Oil Bounces Back as US Says Troops Ready

reuters.com Fri February 21, 2003 07:41 AM ET By Tom Ashby

LONDON (Reuters) - World oil prices rebounded on Friday toward two-year highs as the United States said it had massed enough troops in the Gulf to attack Iraq, the world's eighth largest oil exporter.

Defense Secretary Donald Rumsfeld said more than 150,000 troops were ready to move on Baghdad if Washington decided to attack, while Turkey and the United States moved closer to a deal over troops.

International benchmark Brent crude oil rose 41 cents to $31.97 a barrel, versus a two-year high of $33.10 hit last week. U.S. crude futures climbed 47 cents to $35.21.

"Oil prices are unlikely to shift too far away from a continuing upward bias until the situation with respect to Iraq moves to a more decisive phase," said Paul Horsnell of investment bank J.P. Morgan.

The global oil market had slipped on Thursday on U.S. data showing an unexpected recovery in U.S. commercial crude oil stocks from their lowest levels in 27 years.

But prices are still some 50 percent up in three months as the market has absorbed the threat to Iraq's two million barrel per day of exports.

Turkey held out hope for a late "aid for bases" deal with the United States that would allow Washington to deploy tens of thousands of troops on Turkish soil for a possible invasion of Iraq. "There is mutual understanding," Prime Minister Abdullah Gul said.

HEATING OIL RUNNING LOW

Blistering cold weather in the northeastern United States has also boosted demand for heating oil in a world market that is otherwise suffering from slow growth.

Commercial U.S. stocks of heating oil are running at almost 31 percent below last year, latest official data shows.

Inventories have also been crimped by a cut in supplies from Venezuela, which is struggling to restore normal exports after 10 weeks of strike by key oil company employees.

Venezuela, the world's fifth largest exporter before the strike, is now pumping about half its normal three million barrel per day rate.

TotalFinaElf chief Thierry Desmarest said on Friday he expected oil prices to rise further if the United States went ahead with war on Iraq, but said OPEC would easily be able to cover for any interruption in Iraqi supply.

Desmarest predicted prices would rise for a few weeks if the U.S. launched an assault against Baghdad but then fall in the second half of the year because of slow growth in global oil demand.

Washington plans to propose a new resolution to the U.N. Security Council next week authorizing a strike against Baghdad.

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.