Oil Falls as France, Germany Oppose War

abcnews.go.com March 5

— LONDON (Reuters) - World oil prices fell on Wednesday as France and Russia warned the United States that they could use veto powers to stop a United Nations resolution authorizing war on Iraq.

The two countries issued a joint statement with Germany after a meeting in Paris at which they also called for accelerated weapons inspections in an attempt to prevent an attack on the world's eighth largest oil exporter.

International benchmark Brent crude oil fell 19 cents to $32.90 per barrel, while U.S. crude futures dropped 54 cents to $36.35.

"There has been a distinct lack of buying since France, Russia and Germany said they would not support a war," said Christopher Bellew of brokers Prudential-Bache International.

"It's a fickle market and will probably go back up again because we do seem to be sliding toward war," he added.

The prospect of a war comes at a time when crude stocks in the United States are hovering at their lowest levels since the mid-1970s.

U.S. government data showed crude oil stocks recovered somewhat last week, countered by a fall in heating oil and gasoline inventories.

"While this would appear to be a positive report for prices, the market has become accustomed to much larger (stock) draws," said Lawrence Eagles of brokers GNI-Man.

U.S. crude has swung in a wide range of $5 over the last week since touching a 12-year high of $39.99 on Feb. 27. It is still 20 percent above where it started the year.

Heating oil shortages in the U.S. northeast have worsened fears of a supply crunch in the world's top consumer.

On top of a crippling oil strike in Venezuela, which normally supplies 13 percent of U.S. imports, traders fear war in Iraq may disrupt exports from other countries in the Middle East, which account for 40 percent of world exports.

OPEC REASSURES

OPEC exporters have said they can cover any shortfall if an attack on Iraq disrupts its exports of roughly two million barrels per day.

But traders and analysts say that most members of the Organization of the Petroleum Exporting Countries are already pumping at full tilt and have little spare capacity outside the world's top 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 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 chemical and biological weapons.

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

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 powerful armed forces backed a tentative government move to submit a fresh motion to parliament allowing U.S. troops into the country.