Oil Dips on Possible Delay to UN War Vote

asia.reuters.com Thu March 13, 2003 11:24 AM ET By Sujata Rao

LONDON (Reuters) - World oil prices came off their recent highs 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.

Oil traders said however that despite the downturn, sentiment was bullish because the looming war on oil producer Iraq and shrinking energy stockpiles in the United States, the world's largest crude consumer, continue to raise supply security fears.

London benchmark Brent crude oil fell 35 cents to $33.56 a barrel while U.S. light crude was 33 cents down to $37.50.

"There is a bit of consolidation going on but basically there is still a bias to the upside -- people are concerned about security of supply issues," said Kevin Norrish, energy analyst at Barclays Capital.

"We are not moving into a higher price band just yet because of this uncertainty on the (U.N.) vote," one oil trader said.

Still lacking Security Council support, the White House said on Thursday diplomatic efforts could spill over into next week. Its main ally Britain offered a new concession by offering to drop a demand for President Saddam Hussein to appear on Iraqi television and own up to past illegal weapons programs.

France repeated its opposition to giving Saddam any ultimatums and said it was prepared to kill any such resolution by using its veto.

Members of the U.N Security Council are to meet at 2000 GMT to discuss the new British proposals.

Prices rose on Wednesday as the fall in U.S. stocks combined with worries that oil cartel OPEC 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.

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.

WAR TIMING KEY AS SPRING ADVANCES

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 more the war gets delayed the less the potential for price spikes," Barclay's Norrish said.

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

It said in its monthly report that the global oil system was "running on empty" and that a further supply disruption would "tax a system running close to capacity."

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.

A further note of 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. Oil traders said a sell-off on heating oil futures was exerting downward pressure on crude.