London, Dec. 24 (Reuters): Oil prices traded near two-year highs on Tuesday with supplies still choked off from strike-bound Venezuela and the threat of war looming in Iraq.
US light crude in early trade hit a peak of $ 32 a barrel, its highest since January 2001 and up $ 5 since workers in Venezuela began a strike against President Hugo Chavez on December 2.
February US crude had eased to $ 31.77 a barrel, down one cent after Monday’s $ 1.45 gain. London Brent blend ended the short Christmas Eve session down 12 cents at $ 29.60 a barrel after jumping $ 1.38 on Monday to a three-month high. Traders are worried that the Venezuelan strike, now in its fourth week, could drag on into the New Year and coincide with a loss of Iraq’s supplies if the United States launches an assault against Baghdad.
That would remove exports of some 4.5 million barrels-a-day from the 76 million barrel-a-day world market and stretch spare Opec capacity, held mostly by Saudi Arabia, to the limit.
Oil’s latest surge has re-ignited concerns that high energy costs are dampening fragile global economic growth.
“It’s a drag on economic growth. It’s a tax on consumers and businesses and general geo-political tensions mean that investors are more reluctant,” said Frank Packer, senior economist at Nikko Salomon Smith Barney in Tokyo.
Monday’s price gains were underpinned by a US and British military build-up in the Gulf as time runs out for Iraq to comply with UN demands to disarm.
Adding to the tension, Iraqi forces shot down an unmanned US spy plane in the southern “no-fly” zone of Iraq, the first downing of a US aircraft since last month’s UN disarmament resolution.
In Venezuela, state oil company PDVSA said on Monday crude production had plummeted to under 200,000 BPD from 3 million BPD since the opposition launched a strike aimed at ousting President Hugo Chavez.
The government and opposition negotiators show no sign of agreeing to an accord on an election timetable for the Opec nation. Striking PDVSA employees have said they will not return to work until Chavez is out of office.
The action has cut crude and petroleum product supplies to the United States by about 13 per cent just as demand in the world’s biggest oil consumer rises to a winter heating peak.
Dealers were waiting to discover the impact of the export cuts on US oil inventory statistics, out later on Tuesday.
Speculation that the US government could release crude from national reserves so far has done little to quell prices.
On Monday, the head of the US House Energy and Commerce committee, Republican Billy Tauzin, said two US Gulf coast refineries will run out of crude by the end of the month. Tauzin asked the Bush administration to release oil from the nation’s strategic petroleum reserve to make up for the shortfall. The White House said it was monitoring supplies but declined to comment on Tauzin’s request to tap the emergency stockpile.
“There will be political pressure to protect the US economy. They won’t want oil to hammer any economic recovery,” said independent analyst Simon Games-Thomas in Sydney.
Opec, having decided at a meeting in December to cut supplies from January 1, is watching the developments. Saudi Arabia said on Saturday that it remained committed to fair oil prices and would plug any supply shortages.