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Oil Prices Steam Toward Two-Year High on Iraq, Venezuela Fears

Oil prices neared two-year highs on Thursday as the United States stepped up a verbal offensive on Iraq, but gains were tempered after the Venezuelan Supreme Court demanded a restart of the key exporter's strike-bound oil industry.

U.S. crude oil on the New York Mercantile Exchange rose 12 cents to $30.56 a barrel after hitting $31.10, less than 30 cents from a two-year record, as the White House reacted to what it called a deceptive weapons declaration from Iraq.

U.S. Secretary of State Colin Powell, referring to the dossier submitted to the United Nations as part of a process to ensure Iraq is not hiding weapons of mass destruction, said there will be no peaceful solution to tensions if the Baghdad government continues "its pattern of lying.

"There is no question that Iraq continues its pattern of noncooperation, its pattern of deception, its pattern of dissembling, its pattern of lying, and if that is going to be the way they continue through the weeks ahead, then we're not going to find a peaceful solution to this problem," Powell said at a news conference.

Oil dealers are concerned a war in Iraq could disrupt petroleum supplies from the Middle East by slowing shipping from the Persian Gulf and potentially triggering attacks on important oil fields in the region.

Prices came off of their midday highs after Venezuela's Supreme Court ordered the restart of state oil firm PDVSA's operations, which have been crippled by a strike to force leftist President Hugo Chavez to resign.

While it was not immediately clear whether striking oil workers would obey the court, the move opened the possibility that oil flows from the No. 5 oil exporter could resume following more than two weeks of near-paralysis.

OPEC member Venezuela supplies the United States with nearly 14 percent of its oil imports, feeding numerous domestic refineries primarily in the Gulf Coast region. The strike has forced some refiners to request a release of crude oil from the U.S. emergency stockpile, though the Department of Energy has so far declined, and at least one to cut back production.

Crude oil prices on London's International Petroleum Exchange dipped 27 cents on the Venezuelan news to $28.22 a barrel after pushing to $29.40 earlier in the day.

Both NYMEX and IPE crudes are near their peaks over the past two years, having jumped by 25 percent in six weeks, stoking fears of increasing energy costs as the global economy struggles to fight off recession.

OPEC RELIEF

A Gulf source said Thursday that oil producer-group OPEC, including its leading producer Saudi Arabia, would release extra supply to world markets if prices stay up around $30 a barrel, but ministers said they saw no real shortage.

Qatari Oil Minister Abdullah al-Attiyah said soaring prices were due to political factors rather than any real lack of barrels, and that the 11-member group was watching the market closely and consulting clients.

"So far we have not received any request for extra cargoes or additional quantities," he said.

Oil prices have been above OPEC's $22-$28 per barrel target range since Monday.

The Gulf source said the Organization of the Petroleum Exporting Countries will keep to an informal mechanism to open the taps if prices stay above $28 per barrel for 20 days.

"OPEC will implement the mechanism, there is no doubt," the Gulf source told Reuters in Egypt, where Arab oil ministers are gathering for a meeting Saturday.

"But more importantly OPEC has a strong commitment not to allow any shortage to take place, regardless of who or why, be it Venezuela, Iraq, technical reasons, nature or whatever," he added.

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