Oil price steps higher

townsvillebulletin.news.com.au From correspondents in New York 31jan03

WORLD oil prices rose today as traders sweated over the threat of war in Iraq. Prices advanced as US President George W. Bush warned that efforts to disarm Baghdad peacefully would end in "weeks, not months".

The previous day, Secretary of State Colin Powell and Defense Secretary Donald Rumsfeld gave US lawmakers a closed-door briefing on Iraq.

They apparently previewed some of the evidence that the United States has promised to furnish showing that Iraq is not cooperating with the United Nations weapons inspections.

Powell is to deliver the information in an address to the UN Security Council on February 5.

"There was a little bit of buying pressure on the back of the Colin Powell report on Iraq, which makes the conflict more likely," said Merrill Lynch analyst Michael Rothman.

New York's light sweet crude March-dated futures climbed 22 cents to $US33.85 a barrel, adding to a 96 cent surge the previous day.

In London, the price of benchmark Brent North Sea crude oil for March delivery rose 22 cents to $US31.24.

Traders were looking ahead to Powell's speech, ABN Amro broker Mark Keenan said in London.

Prices had already climbed sharply Wednesday when a keenly watched report revealed an unexpectedly sharp decline in weekly US oil inventories.

US stocks have fallen sharply in recent weeks, to around their lowest level in 27 years, after a two-month-old crisis in Venezuela crimped exports from one of the leading suppliers to the US market.

Although there had been signs in recent days that opponents of Venezuelan President Hugo Chavez were loosening their stranglehold on the country's oil sector, analysts said it would likely be some time before exports returned to normal levels.

Chavez has expressed confidence production will be back to regular levels within about a month, though experts are skeptical of the claim.

Daily oil production, which was down to a trickle a few weeks ago, is now at least one third of its pre-strike levels of more than 3 million barrels.

Chavez put daily output at 1.3 million barrels, while the opposition has conceded it passed the 1 million barrel mark.

"Many see what is happening as the beginning of the end of the dispute, which is probably correct," said GNI-Man Financial analyst Lawrence Eagles in London.

"But how long it takes to reach that end could be critical for the market – particularly with war against Iraq likely by the end of next month," he added.