Oil Stays Firm Just Below $37

reuters.com Wed March 5, 2003 12:46 AM ET By Tanya Pang

SINGAPORE (Reuters) - Oil prices held steady on Wednesday with key data on the health of U.S. fuel stockpiles likely to drive direction in the short-term as the United Nations continued to debate possible war in Iraq.

U.S. light crude tip-toed two cents higher to $36.91 a barrel after Tuesday's $1.01 rally in New York.

U.S. crude prices have swung in a wide range of more than $4.50 in the last five trading days after the market touched a 12-year peak at $39.99 on February 27.

The prospect of a war in oil exporter Iraq comes at a time when crude stocks in the United States are hovering at levels not seen since the mid-1970s, increasing anxiety that the world's biggest oil consumer may face a supply crunch.

Apart from lower sales from strike-bound Venezuela, which normally supplies 13 percent of U.S. imports, traders fear war in Iraq may disrupt supplies from other producers in the Middle East, which pumps about 40 percent of globally traded crude oil.

The OPEC producers cartel has sent reassurances to the market that it will cover any shortfall to world supplies should a military attack on Iraq disrupt its crude exports of some two million barrels per day.

But traders and analysts say that most members of the Middle East-dominated group are already pumping at full speed and the Organization of the Petroleum Exporting Countries has little spare capacity to utilize, with the exception of kingpin producer Saudi Arabia.

"It is clear that the loss of Iraqi crude represents a real threat to the stability of the market and that its loss would be difficult to compensate for in the long term. This is where the greatest risk to the market lies," said independent oil analyst Simon Games-Thomas.

Tetsu Emori, chief strategist at Mitsui Bussan Futures in Tokyo, said: "We're looking for crude to move above $40 when the attack is launched on Iraq. Even if OPEC does increase production we still see supplies remaining tight."

The U.S. government Energy Information Administration (EIA) will release later on Wednesday its weekly status report on the health of U.S. fuel stocks, and analysts predicted crude supplies to increase slightly but for winter heating oil stocks to decrease.

In a Reuters poll, six analysts forecast U.S. crude inventories to show a rise of 1.25 million barrels as Saudi Arabia bumped up imports to its ally.

The survey showed stocks of distillates, including heating oil, falling by two million barrels with demand still running high as a severe spell of unusually cold temperatures continued.

Heating oil stocks fell below 100 million barrels last week for the first time in three years, EIA data showed.

Analysts pegged gasoline tanks declining by 500,000 barrels.

MORE TROOPS TO GULF

The United States ordered 60,000 more troops into the Gulf region on Tuesday in its preparations for a military strike on Iraq, which it says is not in full compliance with U.N. demands to disarm weapons of mass destruction.

The United States and Britain has already amassed a 250,000-strong force in the region.

Secretary of State Colin Powel said Washington was gaining support on the U.N. Security Council for a new resolution against Iraq, which at the weekend began to destroy its illegal al-Samoud 2 missiles.

Washington, backed by Britain and Spain, is meeting resistance for a new U.N. resolution permitting military force from Russia, France, China and Germany.

The United States hit a stumbling block in its preparations at the weekend when Turkey's parliament voted against the deployment of U.S. troops on its soil, which would have given access to northern Iraq.

Turkey's government said on Tuesday it was considering a second try at winning parliamentary approval.