Oil at 5-Week Highs on Tight U.S. Stocks

Tue May 27, 2003 03:49 PM ET

NEW YORK (<a href=asia.reuters.com>Reuters) - World oil prices hit fresh five-week highs on Tuesday, as the prospect of less supply from OPEC producers threatens to cut further into low U.S. fuel inventories.

U.S. light crude rose 19 cents to $29.35 a barrel, after hitting a high of $29.63, the highest level since in over a month. London benchmark Brent rose 10 cents to $26.34 a barrel.

Prices rose on a renewed pledge from Saudi Arabia, the world's top oil exporter, that beginning in June it would abide by lower OPEC quota levels agreed to last month.

"The kingdom of Saudi Arabia will produce precisely according to its new quota of 8.256 million barrels per day (bpd) from June 1," a Gulf source told Reuters. "And it expects others to do so."

The Organization of the Petroleum Exporting Countries (OPEC) could make deeper cuts when it meets again on June 11 if Iraqi exports resume by then, cartel ministers have said.

U.S. inventories have failed to rebuild as much as expected following a harsh northern winter. Supplies could come under strain as U.S. gasoline demand, which guzzles around 12 percent of all world oil, peaks over the summer months.

"The biggest debate is how gasoline demand was over the weekend, with it sunny in some parts of the U.S. and rainy in the northeast," said Phil Flynn of Alaron Research.

Iraqi officials have said they hoped to resume exports in two or three weeks, with total production of 1.3 million to 1.5 million bpd by mid-June.

Exports from Iraq, normally around 4 percent of internationally traded oil and one of the top six foreign suppliers to the United States, have been halted since a U.S.-led offensive started in mid-March.

The U.N. Security Council's Thursday vote to lift 13-year sanctions on Iraq should allow exports to resume within the next few weeks, but looting and oil field damage will initially keep exports well below pre-war levels.

U.S. crude stocks are 12 percent below year-ago levels and gasoline inventories 4 percent below last year. The next U.S. inventory data will be released on Thursday.

Gasoline supplies from Venezuela, a key regional producer, have stayed well below normal since a two-month workers strike earlier this year.