Oil hits 2-year high

But prices later retreat after OPEC hints at output increase to stem shortage from Venezuela. December 30, 2002: 4:28 PM EST

NEW YORK (CNN/Money) - Crude oil prices jumped to their highest level in two years Monday but later retreated after OPEC signaled it may raise output to plug any shortfalls in world supply stemming from the protracted strike in Venezuela.

U.S. light crude for delivery in February fell $1.35 to $31.37 after jumping to $33.63, the highest since Dec. 1, 2000. In London, Brent crude futures slipped 50 cents to $29.66 a barrel, also paring earlier gains.

The Organization of the Petroleum Exporting Countries (OPEC), which controls two-thirds of world crude exports, was set to raise output by at least 500,000 barrels a day unless oil prices drop heavily in the next two weeks, according to Reuters.

An informal OPEC agreement stipulates that output be raised if prices for a basket of cartel crude oil stay over $28 a barrel for 20 working days. The basket was priced at $31.06 Friday, its ninth day over the $28 level. Unless prices fall sharply, it will have stayed over $28 for 20 working days by Jan. 15.

But some analysts questioned whether OPEC's move was anything but a short-term relief strategy until the crisis in Venezuela is resolved.

Paul Cheng, an oil analyst with Lehman Brothers, said that Venezuela and Iraq together contribute more than 3 million barrels a day of global oil output, compared with OPEC's idle oil capacity of 3 million barrels a day.

"If the strike in Venezuela continues, and if the U.S. goes into Iraq and disrupts the oil exports, then OPEC's idle capacity is not enough to fill the shortfall," Cheng said. "I think oil prices will continue to rise until at least Venezuela is resolved."

Meanwhile, gold prices fell after rising sharply the past two weeks as investors flocked to this "safe haven" amid global uncertainty. Gold for February delivery fell $5.70 to $344.00 in New York. Gold has gained about $27 in December, with many analysts pointing out that the price hike could portend rising inflation. Standoff in Venezuela

Venezuelan opposition leaders extended the ongoing strike into its 29th day Monday, aimed at forcing the resignation of President Hugo Chavez and triggering early elections.

The strike has largely closed down oil production and refineries in the world's fifth-largest exporter and choked off overseas sales to 20 percent of normal levels. Last week, the nation took the unusual step of importing oil from Brazil.

A tough-talking Chavez said Sunday he had no plans to step down, and he vowed to break the strike, which has slashed crude production to about 200,000 barrels per day from more than 3 million barrels per day in November.

The Venezuela strike and speculation about war with Iraq has added more than $5 to a barrel of crude in December and prices are now $10-to-$13 above levels at the beginning of the year, raising concerns that high energy bills may stymie global economic recovery.

"Remember that oil disruption is a genuine bullish indicator for the commodity," said Peter Gignoux, oil analyst with Salomon Smith Barney in London. The Venezuelan strike is going on longer than we would have thought and President Chavez is playing his cards badly."

But Gignoux said OPEC's involvement may give relief to rising U.S. oil prices, although not immediately.

"For the U.S., Venezuela is a short-hold crude. That means that it takes about 5 to 6 days for the shipment to reach the United States. But oil shipment from Saudi Arabia, for example, would take about 45 days. I think the price hike in reaction to Venezuela is a short-term phenomenon. That situation will have to resolve itself soon. The bigger issue is Iraq."

In recent developments, Washington ordered more U.S. troops, aircraft and ships to head to the Gulf starting next month in preparation for a possible war against Baghdad as U.N. arms inspectors continued to search for evidence that Iraq has stockpiled biological, chemical or nuclear weapons.

U.S. 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" to be ready to do whatever might be required.

U.S. defense officials also confirmed that Saudi Arabia had agreed to let the United States use its air bases and an important operations center at Prince Sultan air base outside Riyadh for defensive purposes in any possible war with Iraq.

"The last time the U.S. was engaged militarily in Iraq, oil prices shot up to about $42 a barrel," Gignoux added.

Shares of oil stocks ChevronTexaco (CVX: up $0.75 to $66.65, Research, Estimates), ExxonMobil (XOM: up $0.11 to $34.75, Research, Estimates), Unocal (UCL: up $0.41 to $30.53, Research, Estimates) moved higher Monday.