Oil Prices Dip as War Looms, OPEC Gathers

biz.yahoo.com Reuters Monday March 10, 4:33 pm ET

NEW YORK (Reuters) - World oil prices dipped on Monday as the United States and Britain struggled to convince wavering nations to back a United Nations resolution that would pave the way for war on Iraq.

Prices fell despite signs that the OPEC (News - Websites)oil producer cartel, which meets on Tuesday, was backing away from plans to suspend formal limits on oil production should the United States attack Iraq.

U.S. light crude (CLc1) slipped 51 cents to $37.27 a barrel, below its recent peak of $39.99. Oil prices set a record high of $41.15 a barrel during the 1990-91 Gulf crisis.

London benchmark Brent (LCOJ3) for April fell 35 cents to $33.69 a barrel, below a session high of $34.55, its highest level since November 2000.

Oil prices are up 20 percent this year on concerns that a war in Iraq could upset oil supplies from the Middle East.

A draft U.N. resolution proposed by the United States and Britain has set a deadline of March 17 for Iraq to satisfy all Security Council resolutions that it was cooperating fully with disarmament demands, or face war.

A vote could come as soon as Tuesday. The United States and Britain stepped up efforts to win support for the declaration while veto-wielding members France, Russia and China are opposed to military action.

U.S. officials said on Monday that Iraq appears to have placed explosives at the Kirkuk oil fields in northern Iraq to destroy them if a U.S. invasion occurred. An Iraqi oil ministry official later denied the claim.

MORE SERIOUS

The prospect of disruption of Middle East oil supplies in the event of war is all the more serious in that it follows a strike that has crippled Venezuela's oil industry.

The Venezuelan stoppage and strong heating demand due to a severe northern winter have helped to reduce stocks in the United States, the world's biggest oil consumer, to the lowest levels since the Arab oil embargo of the mid-1970s.

OPEC powers Saudi Arabia and Kuwait had hoped to find backing at a Tuesday meeting of the Organization of the Petroleum Exporting Countries to set aside production quotas if war prevented Iraqi deliveries.

Fellow OPEC member Iran condemned the plan. "Iran will not back politically motivated decisions," said Iranian Oil Minister Bijan Zanganeh. OPEC should not adopt any policy that implies support for a "U.S. military assault against one of OPEC's member states," he said.

Iran and others also fear a seasonal fall in demand in the second quarter could coincide with the end of a short war and send prices spiraling lower.

Saudi Arabia -- which holds the majority of OPEC's spare capacity -- is trying to convince the United States and other importers that OPEC can compensate for war stoppages without the need for a coordinated release from emergency stockpiles in consumer countries.

U.S. Energy Secretary Spencer Abraham said the United States was prepared to release crude from emergency reserves in the event of supply disruption, but a decision to release stocks would be made only in the event of a supply emergency.

Behind the scenes, Saudi Arabia has made clear that it is prepared to pump at maximum levels, with or without OPEC backing. Riyadh has lifted output sharply in recent weeks and is now pumping more than 9 million barrels daily of its 10.5 million bpd capacity.