War fears push oil to record high
news.bbc.co.uk Tuesday, 21 January, 2003, 11:53 GMT
Worries over cuts in oil supplies boost the price
The price of oil touched two-year highs on Tuesday, as the build-up of troops in the Gulf tested the nerves of oil traders.
With the prospect of a war in Iraq becoming ever more likely, trading remained volatile as fears of an oil shortage pushed up prices.
The US Secretary of State, Colin Powell, told the United Nations Security Council that it should not be scared into "impotence" when it came to dealing with Iraq.
The markets are still very edgy with both Venezuela and Iraq remaining the key issues
Simon Games-Thomas Oil analyst
In London, Brent crude edged up 37 cents to $31.02 a barrel, while US light crude rose 44 cents to $34.35, its highest since December 2000.
A seven-week-old general strike in Venezuela has also limited oil exports and helped boost the price.
"The markets are still very edgy with both Venezuela and Iraq remaining the key issues," said independent oil analyst Simon Games-Thomas.
"Prices appear destined to trade higher given the current set of drivers and $35 beckons inexorably in the short term," Mr Games-Thomas added.
Shredded nerves
The shooting of contractors working for the US military in Kuwait, resulting in one fatality, also added to the pressure.
A report from Hans Blix could affect prices
Oil traders are concerned that any war in Iraq would limit supplies, despite the resolve of the oil cartel, Opec, to maintain the flow.
Just over a week ago, Opec agreed to increase official production after an emergency meeting in Vienna.
"Opec is trying to send a very strong message that it will do its utmost to stabilise demand and supply," said the cartel's president Abdullah bin Hamad al-Attiyah.
The release of a major report by Chief UN weapons inspector Hans Blix next Monday will provide further direction for the oil price.
The evaluation of the report on 29 January could provide more clues as to the likelihood of a war.
Tension builds
Both the US and the UK are planning a major deployment of forces in the Gulf.
On Tuesday, the US announced it would send nearly 37,000 more personnel to the area in preparation for possible military action.
Meanwhile, the nationwide strike in Venezuela - designed to bring about the resignation of President Hugo Chavez - is strangling oil supplies.
As the world's fifth-largest exporter, Venezuela accounts for 13% of US petroleum imports.
A shortfall in supplies has cut US commercial crude stockpiles to 26-year lows.