Oil Prices Rebound on North Sea Outages
— LONDON (Reuters) - Oil prices moved back into positive territory on Monday as two oilfield closures in the North Sea renewed worries about global supply despite OPEC's weekend pact to raise output.
The Organization of the Petroleum Exporting Countries at an emergency meeting on Sunday increased production limits by 1.5 million barrels per day, seven percent, to compensate for six weeks of losses in strike-bound Venezuelan supplies.
London Brent crude broke through $30 a barrel to reach $30.05 a barrel while U.S. light crude rose 28 cents to $31.96.
Dealers said the rally was triggered by news from Norwegian state oil producer Statoil that two North Sea oilfields shut on Monday because of technical problems, cutting production by some 165,000 bpd -- a minimal amount on a global scale.
"The fact that the North Sea output problem is supporting the market really shows how tight the physical crude supply is," said Lawrence Eagles of GNI.
Fears that a U.S. assault on Iraq may be only weeks away are helping support prices that recently hit a two-year high of $33.65 for U.S. crude.
Analysts said Monday's earlier price fall had been contained because traders saw no short-term relief for crude inventories in the U.S. that are near 26-year lows.
"It's just enough for the moment but it's not going to push prices down much," said Adam Sieminski of Deutsche Bank in London of the OPEC pact.
"I certainly see (U.S.) oil staying above $30 until the Venezuelan situation is sorted out," said Paul Ashby, oil and gas analyst at ABN Amro in Sydney.
Oil from the Middle East takes four to six weeks to reach U.S. shores, while Venezuelan crude, which normally accounts for 13 percent of U.S. imports, arrives in about five days.
"There are delays in getting oil from the Middle East to the United States, plus OPEC's agreement is for 1.5 million barrels per day, but prior to the strike Venezuela production was about 2.5 million," said David Thurtell, commodities strategist at Commonwealth Bank in Sydney.
"The global market is going to remain tight and with ongoing war fears, you've got to be pretty brave to sell oil at the moment."
SPARE CAPACITY
There are worries about how much of the extra oil OPEC can actually deliver.
The 1.5 million bpd increase was divided pro-rata among members, meaning Venezuela was also granted its share of the higher output limit despite the 43-day-old strike that has slashed its exports by 80 percent to 500,000 bpd.
Many others in OPEC have little or no spare capacity to bump up production, leaving Saudi Arabia to provide the lion's share.
The kingdom has moved quickly to implement the OPEC decision, telling Europe based majors to expect 10-20 percent more oil in February, industry sources said on Monday.
Crude traders said the hike had reversed Saudi's January's cuts, made to clamp down on quota busting.
Riyadh fears an oil price shock that would dent demand for its crude if a U.S.-led war in Iraq should come before Venezuelan supplies are restored.
Venezuela, OPEC's third-biggest producer, is fifth in world exporter rankings, while Iraq sells up to two million bpd overseas under the United Nations oil-for-food program.
Signs are that dealers are already planning to go without Baghdad's crude, cutting back on Iraqi purchases under the U.N. humanitarian exchange, in case war prevents delivery.
In recent weeks Iraqi exports have been running near full capacity but industry sources said on Friday that sales for the week had dipped by half to just 900,000 bpd.
OPEC President Abdullah al-Attiyah said on Sunday ministers would meet again if Venezuela restores full production. The group's next scheduled gathering is for March 11.
OPEC's agreement brings the cartel's official production ceiling for its 10 members bound by quotas to 24.5 million bpd.