Oil Soars As Turkey Mulls Vote on U.S. Troops

www.morningstar.ca 4 Mar 03(3:35 PM) | E-mail Article to a Friend By Andrew Mitchell

NEW YORK (Reuters) - Oil prices rose nearly 3 percent on Tuesday as the United States stepped up its military build-up in the Gulf and dealers speculated Turkey would ultimately agree to allow U.S. troops to use its territory as a launchpad in any attack on Iraq.

U.S. light crude rose $1.01, or 2.8 percent, to $36.89 a barrel, about three dollars below 12-year highs hit late last week. In London, Brent crude settled 61 cents higher at $33.09.

The gains marked a rebound from sharp losses on Monday after the Turkish parliament voted against allowing U.S. troops to use Turkish bases for a possible attack on Iraq, the world's eighth biggest oil exporter.

Turkish Foreign Minister Yasar Yakis indicated on Tuesday the government was considering a new parliamentary motion to approve the deployment of U.S. troops.

"It's fair to say that a lot more pressure is being put on Turkey," said Rob Laughlin of GNI-Man Financial.

Oil prices have risen 20 percent since the start of the year on fears that war in Iraq could upset supplies from the Middle East which pumps a third of the world's oil.

U.S. President George W. Bush has said the United States will oust Iraqi President Saddam Hussein by force if he did not surrender his alleged weapons of mass destruction.

The Pentagon announced it is sending 60,000 more troops to the Gulf, to join a massive build-up of more than 250,000 U.S. and British forces already in the region for a possible war with Iraq.

Washington wants U.N. Security Council support for possible military action, but France, Russia and China -- three of the council's five veto holders -- say U.N. arms inspectors in Iraq should be given more time.

Russian Foreign Minister Igor Ivanov said on Tuesday that his country will not support any measure leading to a war in Iraq and may wield its veto power at the Council for that purpose.

Chief U.N. weapons inspector Hans Blix will give his next briefing to the U.N. Security Council on Friday.

STOCKPILES LOW

Anxiety about possible disruption of oil supplies should war be declared is all the more acute because fuel stockpiles in the United States -- which consumes a quarter of global oil supply -- are already at perilously low levels.

Crude stocks are at the lowest level since 1975 after an oil strike in Venezuela drained inventories. Supply reports to be published on Wednesday are expected to show a further draw on stocks after recent Arctic weather in the United States.

Meanwhile, U.S. households are facing all-time high heating oil and natural gas prices strengthening concern that rising energy costs could further sap an anemic economy.

OPEC officials have pledged that the Organization of the Petroleum Exporting Countries, which meets in Vienna next week, would abandon its production quotas and pump at will in the event of war.

Leading OPEC producer Saudi Arabia already is pumping nine million barrels per day of its 10.5 million bpd capacity and most others in the cartel have no spare production.

If OPEC has insufficient spare capacity, consumer countries represented by the Paris-based International Energy Agency have said they will release emergency strategic reserves for the first time since the 1991 Gulf War.

The chairman of the world's biggest oil company Exxon Mobil said on Tuesday the United States could release emergency crude reserves if there is war with Iraq, depending on the extent of disruption to oil supply.

"It's clear if there's going to be a war, then Iraq is going to stop exporting," Lee Raymond told analysts in New York.

U.S. Energy Secretary Spencer Abraham said last week that the United States was prepared to act quickly to release emergency crude oil reserves if needed to offset a severe disruption to Middle East supplies.