by Perrine Faye
LONDON, Aug 27 (AFP) - World oil prices held steady Friday on concerns over the possibility of further unrest in major producer Iraq despite a ceasefire in its holy city of Najaf, where fighting has raged for weeks, traders said.
The price of London`s benchmark Brent North Sea crude oil for delivery in October climbed seven cents to 40.40 dollars per barrel in late deals.
New York`s main contract, light sweet crude for October delivery, eased five cents to 43.05 dollars per barrel in early deals.
Prices remain far short of the all-time high of 49.40 dollars reached in New York trading a week ago.
"The halt to fighting in Najaf is a key factor" behind steadier prices, Societe Generale analyst Frederic Lasserre said.
But traders voiced concern that unrest could easily return to Iraq.
"Peace is supposed to be achieved (in Iraq with the ceasefire) and that could be an end to this uprising but with the Iraq situation, who knows what can happen next? There could be another problem with the pipelines," GNI-Man Financial trader Kevin Blemkin said.
"People are concerned and are not prepared to go short (or sell their oil) into the weekend," Blemkin added.
In Iraq on Friday, rebel cleric Moqtada Sadr renounced control of his shrine stronghold to the country`s top Shiite cleric following a deal with Grand Ayatollah Ali al-Sistani to end three weeks of fighting in Najaf.
But Sadr`s Mehdi Army refused to surrender their weapons to Iraqi authorities, defying one of the conditions laid down by the Iraqi government for halting its fierce US-led assault on the militia.
"Moqtada Sadr has officially handed over control of the shrine to Marjaiya," Sheikh Hassan al-Husseini, one of 12 delegates from Sistani`s office told AFP at the complex, four months after the rebel cleric`s fighters took over the shrine.
Sadr agreed late Thursday to a peace deal offered by Sistani.
Militia threats against oil infrastructure in Iraq that caused the country to halve its crude exports from the south, had pushed oil prices to record highs last week.
But prices ended lower Thursday for the fifth straight trading day amid the ceasefire and as Iraqi crude exports have returned to normal levels of around 1.8 million barrels per day.
"We doubt that the risks surrounding Iraqi oil exports have cleared yet," Barclays Capital analyst Kevin Norrish said Friday.
"The usual industry shock absorbers of spare capacity and inventory levels look thin and there is still the risk of a supply crunch as we approach the northern hemisphere winter," he added.