Oil Rebounds

reuters.com Tue January 28, 2003 02:37 AM ET

SINGAPORE (Reuters) - Oil prices bounced higher on Tuesday as the market focused on Iraqi threats of retaliation against any U.S.-led attack and as President Bush prepared to address the nation.

"Some traders are looking at whether the threat of war has really subsided, and are taking positions in case the State of the Union address is really more aggressive than the previous rhetoric from Bush," said John Hirjee, senior energy analyst at Deutsche Bank in Melbourne.

U.S. light crude for March gained 14 cents to $32.70 a barrel after losing 99 cents, or three percent, in New York on Monday.

The market was less than $3 per barrel below 26-month highs struck last week. Oil has risen some 30 percent since mid-November on concerns war in Iraq could upset supply from the Middle East while a prolonged strike in Venezuela has curtailed oil production and exports.

Iraqi Deputy Prime Minister Tareq Aziz told Canada's CBC television Iraq might strike at Kuwait to retaliate against any U.S. invasion.

"Kuwait is a battlefield and American troops are in Kuwait and preparing themselves to attack Iraq," he said in an interview in Baghdad. "If there will be an attack from Kuwait I cannot say that we will not retaliate. We will of course retaliate against the American troops wherever they start their aggression on Iraq. This is legitimate."

AZIZ PLEDGES COOPERATION

However, Aziz, speaking after U.N. weapons inspectors said Baghdad could be doing more to help their probes, promised Iraq would cooperate more in future.

Aziz said there were only two areas of contention between Iraq and the inspectors -- the question of whether U2 surveillance planes could fly over the country and the conditions under which U.N. inspectors could interview Iraqi scientists.

"All other aspects of cooperation have been met and we promise to be more forthcoming in the future replying to all their needs in (a) way that will satisfy them," he told CBC.

The United States and Britain have launched a massive military build-up in the Gulf region ahead of a possible war to disarm Iraq of alleged illegal weapons.

The world is waiting to hear if President Bush will provide further clues on his next move when he delivers his State of the Union address at 0200 GMT on Wednesday.

Oil prices plummeted on Monday when chief United Nations weapons inspector Hans Blix was unable to corroborate U.S. claims that Baghdad had rebuilt its weapons of mass destruction arsenal, saying he could not give a verdict one way or another.

Blix sharply criticized Iraq for not disclosing all of its long range missile, chemical and biological arms programs.

"It is not enough to open doors. Inspection is not a game of catch as catch can," Blix said. "Iraq appears not to have come to genuine acceptance, not even today, of the disarmament that was demanded of it."

U.N. Secretary-General Annan said arms experts should be given a "reasonable amount of time." "If they need time, they should be given the time to do their work," he said.

European and Middle Eastern allies are pushing the United States to allow the inspectors more time, possibly until March 1, officials and former policy makers told Reuters at the World Economic Forum in Davos, Switzerland.

A debate within the Venezuelan opposition on Monday over scaling back its two-month strike kept a rein on oil prices.

The country's oil industry has been paralyzed by a strike aimed at toppling President Hugo Chavez.

Venezuelan crude output has recovered from the lows of December and strikers said on Monday production was about 966,000 barrels per day, 29 percent of pre-strike levels. Chavez claims production has reached 1.32 million barrels a day.