Oil Falls; Output Rises, War Fears Support
abcnews.go.com — By Barbara Lewis
LONDON (Reuters) - Oil prices fell sharply on Monday as Venezuelan exports recovered from a supply-choking strike and after OPEC ministers warned of a glut in supplies in the second quarter when winter demand ebbs.
But the threat of a U.S.-led war on oil-producer Iraq kept crude above $30 a barrel.
In London, IPE Brent crude was trading 53 cents weaker at $30.52 a barrel, while U.S. light crude
"The Venezuelan strike is clearly cracking. The question is how quickly they can ramp up production," said J.P. Morgan's Paul Horsnell.
Venezuelan President Hugo Chavez said on Sunday crude oil output had risen to nearly 1.8 million barrels per day (bpd), 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 said production stood at 1.2 million bpd.
Data from shipping agents showed Venezuela's oil exports rose to 890,000 bpd in the week to February 1 from 550,000 bpd a week earlier, but were still 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.
OPEC CONCERNS OVER GLUT
A return of oil sales from Venezuela, the world's fifth biggest oil exporter, could put pressure on the OPEC producers' group to rein in output.
The Organization of the Petroleum Exporting Countries agreed in January to raise official production limits by 1.5 million bpd from February 1 to offset the Venezuelan outage.
But OPEC ministers warned at the weekend that oil markets could tip into oversupply in the second quarter and trigger a price collapse.
"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.
Non-OPEC supplies also looked robust, with output from Russia, the world's second largest exporter, hitting a post-Soviet high.
Russian Energy Ministry sources said exports via Russia's Transneft pipeline monopoly rose 200,000 bpd in January compared to December and output reached a new high of 8.07 million bpd.
But even if supplies have grown, analysts predict oil prices will not fall far until uncertainty is resolved over Iraq, which sells roughly two million bpd of crude to the world market.
Traders fear supplies might be disrupted, not just from Iraq, but from elsewhere in the oil-rich Middle East if there is a military strike against Baghdad.
"In the short term the market is stuck," said J.P. Morgan's Horsnell.
He said dealers were awaiting Secretary of State Colin Powell address to the United Nations on Wednesday when he has pledged to present "straightforward, sober and compelling" proof that Iraq is hiding banned weapons.
Writing in the Wall Street Journal, Powell said the United States sought peaceful disarmament.
"But we will not shrink from war if that is the only way to rid Iraq of its weapons of mass destruction," he wrote.