Oil surges to post Gulf War high

money.cnn.com February 26, 2003: 4:33 PM EST

Prices rally after government report shows decline in heating fuel stocks on cold weather.

NEW YORK (Reuters) - U.S. oil prices hit their highest mark since the Gulf War on Wednesday after the U.S. government reported a big drop in winter heating fuel stocks as Washington continued to press its case for war against Iraq.

The Department of Energy said supplies of heating oil in the week to Feb. 21 fell 3.9 million barrels to 36.1 million barrels, a dangerous 33 percent deficit from a year ago as cold weather buffets the Northeast.

The news pushed U.S. light crude to a new post Gulf War high of $37.93 a barrel -- within reach the all-time high of $41.15 hit in October 1990 -- before settling at $37.70 a barrel, up $1.64 on the day.

London Brent crude gained 75 cents to $33.07 a barrel.

"For short-term trading targets there's really not much holding this market back from $40 a barrel," said Paul Horsnell, oil analyst at J.P. Morgan. "These latest inventory figures are scary. We must now be getting very close to localized physical shortages."

The U.S. inventory slump has reinforced the impact on oil prices of a bout of colder-than-normal winter weather in the world's biggest energy consuming nation.

Weather watchers are calling for continued abnormally low temperatures in the Northeastern U.S., the world's largest heating oil market, through the coming weekend, adding more pressure to thin stockpiles.

U.S. importers are also without large volumes of refined products from Venezuela where an anti-government strike has kept big refineries idled since early December.

Oil is already priced at a premium due to fears that a U.S. attack on Iraq, the world's eighth largest oil exporter, will stop Baghdad's shipments and possibly hit other supplies from the Middle East, the source of 40 percent of global crude trade.

PAVING THE WAY FOR WAR

The United States said Wednesday it doubted either Russia or China would veto a new U.N. Security Council resolution designed to pave the way for war.

The comments, made by a senior U.S. administration official speaking on condition of anonymity, seemed to improve prospects for the resolution, although questions remained over the nine council votes it needs to pass and a possible French veto.

Chief U.N. weapons inspector Hans Blix said that Iraq had not yet made a "fundamental decision to disarm," and still fell short of full cooperation with U.N. disarmament demands.

Blix, readying another report to the Security Council, told reporters he thought Iraq had stepped up its efforts to release documents and other data as required by United Nations resolutions.

But he also said, "Full cooperation or a breakthrough, no? I don't think you can say that. We have a very long list of disarmament issues and it will require a big effort in order to clarify all of those."

"I do not think I can say there is evidence of a fundamental decision (to disarm), but there is some evidence of some increased activity," he said.

U.S. oil stockpiles data released on Wednesday countered earlier comments from Washington that it was ready to release government strategic reserves quickly if it judges that a war in Iraq is causing a severe supply disruption.

U.S. Secretary of Energy Spencer Abraham said on Tuesday he would release crude from the 600-million-barrel national reserve if supplies suffer a heavy cut due to war.

But Washington has yet to make clear whether it thinks a stoppage of Iraq's 1.7 million barrels per day of exports would be sufficient to warrant a release. OPEC has said it has enough spare capacity to cover any Iraqi outage.

Oil from the emergency reserve was last released in September 2000, when thin stockpiles boosted prices to $37.80 a barrel. SPR oil was also released during the Gulf War.