Oil Prices Up More, Await Fuel Data

reuters.com Wed March 5, 2003 02:43 AM ET By Tanya Pang

SINGAPORE (Reuters) - Oil prices firmed further on Wednesday, looking to key data on U.S. fuel stockpiles to drive direction in the short-term as the United Nations continued to debate possible war in Iraq.

Brokers said another bombing in the Philippines injected fresh uncertainty into the market along with news that members of the Russian business community in Iraq were leaving.

U.S. light crude CLc1 traded 32 cents higher to $37.21 a barrel after Tuesday's $1.01 rally in New York.

"Although there is no direct link with the Philippines and oil, people are taking the bombings as an overall rise in terror tensions and an area of concern," said analyst Lawrence Eagles at brokers GNI-Man in London.

"News that Russian families are pulling out of Iraq has also raised expectations of a step closer to war. But the U.S. data will dominate today," he said.

Police said a home-made bomb exploded in the southern Philippine city of Cotabato on Wednesday, a day after a bomb attack killed 21 people at an airport to the east, which military officials blamed on the Muslim separatist group the Moro Islamic Liberation Front. The MILF denied any involvement.

U.S. crude has swung in a wide range of more than $4.50 in the last five trading days after touching a 12-year peak at $39.99 on February 27, and is about 20 percent higher then at the start of the year.

The prospect of a war in oil exporter Iraq comes at a time when crude stocks in the United States are hovering at low 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.

OPEC REASSURES

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 roughly two million barrels per day.

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

"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," said Tetsu Emori, chief strategist at Mitsui Bussan Futures in Tokyo.

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. Analysts predict crude supplies will increase slightly but winter heating oil stocks will fall.

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 Powell 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 Interfax news agency on Wednesday quoted a Russian diplomat in Baghdad as saying that about 150 members of the Russian business community in Iraq were flying out.

U.S. preparations hit a snag 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.