Oil Climbs Ahead of U.S. Address on Iraq

reuters.com Wed February 5, 2003 09:35 AM ET By Barbara Lewis

LONDON (Reuters) - World oil prices climbed on Wednesday ahead of a key speech by Secretary of State Colin Powell aimed at convincing skeptics on the U.N. Security Council that crude producer Iraq is hiding weapons of mass destruction.

In London, benchmark Brent crude for March LCOc1 delivery rose 57 cents to $31.66 a barrel, while U.S. light crude CLc1 rose 52 cents to $34.10 a barrel.

"War is something that's very much inevitable," said Paul Bednarczyk, analyst at economic consultancy 4cast. "The market keeps trying to price that in and I think prices must be fairly near the top."

Prices had already climbed sharply on Wednesday as dealers began to anticipate that Powell's U.N. address would increase momentum for a U.S.-led war on Iraq, which traders fear could disrupt supplies not only from Iraq but from elsewhere in the oil-rich Middle East.

In a briefing, scheduled to start at 1530 GMT, Powell has pledged to provide "sober and compelling proof" that Iraq is concealing weapons of mass destruction.

FIVE TO MIDNIGHT

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

Chief U.N. inspector Hans Blix has also said that time was running out. On Tuesday, he warned Iraq that it was "five minutes to midnight" and that Baghdad urgently needed to show it was cooperating with inspectors.

Blix, along with his colleague Mohamed ElBaradei, in charge of nuclear arms teams, will go to Baghdad on Saturday and Sunday at Iraq's invitation.

He will report back to the U.N. Security Council on February 14, possibly for the last time before a U.S. invasion.

Iraqi President Saddam Hussein, in a rare television interview 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.

U.S. PRODUCTS STOCKS FALL

Analysts and dealers said that the market was also driven higher by data on Wednesday showing a steep drop in stocks of U.S. oil products as seasonal maintenance reduced output from U.S. refineries.

Overall crude stocks fell slightly, according to industry figures, but rose slightly, according to government statistics as a two-month-old strike in Venezuela, the world's fifth largest oil exporter, relinquished its stranglehold.

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

In January, the Organization of the Petroleum Exporting Countries (OPEC) agreed to increase output to help compensate for the effects of the Venezuelan strike.

But last weekend, OPEC ministers warned that as Venezuelan crude was coming back onstream, there could be a supply glut by the second quarter when demand traditionally drops off with the end of cold weather in the Northern Hemisphere.

Analysts also predict that the war premium built into prices will quickly melt away provided that any war against Iraq is short-lived.

A Reuters survey found on Wednesday that OPEC's January production rose 380,000 bpd from December to 25.65 million bpd, but remained 1.67 million below volumes in November, before the Venezuelan strike.