Oil Rises on Blair-Chirac Comments, Awaits Powell

www.morningstar.ca 4 Feb 03(12:44 PM) |  By Duncan Shiels

LONDON (Reuters) - Oil prices rose on Tuesday as differences of opinion between France and Britain over Iraq unnerved traders already edgy ahead of a U.S. presentation to the U.N. that could press the case for war against Baghdad. Benchmark Brent crude by 1730 GMT was up 65 cents at $30.90 a barrel while New York light crude was 62 cents higher at $33.86.

British Prime Minister Tony Blair, Washington's closest ally in the Iraq crisis, on Tuesday failed to coax French President Jacques Chirac into softening his opposition to swift military action against Iraq.

Both leaders said differences remained over how to ensure Iraq does not possess weapons of mass destruction, but they agreed disarmament should take place through the U.N. Security Council.

"As far as Iraq is concerned, we have different approaches but first and foremost we have two convictions which are fundamental and are shared," Chirac told a news conference after talks with Blair.

"The first is that we have to disarm Iraq, and the second conviction that we share is that this has to be undertaken within the Security Council of the United Nations. Regarding that, we are entirely in agreement," he said.

But Chirac went on to say that war was the worst possible solution.

"(The price rise) is all from the Blair-Chirac talks," said analyst Mark Head of brokers Fimat Banque in London. "The market wants to make something bullish out of it, that's what it boils down to."

Secretary of State Colin Powell has said he would provide "sober and compelling proof" that Baghdad is hiding banned weapons from U.N. arms inspectors when he addresses a session of the U.N. Security Council beginning at 1530 GMT (1030 EST) on Wednesday.

The U.S. has vowed to disarm Iraq, by force if necessary, action which traders say could disrupt supplies not only from Iraq but also from other producers in the oil-rich Middle East.

OPEC WORRIED ABOUT OIL GLUT

Nervousness over Iraq outweighed the effect of rising crude output from oil exporter Venezuela as the protracted strike there starts to unravel.

OPEC officials are now starting to fret over a possible oil surplus in the second quarter.

Cartel President Abdullah al-Attiyah said on Tuesday a recovery in exports from strike-bound Venezuela meant the cartel might need to cut supplies in the second quarter, despite the threat of war in Iraq.

"Given the scenario as it is today, we could have a three-million barrel-per-day glut," Attiyah said, adding that demand usually declines by two million bpd in the second quarter on the 77 million bpd world market.

OPEC ministers meet in Vienna on March 11.

Iran's Oil Minister Bijan Zanganeh said OPEC faced two choices at its March meeting, to maintain its official production ceiling or cut output.

Venezuelan President Hugo Chavez said at the weekend Venezuela was pumping close to 1.8 million 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.

Strikers said on Tuesday that crude output was running at 1.2 million bpd.

Data from shipping agents indicated Venezuela's oil exports rose to 890,000 bpd in the week to February 1 from 550,000 bpd the previous week.