Oil Firm as US Prepares Case Against Iraq

reuters.com Wed February 5, 2003 02:20 AM ET

SINGAPORE (Reuters) - Oil prices were firm on Wednesday waiting to see if Secretary of State Colin Powell could convince skeptics on the U.N. Security Council that Iraq is hiding weapons of mass destruction.

Powell's briefing to the Security Council, due to start at about 10:30 a.m. EST, may be the last chance for Washington to persuade many of its key allies such as France, Russia and China that Baghdad is a threat because it has hidden biological and chemical weapons.

Many Security Council members want to give weapons inspectors more time to carry out their work in Iraq, but the U.S. has said Baghdad has weeks, not months, to give up suspected arms or face a U.S.-led military campaign.

"The market remains on its toes as the path to war becomes clearer. The presentation to the U.N. Security Council will be critical to the timing of the war," said Sydney-based independent oil analyst Simon Games-Thomas.

Benchmark U.S. light crude was up eight cents at $33.66 a barrel at 0711 GMT, extending Tuesday's 82-cent gain in New York.

Powell has said he will provide "sober and compelling proof" of Iraq's concealment in his briefing, which officials said would include satellite photographs and recorded Iraqi conversations.

But Iraqi President Saddam Hussein, in remarks broadcast on Tuesday, denied Baghdad had weapons of mass destruction or links to the al Qaeda network blamed for the September 11, 2001 attacks.

"There is only one truth, and therefore I tell you as I have said on many occasions before, that Iraq has no weapons of mass destruction," he said in a rare interview in Baghdad on Sunday and aired on British television's Channel Four News.

Saddam said the United States and Britain were intent on war to control oil in the Middle East. Concern a military strike on Iraq could disrupt crude flows from the Middle East has helped keep oil bubbling above $30 a barrel for the last two months.

U.S. OIL STOCKS SEEN DOWN

Crude's 2.5 percent rally in New York on Tuesday was partly driven by expectations U.S. supplies of heating fuel and gasoline shrank last week on robust demand and a fall in refinery output because of maintenance work.

U.S. fuel stocks have been running close to historic lows as supplies all but dried up from strike-bound Venezuela, which provides about 13 percent of U.S. oil imports.

The government Energy Information Administration is due to release its weekly report on the state of U.S. inventories later on Wednesday.

A Reuters survey of six analysts on Tuesday forecast the EIA data would show a decline of 3.5 million barrels in distillate stocks, which include heating oil, and a drop of 1.7 million barrels in gasoline supplies.

Analysts said the data would show crude inventories rose by 1.5 million barrels, helped by an inflow of supplies from the Middle East and Europe and as exports picked up from Venezuela.

Venezuela's striking oil workers said on Tuesday crude output was 1.2 million barrels a day (bpd), although President Hugo Chavez, who the strikers are trying to force to resign, claimed output was fast approaching two million bpd.

At its lowest point after the strike began in December, Venezuela crude output was running at just 150,000 bpd compared with 3.1 million bpd before the strike began.

Ministers from producers' group OPEC warned this week a return of Venezuelan exports could add to a supply glut and a possible price crash in the second quarter, when demand traditionally drops off with the end of cold weather in the Northern Hemisphere.