FUTURES MOVERS - Expiring crude contract taps $35 - Fresh initiatives to broker end to 8-week general strike

cbs.marketwatch.com By Myra P. Saefong, CBS.MarketWatch.com Last Update: 4:03 PM ET Jan. 21, 2003

NEW YORK (CBS.MW) -- Efforts to end Venezuela's eight-week strike failed to put a damper on crude futures Tuesday, with concerns over tighter global supplies in the event of a U.S. war on Iraq taking prices for an expiring crude contract past $35 a barrel.

The price of a barrel of crude for February delivery traded as high as $35.20 a barrel on the New York Mercantile Exchange -- the highest futures level seen since November of 2000 when prices touched $35.84. The contract closed at $34.61, up 70 cents.

Action in March crude was relatively muted in comparison. The contract, which became the lead-month contract as of Tuesday's close, rose by 23 cents to $33.19 a barrel. It traded between $32.10 and $34 a barrel.

Also on Nymex, gold futures closed above $357, taking cues from the U.S. stock market, dollar and developments overseas. See Metals Stocks.

"The focus of the markets is firmly on Iraq," said BridgetonGlobal.com head analyst Jeff Mokychic.

If the market were to receive confirmation to an end of the Venezuela strike, March crude oil would still likely remain supported above $30 per barrel, he said.

Infinity Brokerage Services' head financial analyst John Person noted that it'll take Venezuela at least three weeks to get back to normal production levels if the workers are fully motivated and eager to work.

If workers aren't motivated, however, "it could take as much as two months to see a complete recovery in the pre-strike output levels," he said.

Oil prices could retest the $29 a barrel in a "short period of time" if supplies and shipments are replenished by a quick resolution by the end of this week, he said. But that's as long as a war doesn't break out in Iraq by that time, he added.

For now, supplies remain tight. Updates on U.S. supplies from the American Petroleum Institute and Energy Department won't be released until Thursday morning, a day late due to Monday's Martin Luther King, Jr. holiday. IFR Pegasus expects the data to reveal a 1 million- to 3 million-barrel decline in crude inventories as the week ended Jan. 17.

Efforts on the rise

Michael Fitzpatrick, an analyst at Fimat USA pointed out several diplomatic initiatives Tuesday concerning Venezuela, including ones by the Organization of American States and negotiations mediated by former U.S. President Jimmy Carter.

Additionally, oil tanker workers are reportedly considering an offer from the government aimed at their ending the strike, which began Dec. 2.

In recent days, the level of violence in strife-torn Venezuela has increased.

One man was killed and 27 people were injured Monday when supporters of Venezuelan president Hugo Chavez confronted opposition marchers in a town about 20 miles south of Caracas. At least six have died in political violence since the strike began, with the opposition pressing for Chavez to resign or hold new elections for the presidency.

The Chavez government claims that daily oil output is at around 1 million barrels, but strikers counter that it's at half that amount. Venezuela produced around 3 million barrels per day before the strike began.

Over in the Middle East, Taha Yassin Ramadan, an Iraqi vice president, said Tuesday that Iraq will expand its cooperation with U.N. weapons inspectors under a new agreement worked out in two days of talks but added he's convinced the U.S. military will eventually stage an attack.

Petroleum-product prices continued lower despite the bounce in crude. February unleaded gasoline fell by 1.01 cents to 90.1 cents a gallon. February heating oil closed at 89.47 cents a gallon, down 0.39 cent.

Also on Nymex, February natural gas shed 10.3 cents to close at $5.433 per million British thermal units, but Fimat's Fitzpatrick said prices are likely to move higher amid forecasts for "extremely cold" temperatures this week and expectations of a large decline in last week's U.S. supplies.

Meanwhile, disappointing quarterly results weighed on most oil-service stocks. The Oil Service Index ($OSX: news, chart, profile) traded down 2.6 percent.

The Reuters/CRB Index, a broad-based measure of the commodity futures market, closed at 242.1, up 0.1 percent. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.