Oil Prices Jump Amid Supply Concerns

NEW YORK – Oil prices rose Friday after U.S. President George W. Bush warned big producer Iraq that it would face "the severest consequences" unless it complied with the U.N.'s new resolution requiring it to disarm.

U.S. crude futures ended 40 cents higher at $25.78 a barrel, recovering from a five-month low of $25.16 touched earlier in the day.

Brent crude gained 10 cents to $23.58 per barrel on London's International Petroleum Exchange.

Oil hit peaks above $31 in September on fears that war with Iraq would disrupt crude supplies from the Middle East, but have fallen 20 percent since then as U.N. talks dragged on over a new resolution to restore arms inspectors to Iraq.

"For the oil markets, 'security of supply' concerns may again rear their head given that concerns surrounding Iraqi supplies largely evaporated these past few weeks," said Mike Rothman at investment bank Merrill Lynch.

The U.N. Security Council on Friday unanimously approved a resolution giving Iraq a final chance to eliminate its weapons of mass destruction or face "serious consequences."

Speaking after the vote, Bush said: "His (Iraqi leader Saddam Hussein's) cooperation must be prompt and unconditional or he will face the severest consequences."

Iraq's ambassador to the United Nations said the resolution demanding that Iraq disarm was written in such a way as to include demands that will be hard for Iraq to meet.

"I am very pessimistic. This resolution is crafted in such a way to prevent inspectors to return to Iraq," Mohammed Aldouri told Reuters in an interview. He did not say if Baghdad would accept the resolution.

Aldouri said if Iraq is attacked he expected Baghdad to pull out of its U.N-supervised oil-for-food program, under which Baghdad is allowed to sell oil with the revenues used to buy humanitarian supplies.

Over the last four weeks, Iraq has been exporting nearly 1.8 million barrels per day (bpd), over four percent of world oil exports, under the program.

Persistent doubts about the Organization of the Petroleum Exporting Countries' (OPEC) ability to control supplies has provided the main downward force on oil prices in recent weeks.

A Reuters survey estimated OPEC was pumping more than three million barrels per day (bpd), or 15 percent, above its official production ceiling in October.

OPEC has held formal supply limits at the lowest level in decade this year, running down inventories in consuming nations to bolster prices in a weak economy.

As the group increases supplies, swelling imports pushed up U.S. crude stocks for the fourth straight week last week, federal figures showed on Wednesday.

Venezuela's oil minister said on Friday that OPEC will act to keep oil prices within a preferred $22-$28 band for its crude basket at its next meeting on December 12 if prices continue to slip. OPEC's basket was last valued at $23.61.

"If the price continues moving down and maintains that tendency, we will definitely act to support prices at the next OPEC meeting in December," Oil Minister Rafael Ramirez told Reuters in an interview.