Oil rises as confidence in swift Iraqi war waivers

Full story.. Reuters, 03.23.03, 11:34 PM ET

SINGAPORE, March 24 (Reuters) - Oil prices rose on Monday after hitting four-month lows as optimism for a quick Iraqi war waivered with news U.S.-led forces were meeting resistance on the road to Baghdad.

As bombs pounded the Iraqi capital for a fifth day, crucial Gulf crude exports flowed uninterrupted. Brokers said the market was volatile and prices were being driven by headline news.

U.S. light crude jumped almost 80 cents to $27.70 a barrel before easing by 0424 GMT to $27.35, up 44 cents on the day. London's Brent crude was up 35 cents at $24.70 a barrel.

"The oil market has been behaving as if peace has broken out but the level of Iraqi resistance so far suggests the war could drag on with consequences for oil prices," said Adam Sieminski, oil analyst at Deutsche Bank.

Prices dropped to four-month lows on Friday, taking crude's losses to 30 percent in a week as optimism grew that the war would be swift with little damage to Iraq's oil infrastructure and no disruption to oil supplies from the Gulf producers, which pump about 40 percent of world exports.

But over the weekend, Iraq paraded U.S. prisoners of war on television and inflicted its heaviest casualties so far on the invaders as resistance to the U.S.-led forces stiffened the closer they drew to Baghdad.

"Prices are very volatile and that volatility will continue. Until some kind of clarity emerges it will be difficult to get stability," said Yasser Elguindi of Medley Global Advisers in New York.

SOUTHERN OILFIELDS SECURE

U.S. and British forces tightened their grip at the weekend on Iraq's southern oilfields and key exporting terminals and began to assess how to restart exports.

Iraq was ranked seventh among crude exporters before the war, exporting about 1.8 million barrels per day (bpd), under U.N. supervision, from output of 2.5 million bpd.

The southern Rumaila oilfields can pump up to 900,000 bpd. The northern oil hub of Kirkuk has yet to be secured by U.S. and British forces.

Fears Iraqi soldiers might repeat the sort of damage to oil wells seen in their retreat from Kuwait in 1991 have so far proven unfounded. The U.S. has estimated that fewer than 10 Rumaila wellheads have been sabotaged.

"There could still be some issues in the north or a counter-attack in the south, but the worst case scenarios, such as torching the oilfields, are not playing out," said Raad Alkadiri of PFC Energy in Washington.

OPEC exporters, especially Saudi Arabia, have hiked output in the past few months to cover the loss of exports from strike-hit Venezuela and to cool high prices fuelled by war fears.

Demand for oil normally drops in the second quarter of the year at the end of the northern hemisphere winter.

Tribal warfare in OPEC member Nigeria has shut down about 29 percent, or a little more than 570,000 bpd, of the African country's output, offering further support for prices.

Price hawks in OPEC are already concerned about the slump in oil, which had been close to $40 late in February. The price dive has revealed deep splits in the 11-member Organisation of the Petroleum Exporting Countries.

OPEC Secretary-General Alvaro Silva said on Thursday members had been authorized to use spare output capacity if necessary to make up a shortfall in Iraqi supply.

But an adviser to Iran's oil ministry, Hossein Kazempour Ardebili, said any output hike would be a "violation" since no decision had been taken to raise OPEC quota limits.

Saudi Arabia, the world's top exporter and a key U.S. ally, is pumping more than a million bpd above its quota of eight million bpd, according to independent estimates.