at the State Oil Marketing Organization (SOMO) said on Sunday contracts for August 1 to December 31 have been sealed with European refiners Shell, BP Plc; TotalFinaElf SA; US majors ChevronTexaco Corp, ConocoPhillips, Valero Energy Corp and Marathon Oil Corp; Sinochem of China, and a company from the Mitsubishi group, which is buying for Japanese refineries.

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