Oil Prices Soar Above $35 a Barrel

www.austin360.com By BRAD FOSS AP Business Writer

NEW YORK (AP)--Oil prices soared above $35 per barrel Tuesday before settling considerably lower as traders balanced fears of a war in Iraq with the end of a tanker pilot strike in Venezuela.

``It was quite a move,'' Ed Silliere, a trader at Energy Merchant LLC in New York, said of the up-and-down trading session on the New York Mercantile Exchange.

The price of crude for February delivery, which had an intraday high of $35.20, closed 70 cents higher at $34.61 per barrel. It was the highest closing price since Nov. 30, 2000, when it closed at $33.82.

Silliere and other traders said some of the heaviest buying, which occurred toward the end of the day, appeared to be tied to short covering before the expiration of the February contract. That is, investors who had sold on expectations that the market would keep dropping were forced to buy to adjust their positions when prices advanced.

The advance was sparked by rhetoric from President Bush on Iraq and the realization that--even with tanker pilots back at work _ Venezuela's oil industry remains severely hobbled by a 51-day strike.

Nothing has changed,'' said Mike Fitzpatrick, a trader at Fimat USA in New York. The intensity of the strike (in Venezuela) seems to be getting worse.'' Oil production has dropped by more than two-thirds in Venezuela, from 3 million barrels a day to 800,000 barrels, the government claims. Strike leaders put the figure at 627,000.

In addition, Fitzpatrick said, ``it seems to me we've passed the point of no return for war in Iraq.''

President Bush on Tuesday chided U.N. member nations for demanding more time to search Iraq for illegal arms. A decision on whether to end diplomacy with Iraq and wage war is expected in a matter of weeks.

Another bullish factor, traders said, is the anticipation that Energy Department data scheduled to be released Thursday will show that U.S. inventories of crude have fallen below the so-called operating minimum, which typically triggers reductions in refinery output.

The operating minimum is 270 million barrels. Last week, the Energy Information Administration, the agency's statistical arm, reported storage at 272 million.

Reduced refinery output would likely send heating oil prices higher, Silliere said.

On Tuesday, heating oil for February delivery dropped 0.39 cent to 89.47 cents a gallon. February unleaded gasoline fell 1.01 cent to settle at 90.10 cents a gallon.

On London's International Petroleum Exchange, March Brent closed up 9 cents at $30.74 a barrel.

February natural gas futures trading on Nymex finished at $5.433 per 1,000 cubic feet, down 10.3 cents.