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Oil rallies to 1-month high on Venezuela supply row

Monday, February 11, 2008

LONDON (Thomson Financial) - Oil rallied to a one-month high late afternoon as the ongoing supply spat between the US and Venezuela and expectations for a cold snap sent jitters through the market.

News of an equipment failure at a Delaware refinery operated by Valero added upward momentum to a market already buoyed by supply fears, analysts said.

Prices climbed more than 4 usd a barrel on Friday and were driven still higher overnight after Venezuelan president Hugo Chavez threatened to cut oil supplies to the US yesterday, before slipping into consolidation mode in morning trade.

However, the news is still fuelling buying this afternoon, analysts said.

"The market is very volatile right now," said Alaron trader Phil Flynn. "The weather forecasts continue to be cold, and heating oil is leading us up on this rally. That is adding to uncertainty (over Venezuela) to keep the market pretty well supported."

At 5.10 pm, New York's WTI crude for March delivery was up 2.02 usd at 93.79 usd per barrel, having earlier touched a high of 94.72 usd, its strongest level since Jan 10.

Meanwhile in London, Brent crude for March delivery was up 1.81 usd at 93.75 usd per barrel.

Chavez's claim that he will halt US sales is linked to legal action brought by Exxon Mobil. The oil giant is pursuing the assets of state oil company Petroleos de Venezuela in US, British and Dutch courts as it challenges the nationalisation of a multibillion dollar oil project by Chavez's government.

A British court has issued an injunction freezing as much as 12 bln usd in assets, leading Chavez to threaten to cut off oil supply to the superpower.

"If you end up freezing (Venezuelan assets) and it harms us, we're going to harm you," Chavez said yesterday. "Do you know how? We aren't going to send oil to the United States. Take note, Mr. Bush, Mr. Danger."

Venezuela, the world's fifth-biggest oil exporter, is also the fourth-largest supplier of crude to the US. While analysts earlier discounted Chavez's threats as unlikely to materialise, uncertainty over the president's next move is continuing to unsettle the market, analysts said.

Any prospect of a supply shortfall is likely to strongly propel prices higher. They rallied towards the end of last week on news that political tensions could cut exports from Nigeria by as much as 1 mln barrels a day, and amid fears of reduced production in the North Sea.

"This week's trading focus will continue to gravitate away from economic indicators and the possibility of a recession and toward geopolitical events capable of disrupting export flows from major producers such as Nigeria and Venezuela," said Ritterbusch & Associates head Jim Ritterbusch.

"For now, we continue to view the Nigerian supply situation as likely having a larger near-term impact on global oil balances and as such we expect further Nigerian developments this week to maintain volatility at a high pitch with an upward bias," he added.

Posted by MOHAMED SAID at 11:29 AM  

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