Oil stays up on Venezuela, Iraq supply hitches

Oil stays up on Venezuela, Iraq supply hitches

Tom Ashby, Reuters, London

Oil prices stayed up near six-month highs on Wednesday on continued supply disruptions from Iraq and Venezuela, despite growing inventories in the world's top consumer the United States.

Striking executives at Venezuela's state oil company halted most shipments from the world's No.4 exporter and many oilfields were forced to shut down.

The deepening crisis in South America's top producer compounded the loss of Iraqi oil exports, suspended on Monday in a protest against Israel's incursion into Palestinian controlled areas of the West Bank.

International benchmark Brent crude oil fell 14 cents to US$25.59 a barrel by midday in London, having gained 30 percent in value since the end of February.

Prices are about $2 below a six-month high of $28.15 per barrel reached last week.

Speculators who took bets on rising futures prices in January have been taking profits on these positions this week, counteracting fresh buying on the supply hitches.

Traders said a further price explosion was also prevented by large amounts of spare production capacity in other countries, particularly Saudi Arabia which has vowed to make up any eventual shortfall.

"The current price is due to market nervousness. I believe that the price will fall under the $25 level quite quickly," said Vittorio Mincato, chief executive of Italian oil company ENI.

"OPEC has enormous unused production capacity and can therefore intervene to calm prices," he told reporters in Rome.

U.S. crude oil stocks rose to their highest level in nearly three years last week, according to industry data released on Tuesday night.

The Organization of the Petroleum Exporting Countries, which controls two-thirds of world exports, is reluctant to ease stringent supply curbs too quickly on the Iraqi and Venezuelan hitches, fearing they may be short-lived.

"The fear is that the Caracas-factor lasts only a few days and the cartel ends up pushing extra barrels into a market creating a very bearish over-supply situation," said Mike Rothman, oil analyst at Merrill Lynch in New York.

Several OPEC ministers have said they remain committed to maintaining prices in their target band of $22-$28 per barrel, and plan no output increase yet.

OPEC's reference price stood at $24.25 per barrel on Tuesday, almost in the middle of its desired range.

U.S. Treasury Secretary Paul O'Neill said:

"It seems to me that the Saudis and the rest of the oil producing community are together on maintaining their stand of a band of prices and doing (ensuring) whatever production it takes to stay in that band."

"It's an issue we can proceed with, an assumption that things are going to be OK," he told reporters after meeting officials at the headquarters of the Organization for Economic Cooperation and Development in Paris.

Iran and Libya have both backed Iraq's call for an embargo on the West for its support for Israel, but neither of these countries appear ready to take steps without unanimous action by all Muslim oil exporters.

Key Gulf exporters Saudi Arabia and Kuwait, have ruled out the idea as counterproductive.