U.S. oil prices could keep rising, agency report says


Published: Saturday, January 18, 2003 at 6:01 a.m.
Last Modified: Saturday, January 18, 2003 at 2:35 a.m.

LONDON - A crippling strike in Venezuela, low inventories of crude and the possibility of war with Iraq have combined to throw oil markets off balance, the International Energy Agency said Friday.

A resumption in Venezuela's oil production probably will take months, not weeks, it said, suggesting that U.S. crude prices, which surged by 12 percent in December, could rise still more.

The agency welcomed OPEC's decision earlier this week to raise its output ceiling by 1.5 million barrels a day in an effort to ease the upward pressure on prices. However, it said that internal politics at the Organization of Petroleum Exporting Countries made the potential increase in crude supplies hard to estimate.

``The market is faced with a short-term supply imbalance,'' the agency said in its monthly oil market report. ``While some replacement crude is already on the water (in transit), it will take time to produce and move enough crude to where it is needed.''

The Paris-based IEA is the energy watchdog of the Organization for Economic Cooperation and Development, a group of the world's major oil importers.

Venezuelan output plunged last month by 1.95 million barrels a day, or about 80 percent, because of a strike that employees at the state-run oil company launched in support of a popular effort to remove the country's president, Hugo Chavez. Venezuela is normally the world's fifth-largest oil exporter and a key supplier to the United States.

The shortfall in Venezuelan output was the main reason for last month's 2.6 percent slump in world production, which averaged 76.43 million barrels a day in December.

Prices for U.S. light, sweet crude jumped last month by 12 percent to $29.45 a barrel on average. Europe's benchmark crude, North Sea Brent, rose by an even steeper 19 percent to an average of $28.67 a barrel.

Prices have moved higher since then. Futures contracts of Brent crude for March delivery were trading Friday at $30.58 a barrel in London, up 44 cents. In New York, February contracts of U.S. crude were up 25 cents at $33.91 a barrel.

``The eventual return of Venezuelan production will ease this situation, as will the seasonal reduction in demand associated with the end of winter heating season'' in major importing countries, the report said.

It acknowledged that restoring Venezuela's oil exports would take months.

``It's a huge task,'' agreed Jan Stuart, head of research for global energy futures at ABN Amro in New York. ``The decision-making alone will take three to four months.''

With neither Chavez nor his opponents appearing ready to back down, Venezuela's oil industry lacks the money and personnel that it needs to restart its shut-in fields, Stuart said. He predicted that Venezuela would be unable to restore output to normal levels until at least the end of the year. The Venezuelan strike began Dec. 2.

Stepped-up preparations for war in the Persian Gulf have added to market fears.

OPEC members began quietly pumping more oil earlier this month in response to the surge in prices. However, these cargoes of so-called replacement crude, many of them from Saudi Arabia, are still a few weeks' journey away from refiners in the United States and elsewhere. Stuart described the next two weeks as a window of vulnerability during which U.S. prices could exceed $35 - even without the outbreak of a U.S.-led war against Iraq.

Despite a sluggish economy, the IEA said global demand for crude grew faster than expected during the fourth quarter of last year. Cold weather in Asia and North America and signs of stronger demand in China led the agency to revise its estimated daily demand for the quarter to 78.7 million barrels, an increase of 200,000 barrels a day from its previous monthly report.

The IEA forecast that daily demand growth would accelerate this year to 1.0 percent compared to 0.4 percent in 2002.

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