Oil Prices Hit New High on Continued Venezuela Strike

NEW YORK – U.S. oil prices forged to fresh two-year highs on Thursday as Venezuelan oil workers pledged to continue a 25-day strike until they forced President Hugo Chavez from power.

The prospect of prolonged disruption to supplies from the world's No. 5 oil exporter and fears of war in Iraq early next year outweighed the impact of a modest rise in stored U.S. oil supplies last week.

New York crude oil futures rose to a peak of $32.60 a barrel, the highest since January 2001, before settling at $32.49, up 52 cents. London's International Petroleum Exchange, which trades Brent crude futures, was closed for Boxing Day.

Oil prices have risen more than $12, or 60 percent this year -- and more than $5 in December alone, strengthening fears that higher energy costs could stunt fragile economic growth.

Prices have soared as Venezuela's general strike slices into the country's oil supplies, which normally make up more than 13 percent of U.S. petroleum imports.

Many managers and executives in state oil firm Petroleos de Venezuela (PDVSA), as well as field and refinery laborers, tanker captains, pilots and dock crews have joined the stoppage.

"We will return to work when we achieve our objectives, specifically the departure of Hugo Chavez and a call for elections," said a resolution overwhelmingly approved by PDVSA employees meeting on Thursday.

SNOWSTORM

The loss of Venezuelan supply threatens to cut into U.S. oil supplies as winter home heating demand picks up. A snowstorm battered the U.S. Northeast, the world's biggest heating oil market, on Wednesday.

While U.S. crude stocks rose by 700,000 barrels last week, the build was concentrated in the isolated West Coast region, the Energy Information Administration said in its weekly supply report.

Crude supplies East of the Rockies -- which have the sharpest impact on New York futures prices -- dropped by 2.3 million barrels. National crude stocks are 8 percent below last year's levels.

"It appears that the strikes in Venezuela have reduced crude oil imports from that country significantly, only partially offset by increased imports from elsewhere," the EIA said.

Price gains have been underpinned by a U.S. and British military buildup in the Middle East Gulf as time runs out for Iraq to comply with U.N. demands to disarm.

Traders are worried that the Venezuelan strike could 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.

Iraq exports roughly 2 million barrels a day of crude oil, and is the sixth largest supplier to the United States.

A Jan. 27 briefing by U.N. arms inspectors to the United Nations Security Council is widely seen as the next key date that could trigger an attack.

The OPEC producers' cartel has pledged to step in and fill any supply shortfall due to the Venezuelan strike, but so far officials have said there has not been any signs of shortage.