Oil prices simmer as market focuses on supply fears

www.forbes.com Reuters, 02.26.03, 2:07 AM ET By Jonathan Landreth SINGAPORE, Feb 26 (Reuters) - Oil prices rose on Wednesday bolstered by fears that war in Iraq would cut world supplies already thinned by a Venezuelan strike and strong U.S. demand for winter heating. U.S. data later on Wednesday is forecast to show that heating fuel stocks declined last week, reinforcing the impact of a bout of below-normal cold weather in the world's biggest energy consuming nation. The data is expected to partly offset comments on Tuesday from Washington that it would quickly release strategic oil reserves if a war in Iraq disrupted supplies. Oil markets fear a U.S. attack on Iraq, the world's eighth largest oil exporter, could slash oil shipments from the Middle East, which supplies about 40 percent of the global crude trade. "The market expects a war sooner rather than later," said John Hirjee, senior energy analyst at Deutsche Bank in Melbourne. U.S. light crude was up 22 cents at $36.28 a barrel at 0700 GMT, recovering some of the 42 cents lost in New York on Tuesday. U.S. March heating oil, which rose to a record high of $1.18 a gallon on Tuesday, was up 0.98 cent at $1.1324 compared with New York's close. New York oil prices have risen some 45 percent since November after a strike stunted exports from key oil supplier Venezuela and cold temperatures eroded domestic fuel supplies. Iraq offered U.N. arms inspectors on Tuesday documents on past arms programmes, but U.S. President George W. Bush pressed his case for nothing less than full disarmament. Bush emphasised he would bypass the United Nations and attack Iraq if necessary, saying approval of a new U.N. resolution was not essential. U.S. government supply data is expected to show distillates stocks fell last week by 2.6 million barrels, or about 2.5 percent. "Feeding supply fears is the cold weather in the United States," Hirjee said. Heating demand could continue to bolster fears of supply shortages since temperatures in the U.S. Northeast, the world's biggest heating-oil market, are forecast to be below seasonal norms this week. However, U.S. Secretary of Energy, Spencer Abraham, said the U.S. would quickly release stock from its 600-million-barrel strategic oil reserve if supplies were disrupted by a war in Iraq. "We will and can act quickly to use the Strategic Petroleum Reserve to fortify efforts by producers to offset any severe disruption, if it is needed," Abraham told lawmakers at a Senate Energy Committee hearing. Wednesday's inventory report also is expected to show a small drop in gasoline supplies and a one-million-barrel rise in crude oil stocks.