Oil jumps as market frets over Iraq

Oil jumps as market frets over Iraq

New York, Reuters

World oil prices powered towards 19-month highs on Tuesday as
the threat of severe storm disruption to Gulf of Mexico oil and
gas operations preyed on a market already nervous over potential
conflict in Iraq.

New York crude futures for November delivery jumped 55 cents
to US$31.00 a barrel by 1.15 p.m Jakarta time (17.15 GMT), while
London benchmark Brent crude futures stood 46 cents higher at
$29.21 a barrel.

U.S. prices came within 25 cents of their highest level since
February 2001 as Gulf producers were forced to airlift crews and
start shutting in production for the second time in two weeks as
Hurricane Lili bore down on the oil-rich region.

Shell Oil Co., the biggest Gulf producer, and other oil
producers and port operators said on Tuesday they will shut in
activities by as early as the day's end due to forecasts of
strong winds and powerful waves from Hurricane Lili.

Lili is currently packing winds of 85 miles per hour (137 kph)
and is expected to reach the oil-production areas of the Gulf of
Mexico late Wednesday or early Thursday.

Gulf oil and gas operations are still recovering from last
week's Tropical Storm Isidore, which forced oil firms to cut
roughly 1.4 million barrels per day (bpd) of the Gulf's 1.5
million bpd oil production capacity.

New supply figures from the American Petroleum Institute after
close of trade on Tuesday are expected to show a big fall in
crude stocks -- already at their lowest level in 19 months --
ahead of the key winter season -- because of Isidore.

"It is hard to be bearish on oil ahead of a possible mammoth
U.S. stock draw, another hurricane in the Gulf of Mexico and with
the United States appearing to make progress in persuading U.N.
Security Council members to support its position for a tough
resolution against Iraq," said GNI Research analyst Lawrence
Eagles.

Oil prices are up more than 40 percent over the year, spurring
fears that steeper energy costs for consumers and businesses
could thwart the economy's move out of recession.

The OPEC oil cartel's decision earlier this month to hold
production quotas at the lowest level in a decade has helped run
U.S. inventories down despite sluggish fuel demand in a shaky
global economy.

Indonesian Oil Minister Purnomo Yusgiantoro said on Tuesday
that leading OPEC member Saudi Arabia was prepared to raise
output if the price of an OPEC basket of crude stayed over $28 a
barrel for 20 days.

A price stability formula devised by OPEC two years ago allows
for the group to lift output by 500,000 barrels a day if prices
stray above its $22-$28 a barrel target range for 20 days.

Saudi Arabia is OPEC's biggest and most influential producer
and would need to back any action for an increase to be
implemented.

The basket of seven crude was priced at $28.34 a barrel on
Monday, the sixth consecutive day above the top end of the range.

Traders are also awaiting concrete developments from talks in
Vienna between U.N. weapons inspectors and Iraqi arms experts
aimed at warding off a full-scale military attack led by the
United States.

Dealers fear conflict in the Middle East could disrupt
supplies from a region that pumps a third of the world's oil and
holds almost all its spare production capacity.

The talks in Vienna are the first test of Iraq's cooperation
since Baghdad agreed on Sept. 16 to the unconditional return of
the inspectors.

On Tuesday, the second and final day of talks, Iraq is
expected to make a show of good faith by handing over to the
inspectors long-overdue information about its nuclear facilities.

However, this change of heart comes amid increasingly tough
language from the United States and Britain who accuse Iraqi
President Saddam Hussein of stockpiling weapons of mass
destruction.

The United States intensified lobbying of U.N. Security
Council members in support of a resolution that allows Washington
to strike Iraq if it perceives violations.

U.S. President George W. Bush is expected to meet
congressional leaders on Wednesday to craft a resolution
authorizing a strike on Iraq.