U.S. Oil Above $33 as War Clouds Darken

Mon December 30, 2002 10:39 AM ET NEW YORK (Reuters) - Oil prices charged higher again Monday as traders bet on a U.S. attack against Iraq early next year and as supplies from OPEC nation Venezuela stayed choked off by a strike now in its fifth week.

U.S. light crude futures set a new two-year high in early trade of $33.45 a barrel up 73 cents from Friday. London Brent crude added 69 cents to $30.85 a barrel, a 15-month high.

"Oil and politics are a volatile combination and we have two separate issues confronting the oil market at the moment," said Peter Gignoux, head of the London energy desk at Schroder Salomon Smith Barney.

Oil has risen more than $5 in December and prices are now more than $10 higher than at the start of 2002. Concerns are growing that costly energy bills could stifle global economic recovery.

Washington at the weekend ordered more U.S. troops, aircraft and ships to head to the Gulf from January in preparation for a possible war against Baghdad.

Secretary of State Colin Powell said Washington had not yet decided whether to attack Iraq to force it to disarm weapons of mass destruction, but was taking "prudent action" in readiness.

Dealers think an attack could start soon after Jan. 27 when the chief U.N. weapons inspector Hans Blix delivers a report to the Security Council on the progress of his inspections teams.

U.S. defense officials said that Saudi Arabia had agreed to let the United States use its airbases and an operations center at the Prince Sultan airbase outside Riyadh for defensive purposes in the event of war.

But Saudi Foreign Minister Prince Saud Al-Faisal later said Riyadh had "no commitments" on Iraq.

CHAVEZ DEFIANT

In Venezuela, opposition leaders extended a nationwide strike into Monday, marking the 29th day of action aimed at forcing the resignation of President Hugo Chavez and early elections.

The strike has closed most oil production and refinery operations in the world's fifth-biggest exporter and choked off overseas sales to 15 percent of normal levels.

A tough-talking Chavez Sunday showed no sign of meeting opposition demands. Chavez in a nationwide broadcast said he had no plans to step down and vowed to break the strike.

Data from state oil firm PDVSA and independent shippers showed government efforts to break the strike helped boost oil exports to about 520,000 bbpd in the week to Dec. 29 compared with 260,000 bpd in the previous week.

Volumes remain way below November exports of about 2.7 million bpd.

The Organization of the Petroleum Exporting Countries, which controls two-thirds of world crude exports, has pledged to plug any supply shortfall due to the strike in Venezuela, the cartel's third biggest producer.

But so far officials have said there are no signs of any real shortage.

Kuwait said at the weekend that it expected OPEC to hold an extraordinary meeting to consider raising production if prices remained high.

"I can assure you that OPEC will meet if the price stays high," Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah told Reuters.

But Sheikh Ahmad said he had not yet been in contact with any other OPEC ministers about an emergency meeting.

Under an informal output mechanism, OPEC aims to keep the price of its reference basket of seven crude in a $22 to $28 a barrel range by increasing supply if prices exceed the upper end of the band for 20 consecutive trading days.

The OPEC basket jumped to $31.06 on Friday, the ninth day the reference price was above the target band. Unless prices drop sharply the 20-day target for the mechanism could be triggered in mid-January.