Oil prices surge after Iraq halts crude exports, Venezuelan strife compounds fears Mon Apr 8, 5:04 PM ET By BRUCE STANLEY, AP Business Writer
LONDON - Oil prices surged Monday in a fresh wave of anxiety after Iraq cut off crude exports to demonstrate support for the Palestinians in their struggle with Israel. At the same time, labor strife in Venezuela squeezed that country's oil shipments to a trickle. The combined effect of the supply interruptions added to existing concerns stoked by tensions in the Middle East, home to two-thirds of the world's proven oil reserves. Crude futures prices spiked as much as dlrs 1.44 a barrel, or 6 percent, in London, before setting to close at dlrs 27.02, up dlrs 1.03 from Friday's close. In New York, May sweet crude rose to dlrs 27.23 a barrel before falling back to dlrs 26.55 a barrel, up 34 cents from Friday. Some energy analysts played down the risk that major, long-term supply disruptions might result. Analysts suggested other members of the Organization of Petroleum Exporting countries, which pumps a third of all crude, would intervene to offset a major shortfall in supplies. Leaders of the oil producers' group expressed alarm at the latest developments. "After the announcement of Iraq to suspend exports and the effect of Venezuela's exports, we could go directly to an oil crisis," OPEC (news - web sites) Secretary-general Ali Rodriguez told Venezuela's Radio Caracas Radio in an interview from Qatar. Iraq and Venezuela jointly export about 4.5 million barrels a day, or about 6 percent of global supplies. President Saddam Hussein (news - web sites) announced that Iraq would suspend oil exports starting Monday for 30 days or until Israel withdraws from Palestinian territories. His unilateral cutoff could put more pressure on other Arab leaders to move against Israel in retaliation for its offensive. Iranian supreme leader Ayatollah Ali Khamenei on Friday urged Islamic countries to stop shipping oil for one month to countries with close relations with Israel. Libya announced Monday that it supported the call. Both nations also are members of OPEC. Although OPEC hadn't received formal confirmation from Iraq about its embargo, U.N. oil monitors noted that the transfer of oil from Iraq to the Ceyhan loading terminal in Turkey ceased at midmorning Monday, U.N. spokesman Fred Eckhard said in New York. At Iraq's other loading terminal, Mina al-Bakr in the Gulf, one vessel completed loading on Monday and two other vessels were waiting to be loaded. It wasn't clear if they would take on their oil cargo, Eckhard said. Iraq, which has a daily production capacity of 2.3 million barrels, exports about 1.8 million barrels a day under the close supervision of the United Nations (news - web sites). Iraq also is believed to export an estimated 250,000 barrels a day illegally, via pipeline to Syria and by truck to Turkey. Iraq's main customers are refiners and oil trading firms in the United States and Europe. Some analysts expect OPEC's biggest producer, Saudi Arabia, and other moderate members of the group to quietly raise output to make up for an Iraqi shortfall. OPEC officials have argued that prices must not rise so high as to choke off an economic recovery. "That volume of crude can be made up overnight," said Michael Rothman, senior energy analyst at Merrill Lynch in New York. An OPEC source, speaking on condition of anonymity from OPEC headquarters in Vienna, Austria, said oil ministers were conferring about how to respond, the source said. "It's in OPEC's interest now to make sure the froth in the oil market is limited," Rothman said. Crude prices have risen in recent weeks to levels not seen since September, and this provides an additional incentive for other countries, including independent producers such as Russia and Norway, to boost production. In spite of their earlier expressions of support for an oil boycott, Iran and Libya were unlikely to join with Iraq, argued Jan Stuart, head of research for global energy futures at ABN Amro in New York. Iran's economy is too weak to go for long without precious oil revenues, and Libya is worried about jeopardizing its slowly warming ties with the United States, Israel's main backer, Stuart said. "This isn't a shock price, but it is the Iraqis being mischievous and trying to wage a little economic warfare against the West," Gignoux said. Politics and labor problems in Venezuela, a top U.S. oil supplier, compounded the impact of Iraq's action. Venezuelan exports almost dried up Monday due to an escalating dispute at the national oil company, Petroleos de Venezuela, between dissident managers and new executives appointed by populist President Hugo Chavez. Refining volumes at Venezuela's 950,000-barrels per day Paraguana complex dropped by half, and other refineries also experienced lower production levels. Labor strife is likely to intensify Tuesday, when Venezuela's largest labor and business associations stage a 24-hour general strike in support of the Petroleos de Venezuela dissidents. Mexico's Energy Ministry declined to comment Monday on Iraq's decision to suspend crude oil exports for a month. Mexico, one of the top four suppliers of crude oil to the United States, agreed in January to cut its crude exports by 100,000 barrels a day as part of an effort by the Organization of Petroleum Exporting Countries and other non-OPEC producers to keep prices up amid a drop in global demand. State oil monopoly Petroleos Mexicanos, or Pemex, exported 1.58 million barrels a day in the first two months of this year, of which 1.45 million barrels daily went to customers in the Americas, mostly the United States. 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