Oil: Prices lose steam as US crude stocks rise

www.nzherald.co.nz 24.01.2003 9.04 am

LONDON - World oil prices slipped on Thursday after a surprise build in US crude stocks but growing worries over a possible US-led war on Iraq kept prices firm.

International benchmark Brent crude futures lost 48 cents to US$29.86 a barrel while US light crude was off 75 cents at US$32.10.

Brent, which fell on the unexpected crude stock build, suffered further losses after dropping below the psychologically important US$30 level, dealers said.

The increase in stocks defied forecasts of another draw as Venezuela was mired in a long strike that has crippled production in the country, a key supplier to the United States.

The US Energy Information Administration (EIA), said US crude stocks rose 1.5 million barrels last week to 273.8 million barrels while industry group American Petroleum Institute (API) said stocks climbed 181,000 barrels .

Oil markets are fixated on Baghdad and awaiting chief UN weapons inspector Hans Blix's report on Iraq to the Security Council, due on January 27.

US President George W. Bush has turned up the rhetoric on Iraq to disarm but Washington is looking increasingly isolated in its tough stance as key powers China and Russia joined US allies France and Germany in rejecting military action.

Fears of war in Iraq combined with troubles in Venezuela have helped push world crude prices to new two-year highs.

"The price is above US$30 a barrel and it is still high. We appeal to Opec countries to lift production and to supply more to the market," Purnomo Yusgiantoro, mines and energy minister of Indonesia, Opec's only Asian member, told reporters on Thursday.

Saudi Arabia's assurances that it was willing to seek another boost in Opec oil production in the coming weeks if needed to tame prices failed to cool the market.

"Our government is ready to do more in the next two or three weeks if we see the price is not stabilising and going down below US$28," Saudi Ambassador to Washington Prince Bandar Bin Sultan told a meeting of the US Conference of Mayors.

"When our American friends catch cold, we catch pneumonia in our part of the world, so to help your economy is paramount to us," he said.

Traders said the market did not pay too much attention to the ambassador's comment because the Organisation of the Petroleum Exporting Countries has limited spare output capacity.

"How much more can the Saudis produce?," asked Nauman Barakat, a broker at Fimat International Banque in London.

Saudi Arabia, accused by some US politicians of not doing enough to fight terrorism, is trying to please its key ally and oil customer Washington by offering to lower crude prices, analysts say.

An Opec official at the group's Vienna headquarters played down the Saudi comment, saying it did not reflect the producer group's position.

Opec two weeks ago agreed to raise output by 1.5 million barrels a day (bpd) to contain oil price rises driven by a strike in Venezuela and fears of war in Iraq.

Saudi Arabia's new Opec quota from February was set at 7.963 million bpd, but it is expected to be pumping between 8.5-9.0 million bpd in the next few weeks, industry sources said.

Saudi Oil Minister Ali al-Naimi has made clear that the kingdom, the world's biggest oil exporter, is capable if necessary of ramping up flows to 10 million bpd within weeks.

The United Arab Emirates is the only other Opec country that has any significant spare capacity.

Limited idle capacity comes at a difficult time. The cartel is under growing pressure to manage prices while turmoil continues in Venezuela, the world's fifth biggest exporter.

Striking oil workers said on Wednesday that Venezuelan crude oil output rose 40,000 bpd to 714,000 bpd despite the strike. But this is well below the three million bpd the country normally produces.