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Written by: Staff

SINGAPORE, Sep 11 (Reuters) Oil prices slipped under $66 on Monday, adding to last week's slide on an improved U.S. supply picture and signs of easing tension over Iran's nuclear programme.

U.S. light crude for October delivery fell 36 cents to $65.89 a barrel by 2315 GMT, hitting a new five-month low of $65.70. It had plunged $1.07 on Friday and lost over 4 percent last week. London Brent crude fell 13 cents to $65.20.

Prices continued a slide from Friday after the potential early recovery of output from BP's giant Alaskan oil field followed U.S.

inventory data that showed growing fuel stockpiles, with traders now watching for OPEC's decision on output levels.

The producers cartel meets on Monday in Vienna, with ministers saying on Sunday they were unlikely to change a high output policy that is helping steer prices lower.

''U.S. supply is comfortable and demand is about to enter a comparative lull. The Iran premium is dwindling too as the negotiations between Iran and the U.N. drag on,'' said Tobin Gorey of the Commonwealth Bank of Australia.

Iran's chief nuclear negotiator Ali Larijani offered a two--month suspension of Tehran's nuclear enrichment programme in weekend talks with EU foreign policy chief Javier Solana, an EU diplomat said on Sunday.

But it was unclear if Iran would meet the Western demand it suspend enrichment before the start of any talks on trade incentives aimed at ending the nuclear stand-off. An Iranian official denied Tehran had offered any freeze on enrichment.

Expectations of a long delay before any possible sanctions has eased worries that Iran could retaliate by disrupting oil flows, while a milder-than-forecast Gulf of Mexico hurricane season so far has also helped dampen U.S. prices from a record $78.40 in July.

Hurricane Florence, the second of the 2006 Atlantic season, headed towards Bermuda on Sunday and was expected to stay away from the North American mainland, where hurricanes battered oil production a year ago.

OPEC CONCERN A committee advising OPEC on oil output policy will recommend the organisation keep its current production but leave the door open to another meeting before December if prices drop sharply, an OPEC delegate said on Sunday.

For over a year OPEC has been pumping at or near its fastest rate for 25 years. But forecasts that demand for OPEC oil will decline in 2007 are beginning to worry some in the group that pumps a third of the world's oil.

''We have really been pumping without bothering what the call on OPEC is, but such history cannot go on for ever,'' said OPEC President Edmund Daukoru. ''We don't know when the bubble might break, we need to take a more realistic position,'' he said.

Expected U.S. output was given a fillip after BP said on Friday it believes the downstream segment of the shut oil transit pipeline on the eastern side of the Prudhoe Bay field in Alaska is in good enough condition to be restarted.

BP shut down half of the 400,000 barrels per day Prudhoe Bay oil field, the biggest field in North America, in August after an inspection revealed serious corrosion. BP executives said on Thursday the entire field should restart by the end of October.

There is also the potential for slower oil demand after signs U.S. economic activity is easing while second-biggest consumer China has raised lending rates to try to cool its economy.


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