Oil Above $37 on Push for UN War Mandate

reuters.com Tue February 18, 2003 02:54 PM ET

NEW YORK (Reuters) - Oil prices forged to fresh 29-month highs on Tuesday as the United States and Britain pushed for a second U.N. resolution on Iraq that could open the way to war on the world's eighth largest oil exporter.

A snowstorm that swept across the eastern United States over the weekend supported prices, boosting heating demand at a time when U.S. fuel stocks have already fallen well below normal levels.

U.S. crude futures, which were closed on Monday for the Presidents' Day holiday, rose 25 cents to $37.05, the highest level since September 2000, and barely four dollars below peaks struck during the 1990-1991 Gulf War.

International benchmark Brent crude oil rose 63 cents to $32.55 per barrel, within a dollar of its two-year high of $33.10 hit last week.

Prices rose as the White House said it could propose a new U.N. resolution as soon as this week calling for the use of force to disarm Iraq. The United States has said it will act without U.N. agreement if necessary.

"It could take place as soon as this week. It could be next week. The timing will be determined as a result of the ongoing conversations within our government and with the allies," White House spokesman Ari Fleischer said.

Traders fear military conflict in Iraq could upset oil flows from the Middle East, which pumps nearly a third of the world's crude. An 11-week workers strike in Venezuela has already depleted world oil supplies.

The Defense Department has ordered a further 28,000 troops to the Gulf region as the United States builds a military force of more than 200,000 for a possible war with Iraq, military officials said on Tuesday.

European Union leaders closed ranks on Monday to warn Iraq that United Nations arms inspections could not go on indefinitely without Baghdad's cooperation and declared for the first time that war could be the last resort.

"An attack at the end of February through to the middle of March still seems almost inevitable," said Lawrence Eagles of brokers GNI.

IRAQ URGES OIL AS ANTI-WAR WEAPON

Iraqi Foreign Minister Naji Sabri urged Arab nations to use their massive oil wealth as a weapon against war. A similar plea fell on deaf ears last April, when Iraq urged an embargo to protest Israeli violence against Palestinians.

The Arab-dominated Organization of the Petroleum Exporting Countries has vowed to do its best to cover any shortfall in Iraqi supply.

OPEC will probably suspend oil output quotas temporarily and pump at will in the event of war cutting off Iraqi supplies, an OPEC source said on Monday.

U.S. households are already facing higher heating costs, after heating oil futures rose to their highest level since 1979 this month. Supply has tightened as high crude prices force domestic refiners to cut back production.

After a series of severe storms in the U.S. northeast already this winter, the world's largest heating oil market was again battered by Arctic cold this week.

Heavy blizzards hit New England on Monday, closing most major airports between Washington and New York. Temperatures in the Northeast are forecast to rise this week then fall back again.

Concerns are rising that the scramble to meet heating demand will prevent refiners making enough gasoline to meet summer vacation demand, meaning higher prices at the pump later this year.

Another potential supply disruption loomed as Nigerian oil workers threatened to cut off exports from Africa's top producer in a strike that began on Saturday.

Blue-collar Nigerian oil workers joined a strike by white-collar workers on Tuesday, but oil companies managed to maintain exports using senior staff to replace strikers.

Talks on ending the strike have been postponed by one day to Wednesday to ensure fuller attendance.