Oil Holds Ground, Iraq Exports Threatened November 27, 2000

LONDON (Reuters) via NewsEdge Corporation -

Lofty oil prices retreated only slightly on Monday as dealers fretted over the possible suspension later this week of crude exports from Iraq.

London Brent oil futures settled six cents a barrel lower at $33.05 and U.S. light crude ended two cents off at $35.31.

Traders are worried that Baghdad's latest challenge to the United Nations over the U.N.'s oil-for-food exchange could see a disruption to Iraqi oil sales.

Iraq has demanded from its customers a 50-cent premium on oil sales from December 1 to be paid direct to Baghdad, outside U.N. control.

But the U.N.'s sanctions committee in New York on Monday rejected Iraq's price formulas for December sales, saying the prices were too low.

Industry sources said Iraq had proposed low prices so as to allow for the direct payment of a 50-cent surcharge. It remains to be seen whether Iraq now submits higher prices to allow exports to keep flowing beyond the end of November.

Baghdad sells about 2.3 million barrels daily under the humanitarian exchange, a significant volume on tightly-supplied world oil markets.

``Iraq is taking a tough line on this and shows no sign of backing down,'' said one Iraqi customer.

``We're simply not allowed to pay the 50 cents so we're assuming that there will be some sort of disruption from Friday. It all depends how long it goes on for.''

SAUDI SUPPLY PLEDGE

Saudi Oil Minister Ali al-Naimi said on Saturday that Riyadh would cover for any political disruptions to oil supplies.

``Any shortage in supplies as a result of natural disasters or political measures...Saudi Arabia and OPEC countries and the main producers will cooperate to cover the shortage,'' he said in an interview with the Arab al-Hayat paper.

Oil prices also remained sensitive to changes in temperature in the U.S. Northeast, the West's most important heating oil market.

Prices rose last week after a front of cold weather took temperatures in the U.S. Northeast to as much as 18 degrees Fahrenheit below normal.

U.S. forecaster Weather Services Corp predicts above average temperatures in the region until Wednesday before another cold spell starts at the end of the week.

``With heating oil stocks so low, the States has now devolved into a weather market,'' said Peter Gignoux of Schroder Salomon Smith Barney.

Energy markets are highly sensitive to weather forecasts because dwindling fuel stockpiles this year in the United States have stoked fears of supply shortages especially if a prolonged winter freeze should set in.

Industry data last week showed the beginnings of a recovery in U.S. crude and gasoline stocks, but heating oil inventories remain precariously thin in some areas. Copyright © Reuters

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-- Martin Thompson (mthom1927@aol.com), November 27, 2000