Oil prices dip on hopes of diplomacy instead of war

economictimes.indiatimes.com REUTERS[ THURSDAY, JANUARY 30, 2003 12:22:36 PM ]

SINGAPORE: Oil prices dipped on Thursday on renewed hopes of averting a war in Iraq as the United States launched one last diplomatic push to pressure Iraqi President Saddam Hussein to give up alleged weapons of mass destruction.

But prices held onto most of the gains made after a big drop in U.S. winter heating fuel stocks deepened oil supply worries.

U.S. light crude futures were down 23 cents at $33.40 a barrel, or $1.80 below a 26-month high struck last week. The small decline came after a jump of 96 cents, or three per cent, in New York trading on Wednesday.

The threat of war in the Gulf region that supplies 40 per cent of world crude oil exports, and a strike that has cut exports from Venezuela, have pushed up prices 35 per cent since late November.

The White House said on Wednesday the standoff with Iraq over U.N. disarmament demands was entering a "final phase" in which U.S. President George W. Bush and other U.S. officials would intensify diplomacy in one last bid to avoid war.

Bush said Secretary of State Colin Powell would reveal new intelligence on Baghdad's alleged weapons of mass destruction to the U.N. Security Council on February 5.

German Chancellor Gerhard Schroeder, one of the European leaders most strongly opposed to war on Iraq, said on Wednesday he was unsure whether diplomacy would succeed in averting war.

Analysts said the market expected further price gains as European government support for war grew on Wednesday even as surveys showed public opposition has hardened in Europe, including in Britain, Washington's closest ally.

"The timetable for war in Iraq is getting shorter..." said Sydney-based independent energy analyst Simon Games-Thomas.

Veto-wielding United Nations Security Council members France and Russia, publicly dead set against a strike on Iraq, showed signs on Wednesday that they could side with the United States if the situation in the Gulf comes to war.

Wednesday's price gains came as the U.S. government reported that a two-week freeze across the eastern part of the country lopped over three million barrels, or eight per cent, from heating oil stocks last week.

"Though it would be easy to focus on the near-$1 rally in crude prices, the real story for the day was the disproportionate strength in heating oil and gasoline prices," said Michael Rothman, energy analyst at Merrill Lynch, in his daily note.

Supplies are now 16-per cent below normal levels. Home heating oil prices are at 23-month highs, up 25 per cent from last year, boosting concern over the economic impact of higher energy costs.

While the freeze is forecast to abate in coming days, supplies may not recover as the high cost of crude oil is forcing refiners to cut their production.

The United States has taken about two-thirds of all Iraq's U.N.-controlled oil exports in January amid a dearth of shipments from key supplier Venezuela since early December due to a strike aimed at removing President Hugo Chavez from office.

Venezuela, which normally supplies more than 13 per cent of U.S. oil imports, said on Wednesday it had managed to raise strike-hit oil production to 1.4 million barrels per day (bpd), while striking oil workers put the output level at just over one million bpd.