Oil Prices Steady After Two Days of Declines

foxnews.com Friday, January 24, 2003

LONDON — Oil prices held steady on Friday after two days of sharp declines, following evidence that strike-bound Venezuelan production is beginning to recover.

U.S. light crude added seven cents to $32.32 a barrel and London Brent gained three cents to $29.75. U.S. crude hit a two-year high of $35.20 earlier this week.

President Hugo Chavez raised the stakes in Venezuela's bitter oil industry conflict on Thursday by announcing 3,000 oil company executives were sacked and saying oil output was rising faster than expected.

Chavez is using troops and replacement crews to break a seven-week-old strike aimed at driving him from office. He still faces huge problems restarting refineries and persuading foreign shippers to resume exports.

Latest shipping data released on Friday showed exports rose to 688,000 barrels a day this week, 25 percent of pre-strike flows and up 60 percent on the week.

Anti-government oil workers concede crude output has risen but say 85 percent of its workforce remain out.

Opposition data lags government estimates but both figures show a steady recovery over the past fortnight.

Oil markets are not betting on any swift increase in Venezuelan output.

"For the oil markets, a definitive end of the strike does not translate into an immediate return to pre-strike output levels," said Michael Rothman of Merrill Lynch.

"Reliable indications suggest it may take 30-45 days to get production back to the 1.5 million barrel a day mark with 45-60 days to necessary to elevate production by an additional million." Pre-strike output was 3.2 million bpd.

OPEC on Friday made clear that it is already doing all it can to fill the Venezuelan gap with cartel Secretary-General Alvaro Silva saying he saw no shortage on world markets.

"What can we do more? I do not agree there is a lack of oil," he told reporters in Davos on the sidelines of the annual World Economic Forum. "The problem of the price is the threat of war."

Signs are that higher shipments from leading OPEC member Saudi Arabia are flowing in to the United States to blunt the impact of the Venezuelan disruption.

U.S. government figures on Thursday showed crude oil inventories up 1.5 million barrels to 273.8 million during the week to Friday.

The increase defied predictions that inventories would fall below 270 million barrels for the first time since 1975.

Fresh signs that the United States is willing to face down international opposition to an attack on Iraq made little impact on the oil market.

On Thursday, Washington shrugged off vocal opposition to what some allies see as a rush to war as China and Russia joined France, Germany and Canada in urging the United States to give U.N. weapons inspectors more time in Iraq.

U.S. Secretary of State Colin Powell said Washington would find other supporters if it decided to launch military action.

"I don't think we'll have to worry about going it alone," Powell said in Washington after talks with Britain's supportive Foreign Secretary Jack Straw. He said Washington had made no decision on whether to seek an additional U.N. resolution to authorise use of force to disarm Baghdad.

Dealers said a war on Iraq was now priced into the oil market and cited predictions that any stoppage in Iraqi production could prove short-lived.

The Pentagon said it would make no sense for U.S. forces to hit oil facilities and oil companies said they were expecting only a brief stoppage in Iraq's two million barrels daily of exports.

"We are banking on a two- to four-week loss of Iraqi oil and we've covered ourselves," said a senior executive at a major oil company in comments typical of the industry view among companies contacted by Reuters.