Oil Prices Slip on Expected OPEC Hike

www.morningstar.ca 10 Jan 03(4:33 PM) |  E-mail Article to a Friend

NEW YORK (Reuters) - U.S. oil prices slipped on Friday as expectations that OPEC will boost crude production at an emergency meeting this weekend outweighed a dearth of crude from Venezuela and concerns about a possible war with Iraq.

Traders were awaiting the decision of an emergency meeting of the Organization of Petroleum Exporting Countries Sunday in Vienna, where ministers are expected to agree an output increase of around 7 percent to help compensate for deep supply losses from a Venezuelan strike.

Crude futures on the New York Mercantile Exchange settled 31 cents lower at $31.68 per barrel. In London, Brent crude settled up 3 cents at $29.67 per barrel. On Thursday, NYMEX crude futures had jumped $1.48 per barrel on the concerns over Venezuela and Iraq.

The 40-day-old Venezuelan strike continued to raise concerns about supply and the market digested mixed signals on the likelihood of war in Iraq.

The U.S. government planned an initiative to form a group of nations to help end the strike in Venezuela, the world's fifth largest oil exporter, a U.S. official said.

Washington hoped the idea could support Organization of American States Secretary-General Cesar Gaviria's efforts to end the crisis, which pits the leftist president against opposition groups who wish to oust him, the official said.

On Friday, Chavez said he fired nearly 1,000 employees of state oil company Petroleos de Venezuela, from the thousands of PDVSA workers who have joined the strike.

Venezuela supplies about 13 percent of U.S. crude imports. The strike has knocked production down to one-fifth of its 3.1 million barrel levels, the government says. Opposition leaders say the level is even lower.

WHEN TO TAP RESERVES

Oil was also pressured by the possibility of preliminary talks at the Paris-based International Energy Agency on tapping European reserves. The acting head of IEA said Friday war in Iraq, if it coincided with an ongoing strike in Venezuela, could trigger deliveries from the IEA's strategic oil reserves.

"Iraq and Venezuela both being out would certainly be enough for the IEA to think about an emergency release," Acting Executive Director William Ramsay told Reuters in an interview.

"But we don't need to wait for a war, if there is one, because we've already lost 3 million barrels a day from Venezuela."

He said talks could start as early as a scheduled governing board meeting on Jan. 17 at IEA headquarters in Paris, depending on the oil market's response to Sunday's OPEC meeting.

The United States has not tapped national reserves. The Department of Energy said this week it has allowed U.S. oil companies to defer deliveries of a total of 3.1 million barrels they had owed national petroleum reserves to September.

Prices rose strongly Thursday after comments from chief United nations weapons inspector Hans Blix hardened the case for a U.S.-led invasion of Iraq.

Prior to a U.N. Security Council briefing, Blix told reporters that, after seven weeks in Iraq, the arms inspection team had found no "smoking guns" but that he was dissatisfied with Iraq's 12,000-page weapons declaration.

"We think the declaration failed to answer a great many questions," he said.

But a spokesman for British Prime Minister Tony Blair said a Jan. 27 deadline for the U.N. inspectors' full report was not a deadline for a decision on war.

And Secretary of State Colin Powell backed up the British view. "It's not necessarily a D-day for decision making," he said.