Oil prices bounce back, await UN talks next week

www.forbes.com Reuters, 02.21.03, 4:16 AM ET SINGAPORE, Feb 21 (Reuters) - Oil prices rebounded on Friday from a sharp fall, with an eye on slim fuel stocks and cold weather in the United States and next week's diplomatic play at the United Nations over a possible war in crude exporter Iraq. U.S. light crude climbed 51 cents to $35.25 a barrel. In London, benchmark Brent crude leapt 43 cents at the open to $31.99 a barrel, partly reversing a 67-cent fall on Thursday. Thursday's sharp drop in prices came as U.S. crude inventories showed a modest gain from 28-year lows and traders moved to collect profits after six days in a row of gains, which saw oil hit a 29-month peak above $37. "After yesterday's very sharp sell off, the market is really trying to adjust but it's not easy to trade at the moment. This is really a technical rebound," said Lawrence Eagles at London-based GNI-Man Research. Analysts said crude was unlikely to come under significant downward pressure as much of the United States remained blanketed by snow, pushing up demand for winter heating fuels. National stocks of heating oil are running at about 40 million barrels, almost 31 percent below levels a year ago, government statistics released on Thursday showed. Total crude inventories are just three million barrels above the minimum required 270 million barrels to ensure operation of U.S. refineries. Gasoline tanks are also on a contra-seasonal decline as refiners raise output of heating fuels, which has ignited concerns of a possible supply crunch at the pump in summer months when vacation season is in full swing. Apart from winter demand, U.S. stocks have also been crimped by a cut in supplies from Venezuela, which is struggling to bring its oil exports back to normal from the ongoing anti-government strike, now in its 11th week. Venezuela used to supply 13 percent of U.S. oil imports before the strike.

DIPLOMATIC PLAY Adding to concerns over tight oil supplies is the possibility of a military attack on Iraq, the world's eight biggest crude exporter, and potential disruptions to crude flows from other Middle East producers. The region supplies about 40 percent of globally traded crude oil. The United States said on Thursday that it had amassed a big enough military force in the Gulf region to launch an invasion of Iraq, if President George W. Bush decides to go to war. Washington plans to propose a new resolution to the U.N. Security Council next week, authorising a strike against Baghdad to force it to give up any banned weapons it has hidden. But the United States, backed by ally Britain, is likely to face strong opposition from France, Russia and China, who want U.N. arms inspectors to be given more time to search for Iraq's alleged stockpiles of biological, chemical and nuclear weapons. Baghdad denies it has such weapons. The new draft resolution is expected to say Iraq is in "further material breach" of a November 8 resolution, wording that Washington and London claim can be used as justification for war.