Market watch: Oil prices fell Monday, losing Friday's gains

ogj.pennnet.com   By OGJ editors HOUSTON, Jan. 28 -- Oil futures prices fell on New York and London markets Monday after United Nations Chief Weapons Inspector Hans Blix said he could not determine yet if Iraq has weapons of mass destruction as the US claims.

Although Iraq has complied with the inspections, Blix said, Iraq "appears not to have come to a genuine acceptance, not even today," of demands that it disarm.

On Tuesday, traders awaited the State of the Union address by US President George W. Bush for any hints about the timing of a possible war with Iraq.

UN Sec. Gen. Kofi Annan told reporters Monday that weapons inspectors need time to do their job in Iraq, and he urged Baghdad to cooperate with the UN. When asked about potential unilateral action against Iraq by the US, Annan said he hoped the Security Council's existing unity could be maintained.

"In my own speech to the General Assembly on Sept. 12, I stressed the need for multilateralism¿and that position has not changed," he said, adding, "I have not given up on peace, and you shouldn't either."

Meanwhile, Iraqi Deputy Prime Minister Tareq Aziz told Canada's CBC television that Iraq could retaliate against its oil-producing neighbor if the US launched an attack from Kuwait.

"Kuwait is a battlefield, and American troops are in Kuwait¿. 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," he told the television reporter during an interview.

Meanwhile, there were some indications of a possible break in the Venezuela general strike. Some businesses have talked about reopening next week, but striking workers at Petroleos de Venezuela SA told Dow Jones that they are pessimistic about the possibility of returning to work soon.

"The changes that are underway (within PDVSA) don't leave us with many other options left than continuing the strike. We don't have a company to go back to," Carmen Elisa Fernandez, a spokeswoman for dissident PDVSA workers, told Dow Jones Monday.

Bank of America Securities analyst Tyler Dann said he sees continued confusion on both the Iraqi and the Venezuelan situations.

If there is war in Iraq, then resolution will not translate into more oil right away, he said. "Post-resolution, we believe it can reasonably be assumed that Iraqi production approaches a sustainable level of 3.1 million b/d by yearend 2003 [assuming Iraq is not successful in implementing a scorched earth policy]; however, the establishment of an investment framework to further build Iraqi capacity could take as long 18 months, in our view," Dann said.

Regarding Venezuela, the extent of permanent damage to its production remains inconclusive, he said.

"Without a comprehensive resolution of the strike [preferably with (Hugo) Chávez out of power], refinery start-ups and field rehabilitation work will likely be difficult to comprehensively execute," Dann said.

Futures prices The March contract for benchmark US light, sweet crudes dropped by 99¢ to $32.29/bbl Monday on the New York Mercantile Exchange, while the April position lost 77¢ to $31.39/bbl. Heating oil for March delivery slipped by 1.59¢ to 93.43¢/gal. Unleaded gasoline for the same month declined by 2.10¢ to 90.15¢/gal.

The March natural gas contract lost 12.8¢ to $5.40/Mcf Monday as forecasts for cold weather in early February were revised.

In London, the March contract for North Sea Brent crude also settled lower, losing 63¢ to $29.86/bbl on the International Petroleum Exchange. The natural gas contract climbed, up 13.84¢ to the equivalent of $3.218/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes lost 40¢ Monday to $30.16/bbl.