Gasoline Supply Fears Drive Oil Higher

LONDON - Oil prices held at post-Iraq war highs on Monday as low U.S. gasoline inventories and unrest in OPEC member Venezuela heightened fears over supplies for the U.S. summer driving demand.

Low stocks of crude and gasoline in the United States have raised fears of a supply crunch in the summer holiday season, when demand for motor fuel peaks.

Violent street protests by foes of President Hugo Chavez who are demanding a referendum on his rule have raised fears of a possible repeat of a two-month strike at national oil company PDVSA last year that briefly shut most of Venezuela's crude production. Venezuela is the world's fifth-largest oil exporter and a major supplier to the United States.

"With U.S. stocks already so tight, the mere possibility of a repeat of the strikes in Venezuela that paralyzed the oil industry has the attention of even the most complacent market watcher," said Washington-based analysts PFC Energy.

Petroleos de Venezuela (PDVSA), which spearheaded last year's strike, is less likely to be at the forefront this time, analysts said.

"Chavez effectively purged PDVSA, leaving his supporters firmly in control, and the opposition remains too fragmented to effectively stage a repeat of the work stoppages seen during the last strike," the PFC report said.

Oil's stubborn strength enabled traders to shrug off news of Iraq's first sale from its northern oilfields since the U.S.-led occupation almost a year ago.

Baghdad about 10 days ago quietly reopened its northern export pipeline through Turkey, gradually filling storage facilities at the Turkish Mediterranean port of Ceyhan.

The Kirkuk line has been the target of numerous sabotage attacks since the war ended last May. The sale should lift total Iraqi crude exports in March above two million barrels daily for the first time since the war.

Prices gained fresh support last week from signals from OPEC producers that they would carry through last month's agreement to reduce production quotas by one million barrels per day (bpd) from April and to eliminate about 1.5 million bpd of excess output above existing limits.

OPEC President Purnomo Yusgiantoro said on Monday the group would guarantee oil supplies to the market at times of high prices, but would go through with the planned April cut.

Buyers of crude from major suppliers such as Saudi Arabia, Kuwait and Iran are waiting for notification in the next few days of the volumes they will receive next month, which should be lower than in March due to OPEC's planned cut.

A source at state oil company Aramco said on Monday Saudi Arabia ordered a production cut of five percent at its Shaybah oilfield from March 1, in a decision apparently linked to February's OPEC deal.

Heavy buying from speculative funds in U.S. gasoline and crude futures have helped drive prices higher. Funds have amassed the highest net long position -- a bet prices will rise -- in crude since September 1999, according to the Commodities Futures Trading Commission on Friday.

"So long as U.S. economic growth remains strong, Chinese oil demand rises nearly 10 percent each year, and American interest rates do not increase, there is little likelihood that the "global macro" funds will cut their long positions in oil," said SG Securities in an research note.