NEW YORK – Oil prices trimmed recent gains Friday amid fledgling hopes of an end to the Venezuelan strike that has choked oil operations in the world's No. 5 crude exporter.
Fresh signs of U.S. economic weakness and forecasts of an end to recent freezing weather also helped to offset fears of a supply squeeze on the industrialized world as the United States girds for a possible war in Iraq.
U.S. crude futures lost 36 cents to $26.93, shedding gains from Thursday's 58 cents rally. Brent crude oil slipped 34 cents in London to $25.4a6 a barrel.
A glimmer of hope for a negotiated end to Venezuela's five-day strike emerged as government and opposition negotiators agreed to discuss a possible restart to peace talks.
Venezuela, the world's fifth largest exporter, normally pumps 3 million barrels of oil daily, supplying 13 percent of U.S. import requirements.
The state-owned oil company PDVSA has declared "force majeure" on exports on Friday, indicating that it will no longer be able to fulfill its contractual sales. As oil tanks at shipping terminals reached brimming point, oilfields began to shut down.
"We are talking about in the order of 400,000 to 500,000 bpd of oil (shut in) today," Energy Minister Rafael Ramirez told Reuters in a telephone interview.
Opponents of leftist President Hugo Chavez want to force a referendum on his four years in office.
The disruption comes at a time when oil inventories in the United States are almost 10 percent below their five-year average.
Cold weather in the United States and Europe has bolstered market sentiment, boosting demand for heating fuel, but temperatures are forecast to moderate next week, and stay at or above seasonal norms for the rest of December.
Renewed signs that economic weakness could dampen fuel demand also emerged as the U.S. unemployment rate unexpectedly soared to 6 percent in November, revisiting an eight-year high hit in April.
The downbeat data, coupled with the sudden resignations of U.S. Treasury Secretary Paul O'Neill and top White House economic aide Lawrence Lindsey, roiled financial markets which had recently grown more hopeful about the economic outlook.
Oil prices have risen by 35 percent this year on fears that supplies from Iraq, ranked as the eighth largest oil exporter last year, could be halted if the United States carries out threats to disarm President Saddam Hussein by force.
The United States prepared on Thursday to call up as many as 8,000 Army National Guard and Reserve troops to help provide security at U.S. air bases if the country goes to war.
Thousands of U.S. troops are already in the Gulf for extensive war games which could be a rehearsal for an Iraqi invasion.
Baghdad is set to present a detailed report of its weapons programs on Saturday, under a new United Nations resolution intended to disarm the country.
Iraq and Venezuela, both founding members of the Organization of the Petroleum Exporting Countries, are sure to figure high on the agenda at next week's ministerial meeting of the cartel in Vienna.
Fears of deeper supply disruptions in those countries could silence calls by some OPEC members for output restraint. A Reuters survey on Thursday found OPEC continued to pump far in excess of official limits in November.