Oil Prices Bubble Near Two-Year Highs

reuters.com Mon February 24, 2003 08:40 AM ET By Duncan Shiels

LONDON (Reuters) - Oil prices sizzled near two-year highs on Monday and looked set to stay there well into March after Britain set the U.N. a two-week deadline to decide on a new resolution to be tabled this week.

Benchmark Brent crude climbed 29 cents to $32.56 a barrel while U.S. light crude was 34 cents up at $35.92 after touching two-year highs of more than $37 last week.

Traders were looking ahead to the March 1 U.N. deadline for Iraq to begin destroying banned al-Samoud missiles and show it is cooperating with demands to disarm, and March 7, the next report by the head of U.N. weapons inspections Hans Blix.

They see mid-March as the earliest date for any attack, a timescale seemingly confirmed on Monday by UK Foreign Secretary Jack Straw, who said the U.S. and Britain want a U.N. decision on Iraq within about two weeks of submitting a new resolution to the Security Council early this week.

"Because we want international consensus...we will be allowing a good period of up to two weeks, maybe a little more, before we ask for a decision," he said.

Washington and London want a U.N. resolution that could trigger war to end Iraq's suspected efforts to development weapons of mass destruction.

On Sunday, Secretary of State Colin Powell told reporters in Tokyo he expected the Security Council to make a judgment soon after the March 7 inspectors' report on the new resolution being presented by the United States and close ally Britain paving the way for war.

The U.S. military is anxious to act before April, when temperatures in Iraq begin to soar, and could make fighting tough for soldiers if they have to wear stifling protective suits and masks against the threat of chemical or biological weapons.

"Mid-March is already beyond the ideal time for the U.S.," said Adam Sieminski of Deutsche Bank, adding that prices would stay at current steamy levels as traders sit tight until war is triggered.

He said that with output from the world's largest fifth largest oil exporter Venezuela still stifled by an ongoing opposition strike, pressure was building for a release of oil from the United States' Strategic Petroleum Reserve to prevent prices reaching the $40s.

"The most important thing is that inventories globally are at very low levels," Sieminski said.

"If there's any kind of military action by the U.S. I see a fairly substantial Strategic Petroleum Release... but there's ample justification for doing something before then, given the outages from Venezuela."

The prospects for any U.S./British Security Council resolution being passed should become clearer late on Monday as the leaders of France, a veto-wielding member, and Germany, both leading efforts for a peaceful solution to the Iraq crisis, are due to meet on Monday.

Gerhard Schroeder and Jacques Chirac, will meet at a 17th century Berlin tavern for dinner and are expected to make a statement afterwards.

A top adviser to President Saddam Hussein said on Monday Iraq would decide "quite soon" about whether to abide by a U.N. order to destroy its al-Samoud 2 missiles and their components.

"It is being studied very carefully and the channels (with U.N. arms inspectors) are still open between us and we will come up with a decision quite soon," General Amer al-Saadi told reporters after talks with a South African disarmament delegation. Chief weapons inspector Hans Blix wrote to Iraq last week giving Baghdad until March 1 to start destroying the missiles which he said were found to exceed the 93-mile range limit set by a 1991 U.N. resolution. Baghdad says they were designed to stay within the permitted 93 miles.

Blix is expected to make his third report on March 7 to the Security Council assessing Iraq's cooperation with inspectors over its alleged activities involving biological, chemical and nuclear weapons.

Oil markets fear an attack in Iraq, the world's eighth biggest exporter shipping roughly two million barrels of crude a day, may spread to other producers in the Middle East, which supplies about 40 percent of globally traded crude.

Turkish Foreign Minister Yasar Yakis said a deal to let U.S. troops use the country as a base for any attack on Iraq was close, but issues such as control of northern Iraqi cities and oil fields needed final agreement.

He said a cabinet meeting on Monday might decide to send the deal to parliament for ratification.