Oil Steady, Awaits Bush, Blair Meeting

reuters.com Fri January 31, 2003 12:12 PM ET

LONDON (Reuters) - Oil prices took a breather from the week's gains on Friday amid indications of a further recovery in oil production from strike-ridden Venezuela.

But trading volume was relatively low as dealers were closely monitoring the latest Iraq talks between U.S. and British leaders for any signs of an impending war in Iraq.

U.S. light crude CLc1 was 10 cents lower at $33.75 a barrel while London Brent LCOc1 was up 11 cents at $31.31.

Low global oil stocks and limited spare production capacity to counter the severe reduction in 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.

But Fimat Banque's Mark Head said on Friday some players were cashing in some front month positions and new Venezuelan figures showing an increase in output was for the moment stopping oil rising higher.

He also noted OPEC's 1.5 million barrels per day (bpd) output increase to take effect February 1 was due to kick in on Saturday, as was a 110,000 bpd hike from non-OPEC Mexico.

"With the increase in Venezuelan exports and output hikes from OPEC and Mexico there's a lot of crude around," Head said.

On Friday, Ali Rodriguez, president of state oil firm Petroleos de Venezuela, said the country's crude production had recovered to over 1.5 million barrels per day, well up from lows of 150,000 in December but still only half normal levels.

He said it could reach 1.8 to 1.9 million bpd by next week as four Orinoco upgrading plants are restarted.

But striking oil workers put crude output at around one million bpd on Thursday.

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.

The strike has slashed Venezuelan oil sales to the United States, where fuel inventories are hovering close to historic lows. OPEC president Abdullah al-Attiyah said on Thursday that the producers' group had done all it could to control prices.

ALL EYES ON IRAQ

On the Iraq front, 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 Baghdad.

Ahead of the talks Blair said it was important to press for a new U.N. resolution.

"It is right that we go for a second resolution because that is a way of saying this is an issue that the international community is not going to duck."

But he added: "If the process of disarmament cannot happen through the U.N. inspectors, then it will probably have to happen through force. I believe that is consistent with the U.N. position in (resolution) 1441."

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.

Iraq is eighth in world crude exporter rankings, selling up to two million barrels per day to the international market, and dealers fear an invasion of the country could put a heavy strain on global supplies.