Oil Slides on Delay to U.N. Iraq War Vote

biz.yahoo.com Thursday March 13, 3:07 pm ET

NEW YORK (Reuters) - World oil prices plunged more than 4 percent on Thursday as the United States said efforts to garner support for a new U.N. resolution on Iraq could extend into next week, potentially further delaying a Middle East war.

News that the Japanese government plans to sell 300,000 barrels per day from its state reserves should U.S.-led forces begin attacking Iraq, according to a Nihon Keizai Shimbun report, added to the day's slide, traders said.

U.S. light crude was $1.68 down at $36.15 a barrel. London benchmark Brent crude oil fell $1.44 a barrel to $32.47 a barrel.

Oil prices are still up 16 percent this year on concerns that a war in Iraq, which itself ships around 4 percent of world oil exports, could upset oil supplies from other producers in the Middle East.

Prices fell as the White House said on Thursday diplomatic efforts to secure U.N consensus on a new resolution on Iraq could spill over into next week.

Secretary of State Colin Powell told a congressional committee there may be no vote at all on the resolution, a sign that Washington fears it may not get enough support.

A German government source said compromise in the U.N. Security Council on Iraq was unlikely, even if a vote is put off until next week.

Further relief for soaring prices came from an end to freezing U.S. temperatures which have supported heating oil prices at near record levels in recent weeks.

Prices rose on Wednesday as the fall in U.S. stocks combined with worries that oil cartel OPEC (News - Websites)would not be able to compensate for lost Iraqi exports in event of war.

Latest U.S. data showed crude inventories falling last week to a 27-year low. There were also sharp drops in gasoline inventories, which ought to be growing as stockbuilding starts for the summer driving season.

Analysts say core oil stocks are now 89 million barrels below normal. "Given the reported ramping of OPEC production and the continued recovery of Venezuelan production, the shortfall is shocking," SG Securities said in a research note.

OPEC STEPS UP OUTPUT

The Organization of the Petroleum Exporting Countries has stepped up output this year to cover an outage of crude from Venezuela, where an anti-government strike brought production to little more than a trickle in December and January.

Venezuela, normally the fifth-biggest exporter providing about 13 percent of U.S. oil imports, has increased shipments of crude and oil products though rebel oil workers say production is still less than half of normal levels.

Analysts say timing is now key for the war because oil demand is generally two million barrels lower in the second quarter of the year as spring advances and the loss of Iraqi crude will not be as acutely felt as now.

The West's energy watchdog, the International Energy Agency (IEA), says the OPEC cartel likely lacks enough capacity to compensate immediately for the loss of Iraqi and Kuwaiti oil.

OPEC, however, has pledged to guarantee supplies should war break out and Saudi Oil Minister Ali al-Naimi reiterated on Thursday OPEC's ability to deliver oil in case of war in Iraq.

The Nihon Kezai report said Japan will consider releasing oil with the United States, regardless of what the (IEA) advises. Japan and the U.S. are members of the 26-nation IEA, the energy watchdog for industrialized nations that is based in Paris.

The IEA has said that it will allow OPEC to try to cover any shortages in war before it considers, as a last resort, releasing inventories from emergency stockpiles held in consumer nations.

Those reserves, built after the 1974 Arab oil embargo, were last used in the 1990-91 Gulf war after Iraq's invasion of Kuwait.