Oil Heads Higher As U.S. Renews Pressure on Iraq

24 Jan 03(2:40 PM) |  E-mail Article to a Friend

NEW YORK (Reuters) - World oil prices spiked again on Friday as the United States showed renewed signs of growing impatience with Iraq and said it feared Baghdad was planning to torch its own oilfields in the event of war.

U.S. light crude rose $1.10 a barrel, or 3.4 percent, to $33.35 and London Brent gained 78 cents to $30.50. U.S. crude hit a two-year high of $35.20 earlier this week.

White House spokesman Ari Fleischer called Iraq's refusal to allow scientists to take part in private interviews with U.N. weapons inspectors "unacceptable" and demanded Iraqi leader Saddam Hussein comply "without delay and without debate."

At the Pentagon, the U.S. military said it believed Iraq intended to damage oilfields if war broke out and said it was planning to protect the facilities.

Washington this week shrugged off vocal opposition to the rush to war as China and Russia joined France, Germany and Canada in urging the United States to give inspectors more time in Iraq.

Friday's news was read by traders as underlining Washington's determination to launch military action against Baghdad within weeks if necessary and outweighed evidence that strike-bound Venezuelan production is beginning to recover.

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.

TROOPS

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.

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 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. (richard.mably@reuters.com; reuters messaging: richard.mably.reuters.com@reuters.net; +44 207 542 6280)