Oil Stronger Ahead of Blix Iraq Report

reuters.com Fri March 7, 2003 06:13 AM ET By Sujata Rao

LONDON (Reuters) - World oil prices held strong on Friday ahead of a key report on Iraq by United Nations weapons inspector Hans Blix.

Markets built on gains of over half a dollar chalked up on Thursday when President Bush accused Iraq of a "willful charade" and called for a new U.N. resolution within days to authorize disarming Iraq by force.

Brent crude futures for April stood 11 cents up to $33.64 a barrel by 5:45 a.m. EST while U.S. light crude CLc1 was steady at $37 a barrel.

"The market is going to be nervous ahead of the U.N. inspectors' report, but it's the diplomatic comment afterwards that is going to be more important," GNI-Man analyst Lawrence Eagles said.

"There will be a huge change in scenario only if there is a compromise that indicates more time will be given for inspections. But most people don't think that will happen."

Bush has called for a speedy second U.N. resolution vote. "We're days away from resolving this issue at the security Council," he said on Thursday. "It's time for people to show their cards, to let the world know where they stand when it comes to Saddam Hussein."

Washington, backed by Britain, has met stiff opposition for a new U.N. resolution paving the way for war from Russia, France and China, which hold veto powers on the Security Council and have called for more time for weapons inspections to continue.

The United States and Britain have moved about 300,000 troops into the Gulf region to launch an invasion of Iraq, which they allege holds biological, chemical and nuclear weapons.

The different points of view have sparked a hectic diplomatic dance with no indication yet of any compromise. Bush needs nine votes out of the 15-member Security Council, but Britain, Spain and Bulgaria are the only certain backers.

Chief U.N. weapons inspector Hans Blix is due to deliver his assessment of Iraq's cooperation with the searches at 1530 GMT.

A copy of the report obtained by Reuters disputes Iraqi claims to have destroyed bio warfare agents. It says Baghdad may be producing banned missiles but encourages more inspections.

ENERGY STOCKS LOW

The threat of war in the world's eighth largest oil exporter comes at a time when world energy stocks are far below normal levels, partly due to a strike in Venezuela which significantly slashed the country's oil exports.

Traders fear a war could disrupt Iraq's two million barrels per day exports, as well as flows from the rest of the oil-rich Middle East, even though the OPEC cartel has pledged to pump extra crude to make up for any loss in Iraqi supplies.

The cartel in January upped production by 1.5 million bpd to make up for the loss of Venezuelan barrels due to a strike.

Venezuela's President Hugo Chavez said on Thursday that crude operations were being restored as he lifted a two-and-half month long force majeure on exports. The force majeure, or formal suspension of contractual obligations, was put in effect soon after the strike began on December 2.

Chavez said crude production was at 2.6 million bpd plus 150,000 bpd of condensate, though rebel oil workers peg output at less than half that figure.

Weather also continues to boost oil prices as below-normal temperatures are forecast in the U.S. Northeast, which is also the world's largest heating oil market. U.S. heating oil stocks last week fell by half a million barrels.

But analysts say this may be the last of heating oil's strength as spring approaches and Venezuelan exports slowly rise.