NEW YORK – World oil prices flew to new two-year highs Tuesday for fear of war in Iraq even though cracks started to appear in a Venezuelan strike that has cut deep into exports to the United States.
U.S. light crude on the New York Mercantile Exchange settled up 70 cents at $34.61 a barrel after hitting a peak of $35.20, the highest level since November 2000. London Brent blend rose 9 cents to $30.74 a barrel.
Fears of war in Iraq, the world's eighth largest oil exporter, rose as President Bush said it was now clear to him that Iraqi leader Saddam Hussein was failing to comply with U.N. disarmament demands.
"He's delaying. He's deceiving. He's playing hide and seek with inspectors," Bush told reporters at the White House. "It's clear to me now that he is not disarming ... Time is running out."
Oil traders said the remarks appeared to leave little doubt that Washington was close to authorizing the use of military force against Baghdad.
Dealers are counting down toward a major report due Jan. 27 from U.N. weapons inspectors on whether Iraq has met its disarmament commitments. The 15-member Security Council is to evaluate the report Jan. 29.
Concern that war in the Middle East could disrupt the region's oil flows outweighed news from Venezuela that tanker pilots in Lake Maracaibo, a strategic export route, had ended their part in the nationwide strike.
With Venezuelan exports running at just 500,000 barrels a day, a fifth of normal levels, crude stockpiles in the United States have slid close to 26-year lows just as a fierce cold snap in the U.S. Northeast has boosted heating oil demand.
While an end to the tanker pilots' action in Venezuela could be expected to lift exports, shippers said deliveries were not likely to rise rapidly until foreign ship operators began using Venezuelan ports again.
Most of those in opposition to President Hugo Chavez extended their strike, which aims to force the leftist leader to resign and call immediate elections.
A spokeswoman for striking oil workers said they intended to send a senior representative to Maracaibo later Tuesday to try to persuade the pilots not to abandon their action.
"We still have 90 percent of oil workers on strike," she said.
Even an end to the Venezuelan strike might not bring immediate relief from a price spike that has deepened fears that rising energy costs could derail economic recovery.
"It will be a long, hard road for Venezuela even back to 75 percent of previous production capacity," said Geoff Pyne, consultant to Sempra Energy.
"There is still the threat of war in Iraq and stocks are very low. Traders are going to see it as dangerous to sell at this point."
OPEC's biggest producer, Saudi Arabia, already is tapping into the world's only significant spare capacity. Industry sources told Reuters over the weekend that Riyadh could be pumping 9 million barrels daily by February, up a million barrels a day from December flows.
"OPEC alone does not have sufficient, readily available spare capacity to replace both Venezuela's and Iraq's oil exports, much less to cope with any supply disruptions from other Gulf producers that might result from any prolonged conflict in Iraq," said London's Centre for Global Energy Studies
"A lack of adequate commercial oil stocks in the U.S. and no nearby replacement for lost short-haul crude from Venezuela has left the oil supply chain stretched almost to breaking point," it said in a report to clients.
If OPEC were unable to cover a dual outage from Iraq and Venezuela, the Paris-based International Energy Agency would be expected to release some of its emergency strategic reserves for the first time since January 1991 during the Gulf War.
"Were an attack to be launched on Iraq, consuming country governments would have to utilize quickly their abundant strategic oil stocks to ensure adequate supplies," said the Centre.