Oil holds near five-week high on supply worries

Oil holds near five-week high on supply worries

Reuters, London

Oil prices held above the US$30 mark on Friday as the
International Energy Agency (IEA) warned of potential supply
tightness heading into the northern winter.

Benchmark London Brent crude, up more than 17 percent in
barely two weeks since OPEC's surprise decision to cut production
from Nov. 1, was off 16 U.S. cents at $29.98 a barrel, having
topped $30 for the first time in six weeks on Thursday.

U.S. light crude was down 5 U.S. cents at $30.96 a barrel,
showing little inclination to give back Thursday's 4 percent
gains, which were triggered by concerns over a possible supply
crunch of winter heating oil in the United States.

Those fears were stoked by recent reports showing heating oil
inventories are seven percent below last year's level in the U.S.
and distillate supplies -- including the winter fuel -- 4 percent
less in Europe, separate reports showed.

The IEA, adviser on energy to 26 industrialized nations, on
Friday forecast that global oil demand growth would accelerate
into the fourth quarter, rising 0.9 percent over last year's
level and exceeding 80 million barrels per day (bpd) for the
first time.

In 2002, strong demand and low inventories pushed heating oil
prices to all-time highs. Weather forecasters are expecting this
year's winter to be just about as cold.

"Heating oil demand growth is expected to rebound sharply in
the fourth quarter, as U.S. natural gas supplies remain
constrained in the face of robust demand," the IEA said in a
monthly report.

Heating oil futures in New York, up about 22 percent in the
past three weeks, eased just 44 points to 84.98 cents a gallon on
Friday -- still a far cry from the $1.31 a gallon peak reached in
late February of this year.

OPEC's basket of crudes rose to $28.60 on Thursday, topping
its $22-$28 preferred price band three weeks before its latest
round of supply cuts come into effect.

OPEC president Abdullah al-Attiyah on Friday reiterated his
call on non-OPEC countries to join the cartel in curbing output
to support prices in 2004, when he expects an oversupply of oil.

"The market will see oversupply in 2004 so OPEC and non-OPEC
should sit together and should have a serious talk," Attiyah, who
is also Qatar's oil minister, told Reuters in Tokyo.

The cartel is readying itself for mounting pressure next year
as continued high prices encourage non-OPEC production, eroding
OPEC market share. Prices over $25 a barrel also make it unlikely
that producers like Norway and Russia will voluntarily stem
output, analysts say.

They must also cope with Iraq's swift return to the market, as
exports are set to rise to an estimated 1.5 million bpd in
October from 930,000 bpd in September, according to industry
sources.

If the Kirkuk pipeline from the northern fields resumes
operation in mid-October as expected, that would open up another
potential 800,000 bpd of supplies before year-end.

OPEC has already taken steps to accommodate the return of
Iraqi output, curbing production by 300,000 bpd to just 25.2
million bpd in September, the IEA said.