Oil eases as Venezuela exports rise, OPEC mulls cut
www.forbes.com Reuters, 02.02.03, 11:12 PM ET By Tanya Pang
SINGAPORE, Feb 3 (Reuters) - Oil prices fell for the third day in a row on Monday as Venezuela continued to bump up vital petroleum exports, while key OPEC ministers warned of a possible glut in supplies in the second quarter when winter demand ebbs.
But the threat of war in Iraq, the world's eighth-biggest oil exporter, continued to keep crude well above $30 a barrel and within $2 of a 26-month high over $35 touched in January.
U.S. light crude slipped 30 cents to $33.21 a barrel, 0.9 percent down from Friday's settlement in New York, when it lost 34 cents.
"War is still very much on the cards and that is likely to counter any downward pressure on prices from Venezuela coming back to work," said David Thurtell, commodities strategist at Commonwealth Bank in Sydney.
Venezuelan President Hugo Chavez said on Sunday that crude production had increased to nearly 1.8 million barrels per day, up from a low of 150,000 bpd after the strike began in December and more than half of the 3.1 million bpd pumped in November.
Oil strikers say current output stands at just over one million bpd, although they acknowledge it is rising.
Data from shipping agents showed Venezuela's oil exports higher at 890,000 bpd in the week to February 1, up from 550,000 bpd a week earlier but only one-third of normal levels of 2.7 million bpd before the strike.
Opposition leaders, who want Chavez to resign, scaled back the nine-week action on Sunday in the non-oil sector only. The strike continues in the oil sector.
"Venezuelan production continues to recover and the further the government can increase production, the greater the pressure for strikers to go back to work. There could be a resolution to the strike in the next couple of weeks," said Thurtell.
A return of oil sales from Venezuela, the world's fifth-biggest oil exporter, could put some pressure on the OPEC producers' group to rein in output.
The Organisation of the Petroleum Exprting Countires agreed in January to raise official production limits by 1.5 million bpd on February 1 to offset the Venezuelan outage.
OPEC ministers warned at the weekend that oil markets could tip into oversupply in the second quarter with warmer weather in the Northern Hemeisphere and spark a price collapse.
OPEC is due to meet again in Vienna on March 11.
"If there is danger of a glut, we have to meet and rectify the situation. Definitely we (OPEC) are concerned about the second quarter," UAE Oil Minister Obaid bin Saif al-Nasseri said on Sunday at an oil conference.
"If Venezuela comes back (to full capacity), we could have four million bpd or more floating," said OPEC President and Qatari Oil Minister Abdullah al-Attiyah.
IRAQ STILL WILDCARD Even if Venezuelan oil exports return to normal levels soon, analysts see little chance of a big fall in oil prices until uncertainty over war in Iraq is cleared up.
"I think the market risks translate into a few dollars to the downside and over $10 upside at the moment," said Sydney-based independent oil analyst Simon Games-Thomas.
Commonwealth Bank's Thurtell said U.S. crude may head down to $30 or $31 a barrel once the strike in Venezuela was resolved.
Iraq sells roughly two million bpd of crude to the world market and traders fear supplies may be shut off if there were a military strike against Baghdad, which has threatened to retaliate against neighbouring oil exporter Kuwait where hundreds of U.S. troops are based.
U.S. Secretary of State Colin Powell is due to present to the U.N. security Council on Wednesday evidence that Iraq has been operating programmes to build banned weapons.
Top U.N. disarmament officials Hans Blix and Mohamed ElBaradei are expected to return to Baghdad at the end of the week as part of last-ditch efforts to secure Iraqi compliance with U.N. resolutions. U.S. President George W. Bush has vowed to disarm Iraq of weapons of mass destruction it claims Baghdad has stocked, with or without backing from the international community.