Oil on Hold, Awaits Bush, Blair on Iraq

reuters.com Fri January 31, 2003 05:40 AM ET By Tanya Pang

SINGAPORE (Reuters) - Oil prices held steady on Friday, treading water 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 CLc1 eased seven cents to $33.78 a barrel and London Brent LCOc1 rose six cents to $31.27.

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 President Bush on the next step in the showdown with Iraq.

Bush said on Thursday that he would give diplomacy "weeks not months." Secretary of State Colin Powell is due to present evidence on Wednesday to the U.N. Security Council to show that Baghdad is pursuing programs 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-old strike, which has slashed oil sales to 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 by the end of February, but opposition leaders dispute the claims.

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 president Abdullah al-Attiyah said on Thursday that the producers' group had done all it could to control prices.

"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.