NEW YORK – Oil prices shot up another 3 percent Wednesday, with a big drop in U.S. winter heating fuel stocks deepening oil supply worries as the White House prepares for possible war with Iraq.
U.S. light crude jumped 96 cents to $33.63 a barrel, within $1.60 of a 26-month high struck last week. London Brent blend rose 75 cents to $31.02 a barrel.
The threat of war in the Gulf region that supplies 40 percent of world crude exports and a strike that has cut exports from Venezuela have pushed up crude prices over 35 percent since late November.
The White House said Wednesday the standoff with Iraq over U.N. disarmament demands was entering a "final phase" in which President Bush and other U.S. officials would intensify diplomacy in one last bid to avoid war.
In his State of the Union address Tuesday night, Bush said Iraq, the world's eighth largest oil exporter, had shown "utter contempt" for the United Nations, but stopped short of calling for immediate war.
Bush said Secretary of State Colin Powell would reveal new intelligence on Baghdad's alleged weapons of mass destruction to the U.N. Security Council on Feb. 5.
German Chancellor Gerhard Schroeder, one of the European leaders most strongly opposed to war on Iraq, said Wednesday he was unsure whether diplomacy would succeed in averting a conflict.
"The market has completely accepted that there will be war and that's already in the price," said Sarah Emerson, managing director at Boston-based Energy Security Analysis (ESAI).
"The timetable was set months ago by troop deployments. They will all arrive by the end of February."
The U.N. controls Iraq's oil revenues under the 1996 oil-for-food program, imposed as a humanitarian exception to sanctions to allow Baghdad to purchase food and medicine for ordinary Iraqis. Over the last four weeks Iraq's oil exports in the program have averaged 1.66 million barrels per day.
Fresh gains came as the U.S. government reported that a two-week freeze across the eastern part of the country lopped over 3 million barrels, or 8 percent, from heating oil stocks last week.
Supplies are now 16 percent below normal levels. Home heating oil prices are at 23-month highs, up 25 percent from last year strengthening concern over the economic impact of higher energy costs.
While the freeze forecast to abate in coming days, supplies may not recover as the high cost of crude oil is forcing refiners to cut their production.
"The situation is still tightening at an alarming rate, and as would be expected at this point all the pressure is on oil products" said Paul Horsnell of J.P Morgan bank.
The United States has taken about two-thirds of all Iraq's exports in January, amid a dearth of shipments from key supplier Venezuela since early December due to a national strike.
Venezuela, which normally supplies more than 13 percent of U.S. oil imports, is managing to bring more strike-hit oil production back onstream.
Opposition oil workers in a daily report said output tapped a million barrels a day Wednesday, a third of normal levels. The government has used troops and replacement crews to break the 59-day protest, which aims to force President Hugo Chavez to resign and call an election.
The OPEC producer cartel, which pumps around a third of world oil supply agreed this month to raise production to help fill the Venezuelan shortfall.
Saudi Arabia and the United Arab Emirates are now the only nations with spare capacity to meet any further loss of global supplies.
So far, the United States has opted not to tap emergency reserves to ease supply concerns, although on Tuesday the Energy Department said it approved oil company requests to delay delivering 4.4 million barrels of crude to the Strategic Petroleum Reserve.
That oil will now be available to refineries to process into gasoline, heating oil and other petroleum products.
The reserve, created by Congress in the mid-1970s, currently holds 599 million barrels of oil in a series of underground salt caverns at four government sites in Texas and Louisiana.