FUTURES MOVERS--Oil futures at two-week high above $29 .. U.S. shuts Syria pipeline; OPEC confirms April 24 summit

<a href=cbs.marketwatch.com>CBS MarketWatch By Myra P. Saefong, CBS.MarketWatch.com Last Update: 3:52 PM ET April 15, 2003

NEW YORK (CBS.MW) -- A forced shutdown of an oil pipeline between Iraq and Syria, as well as the possibility that OPEC will decide to cut back output at a meeting next week, pulled crude futures back above $29 a barrel Tuesday for the first time in two weeks.   CBS MARKETWATCH TOP NEWS Basketful of earnings, data on tap next week Slimmer U.S. March deficit but FY03 could be record After buyout, analysts like Pfizer shares Gartner: Dell reclaims No. 1 PC spot Free! Sign up here to receive our Midday Market Report e-Newsletter!

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U.S. forces shut down a pipeline used for illegal oil shipments from Iraq to Syria on Tuesday -- a move that's "considered to be bullish for prices as this will keep oil off the market in the short term," said John Person, head financial analyst at Infinity Brokerage Services.

Iraq's oil output is under the control of U.N. sanctions and the Syrian pipeline was not part of allowable sales.

"Crude is extremely sensitive to any production cuts anywhere let alone when Donald Rumsfeld announces that the U.S. cut off the supplies to Syria," he said. It's "another tension builder [and] no one knows how it will be accepted in the Middle East."

The U.S. ratcheted up political pressure on Syria after Iraqi officials were detained near the border. Syria also has denied U.S. allegations that it has chemical weapons, a long-standing issue, and is providing safe harbor for Iraq's leadership. See America at War.

With that as a backdrop, crude for May delivery closed at $29.29 a barrel, up 66 cents on the New York Mercantile Exchange -- its first close above $29 since April 1. It reached an intraday high at $29.50 a barrel earlier in the session.

OPEC also confirmed Tuesday that it will hold a special "consultative" meeting on April 24 in Vienna to discuss a possible production cut in response to a sharp drop in world oil prices.

"We don't foresee any adjustment to the official quotas, but do expect the cartel to embrace strict compliance as the way to avoid a glut," Tim Evans, senior analyst at IFR Pegasus in New York, said in an evening update.

OPEC could stop prices from falling further by improving compliance to its output limit of 24.5 million barrels per day, Algerian Oil Minister Chakib Khelil was quoted as saying earlier this week.

"Despite a halt in Iraqi exports due to the war, prices have slumped by 30 percent in a month on a rising tide of exports from Saudi Arabia and other cartel members," Fimat USA analyst Michael Fitzpatrick told clients Tuesday.

Cartel members, excluding Iraq, have been producing at about 2 million barrels above their quota, according to industry estimates.

Last week, OPEC President Abdullah Hamad bin al-Attiyah said the oil market, on a global basis, is oversupplied by at least 2 million barrels per day and could potentially be oversupplied by a total of 4 million barrels per day once Iraq's oil production is resumed.

Right now, "commercial oil stocks worldwide are well below normal levels due to a series of supply interruptions from Venezuela, Nigeria, Iraq and a particularly harsh winter," said Fitzpatrick.

But a monthly report released by the International Energy Agency last week pegged world oil production at 80.3 million barrels per day in March, well above its second-quarter demand forecast for an average of 76.4 million barrels per day.

Other countries in the picture

Even with the Iraqi situation "almost a memory," said Infinity's Person, the oil markets must "remember that instability in other areas of the world still exist such as Venezuela and Nigeria."

Todd Hultman, president of Dailyfutures.com, a commodity information provider, agreed. The market is still affected by a 700,000 barrel-per-day loss of Nigerian output because of the African country's civil unrest, as well as a loss of 500,000 barrels per day from Venezuela, which is slowly resuming its output following a labor strike, he said.

"Depending on how the next couple of months play out, we could see $24 July crude or $30 July crude," Hultman said.

Still, he noted that "even if supplies stay tight in the next month, the long-term view is that a peaceful Iraq will lead to a friendlier oil trade and lower crude oil prices."

Also, any demand in the U.S. and abroad will offset any increases in imports, said Infinity's Person. And the lack of a climb in the number of oil drilling rigs in the U.S. means that the nation will continue to be dependent on foreign imports, he said.

Tempering the gains

Despite oil's close back above $29, prices never rose more than $1 a barrel during Tuesday's session.

Offsetting the prospect of OPEC's next move and other supportive factors was news that there were no more fires at Iraqi oil wells and crude supplies in the U.S. are likely headed higher amid strong production from Saudi Arabia.

U.S. Brigadier General Vincent Brooks reportedly said Tuesday that there are no longer any burning oil wells in Iraq.

On Monday, Brooks said it will likely take at least a few weeks for production to resume because the oil fields in both the north and south need to be cleared of explosives, then must be repaired.

Some analysts have speculated that full production could actually be seriously delayed by needed upgrades to the oil infrastructure after years of neglect. See full story.

Oil traders are also wary of the overall state of supplies, which stand at a year-over-year deficit in the U.S.

Total crude inventories were 277.1 million barrels as of the week ended April 4 -- 16.2 percent below the year-ago level, according to the Energy Department. See the latest supply update.

Supply updates on tap

Updates on U.S. supplies are due out Wednesday morning from the Energy Department and American Petroleum Institute.

The Energy Department will likely report a 1 million- to 3 million-barrel increase in crude stocks in the week ended April 11, according to IFR Pegasus.

Analysts at Fimat USA expect a 2.5 million-barrel rise in crude stocks.

IFR Pegasus predicts that gasoline inventories ranged anywhere from unchanged to a rise of 1 million barrels, while distillate stocks ranged from unchanged to a decline of 1 million barrels in the latest week.

Fimat's looking for a rise of 1 million barrels of distillates and a 1.5 million-barrel climb for gasoline supplies.

Ahead of the supply data, May unleaded gasoline tacked on 0.97 cent to 85.88 cents a gallon and May heating oil closed at 77.26 cents a gallon, up 2.51 cents on Nymex.

According to AAA's daily fuel gauge report, the average U.S. price for gasoline at the pump stood at $1.595 a gallon as of early Tuesday, compared with $1.602 on Monday. A year ago, prices were at $1.418 a gallon.

Natural gas logs more gains

Also on Nymex Tuesday, the May natural-gas contract closed at $5.653 per million British thermal units, up 10.1 cents with many analysts calling for a decline in last week's domestic inventories. The contract gained 14.1 cents on Monday.

An update on natural-gas supplies is due Thursday morning. Fimat analysts are predicting a decline of 3 billion cubic feet for the week ended April 11. Market estimates range from a build of 10 billion to a draw of 40 billion cubic feet, Fimat said.

Total inventories were at 671 billion cubic feet as of the week ended April 4 -- 820 billion cubic feet lower than last year at this time and 529 billion cubic feet below the five-year average, according to the Energy Department.

In other Nymex dealings, gold futures closed modestly higher. The June contract added 60 cents to close at $325.50 an ounce. See Metals Stocks.

In equities dealings, the Philadelphia Oil Service Index ($OSX: news, chart, profile) was lower. See Energy Stocks.

And the Reuters/CRB Index -- a broad-based measure of the commodity futures market -- stood at 231.8, up 0.8 percent. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.