LONDON – Oil prices staged a modest recovery on Monday as President Hugo Chavez returned to power, reassuring the market that Venezuela would remain one of OPEC's most disciplined members in abiding by cartel output quotas.
Calls again from Iran for an Islamic-wide oil embargo on the West to protest Israeli incursions into Palestinian territories also lent support to crude.
London Brent blend for June in mid-afternoon trade gained 61 cents to $23.77 a barrel and U.S. light crude for May added 53 cents to $24.00. Brent remains well below a recent $28 high.
"Hugo Chavez is back in power and that matters for the oil market," said analyst Paul Horsnell of J.P. Morgan. "On Friday the petroleum market was on the brink of deciding that (Venezuelan policy) was that of producing oil at very low prices."
Brent slumped nearly $1.50 on Friday after Chavez was ousted by military officers and arrested following a general strike. A counter-rebellion secured his return on Sunday.
Executives at state oil company Petroleos de Venezuela (PDVSA) had said on Friday they wanted to change policy and set output according to market conditions rather than OPEC quotas.
But as Chavez resurfaced, Venezuelan Oil Minister Alvaro Silva told Reuters that Caracas would continue its strict adherence to production limits.
"It will be the same," Silva said of policy.
OPEC expressed relief at Chavez's return.
"We have every reason to be pleased that the political crisis is now over," said an official at OPEC headquarters in Vienna, as cartel Secretary-General Ali Rodriguez, a former Venezuelan oil minister, left to visit Caracas.
Under Chavez, the world's fourth biggest exporter, emerged as one of OPEC's committed members, honouring output limits after years of quota cheating helped spark a slump in oil prices in early 1999 to under $10 a barrel.
On Sunday, PDVSA executives said the conciliatory tone struck by Chavez would help settle the six-week stand-off between PDVSA and the government which saw exports to the United States disrupted last week.
"President Chavez opened the possibilities for dialogue. We have to believe he is sincere, so we are going to proceed with the normalisation of operations," said Edgar Paredes, PDVSA's head of sales and refining, one of the dissident executives.
Shippers said Venezuelan exports, 13 percent of U.S. oil imports, were returning to normal and that crude and refinery output was recovering.
Some PDVSA staff had protested against the appointment by Chavez of his political allies to top posts, sparking last week's three-day general strike and prompting the President's temporary overthrow.
IRAN CALLS AGAIN FOR EMBARGO
Also supporting crude prices on Monday was a reminder that Iran wants an Islamic-wide one-month embargo on oil exports to Israel's allies.
State television said Iran's President Mohammad Khatami on Monday called for Islamic states to declare a ban in support of the Palestinians.
The call by the moderate president echoed that by Iran's Supreme Leader Ayatollah Ali Khamenei 10 days ago.
Neighbouring Iraq last week announced a unilateral embargo, cutting off output of nearly two million barrels daily, four percent of world crude trade. Baghdad criticised Iran for not following its lead.
Libya also said it would support an embargo but only in the event of an Islamic-wide ban, something already ruled out by leading OPEC producer Saudi Arabia. Saudi Oil Minister Ali al-Naimi said Riyadh would guarantee world supplies.
The Israeli-Palestinian conflict has underpinned oil markets for fear that unrest might spread across the oil-rich Middle East.
U.S. Secretary of State Colin Powell met Palestinian leader Yasser Arafat and Israel's Prime Minister Ariel Sharon on Sunday but reported little headway in easing tensions in the region.