Oil on hold, awaits Bush, Blair on Iraq showdown
www.forbes.com Reuters, 01.31.03, 1:44 AM ET By Tanya Pang
SINGAPORE, Jan 31 (Reuters) - Oil prices held steady on Friday, treading water after gains of 1.5 percent this week, as traders waited to see whether talks later in the day between U.S. and British leaders would bring war with Iraq one step closer.
U.S. light crude
Low global oil stocks and limited spare production capacity to counter the severe reduction in strike-bound Venezuelan oil exports, and the potential disruption to Iraqi oil sales, have taken crude prices up more than 30 percent since late November.
Analysts see little relief for the time being to high oil costs, which are beginning to percolate into the broader global economy.
"The current environment suggests to us that a potential war with Iraq carries significant upward price risks, even from current levels, in the event of any supply hiccup that develops outside the likely interruption to Iraq's exports," said Merrill Lynch in a weekly outlook.
Iraq is eighth in world crude exporter rankings, selling up to two million barrels per day to the international market.
British Prime Minister Tony Blair arrived in Washington late on Thursday for talks at Camp David with U.S. President George W. Bush on the next step in the showdown with Iraq, which Bush says has broken U.N. resolutions by stockpiling banned weapons.
Bush said on Thursday that he would give diplomacy "weeks not months". U.S. Secretary of State Colin Powell is due to present evidence on Wednesday to the U.N. Security Council to show that Baghdad is pursuing programmes to build biological, chemical or even nuclear weapons.
Washington and its staunchest ally, London, are massing a huge military force in the Gulf, and Bush has vowed to disarm President Saddam Hussein, with or without United Nations backing.
VENEZUELA TALKS CONTINUE Talks were set to continue in Venezuela on Friday to try to find a resolution to the eight-week strike, which has slashed oil sales from the world's fifth-biggest exporter and strangled a vital supply line into the United States, where fuel inventories are hovering close to historic lows.
Envoys from the United States, Brazil, Mexico, Chile, Spain and Portugal gathered in Caracas on Thursday to bolster talks between President Hugo Chavez and his opponents.
Ali Rodriguez, president of state oil firm Petroleos de Venezuela, said on Thursday crude production should be back to about 2.8 million barrels per day (bpd) by the end of February, but a strike official at the company said it was doubtful.
Ciro Izarra, PDVSA's former head of trading, who was fired for going on strike, said the company was unlikely to be able to meet contractual deliveries for the rest of 2003 due to problems with output, refining and management.
Authorities have fired more than 5,000 PDVSA managers and technicians to try and break the strike, which began on December 2 and is aimed at forcing the resignation of Chavez.
Izarra said he expected Venezuela to export an average 1.7 million bpd this year, one million bpd below pre-strike levels, if Chavez continued to operate the industry without the majority of its skilled workers and managers.
OPEC chief Abdullah al-Attiyah said on Thursday that the producers' group had done all it could to control world oil.
The Organisation of the Petroleum Exporting Countries is due to lift its official output ceiling by 1.5 million bpd on February 1 to counter the fall in Venezuela's exports.
"OPEC has no magic wand to solve the political problems and stop the rise in price," Attiyah, who is also Qatari oil minister, told Reuters.