Oil Firm, Diplomacy Bid to Be Shortlived

reuters.com Thu January 30, 2003 03:18 PM ET

NEW YORK (Reuters) - World oil prices headed higher on Thursday as the United States signaled that its diplomatic efforts to persuade Iraq to disarm were unlikely to last much longer.

U.S. light crude CLc1 closed 22 cents higher at $33.85 a barrel, building on Wednesday's surge of nearly a dollar which was fueled by the twin worries of Iraq and falling U.S. oil stocks.

International benchmark Brent crude stood 22 cents higher at $31.24.

Prices pushed higher after the White House said the final diplomatic push to force Iraq, the world's eighth biggest oil exporter, to disarm would last weeks not months.

"The president is using this window now to engage in very busy and active diplomacy. This will take place in a period of weeks not months," White House spokesman Ari Fleischer said.

Energy traders said the comments had confirmed the market's conviction that war was imminent.

"There is not a single oil trader who believes that an attack on Iraq will not happen soon," said Nauman Barakat, trader at FIMAT Banque.

"These latest U.S. comments confirm it's not a question of if but when, and that it will be sooner rather than later."

HIGH PRICES HIT STOCKS, ECONOMY

The threat of war in the Middle East, which supplies 40 percent of world crude exports, has pushed up prices by 35 percent since November, raising concerns over the impact of high energy costs on the world economy.

The effect of war fears has been compounded by a 60-day oil strike in Venezuela, which normally supplies over 13 percent of U.S. oil imports, which has deepened worries over oil supplies.

U.S. government data showed on Wednesday that a two-week freeze across the eastern United States had lopped about 8 percent off the country's heating oil stocks last week.

The effect has been felt dramatically in crude oil prices, which are rising despite oil cartel OPEC's January decision to add 1.5 million barrels per day to global supplies. OPEC President Abdullah al-Attiyah said the group was now helpless.

"We are all concerned that high prices will hurt the consumer and ultimately world economic growth. But there is nothing OPEC can do about it," he said. "OPEC has no magic wand to solve the political problems and stop the rise in price."

Venezuela's two-month old strike appeared to falter as the government said production was now up to 1.4 million barrels per day (bpd), recovering steadily from lows of 150,000 bpd in December.

Striking oil workers said the output was only just over one million bpd, barely a third of pre-strike production.