Oil Prices Weaken

abcnews.go.com — By Barbara Lewis

LONDON (Reuters) - Oil prices weakened on Tuesday after Mexico said it would increase crude exports, adding to an OPEC production hike, while traders speculated that U.N. talks might help to end a supply-choking strike in Venezuela.

London Brent crude futures stood at $30.07 a barrel, 13 cents down while U.S. light crude fell 21 cents to $32.05 a barrel.

Dealers and analysts said the market remained volatile and was unusually sensitive to news headlines that could trigger major buying or selling by big investment funds.

"It's a market which is having to digest an awful lot of news," said analyst Paul Horsnell of J.P. Morgan.

"Will Mexico increasing output solve the Venezuelan problem? No. Will talks with (UN secretary-general) Kofi Annan solve the Venezuelan problem? Probably not, but it's something to trade on while the market is waiting for the big headline, whether that's something on Venezuela or something on the Gulf," he added.

Prices gained more than half a dollar on Monday despite a weekend decision by the Organization of the Petroleum Exporting Countries (OPEC) to raise official production by seven percent to try to calm the markets and help to compensate for the effects of a protracted Venezuelan strike.

The general strike, which began on December 2, has reduced to a trickle exports from the world's fifth largest oil exporter and key supplier to the U.S. market.

OPEC ALONE NOT ENOUGH

Dealers on Monday expressed concern that the OPEC increase would do little to ease the supply shortage given that Venezuelan crude shipments take only around five days to reach U.S. shores compared with the four-to-six week sailing time from the Middle East.

However, late on Monday, non-OPEC Mexico said it would also increase crude exports by 120,000 barrels per day (bpd) to 1.88 million bpd.

Traders were also speculating that mediation by U.N. Secretary-General Kofi Annan could help to break the deadlock between Venezuelan President Hugo Chavez and opposition leaders.

Chavez is to hold talks on Thursday with Annan.

The United States is concerned that the loss of Venezuelan oil could aggravate the effects on the U.S. economy of a war against Iraq, which President Bush has threatened if Baghdad fails to disarm in line with U.N. Security Council resolutions.

Dealers said that oil markets had weakened slightly on hints that any U.S.-led attack on Iraq might be pushed back until later in the year, but at the same time the United States and its ally Britain have been maintaining pressure on Baghdad.

British Foreign Secretary Jack Straw said on Tuesday that Britain reserved the right to take military action against Iraq without a second U.N. resolution.