Oil Futures Shoot Up On Venezuela's Threats

After Asset Freeze, Chávez Warns of Cutoff to U.S.

NEW YORK, Feb. 11 -- Oil futures shot higher for the third straight day Monday as concerns about potential supply disruptions overshadowed worries about the cooling economy.

Venezuelan President Hugo Chávez threatened Sunday to cut off oil sales to the United States as retaliation for court orders freezing assets belonging to Venezuela's state oil company. Exxon Mobil has gone after Petroleos de Venezuela in U.S., British and Dutch courts, challenging the nationalization by Chávez's government of a multibillion-dollar oil project. A British court last week issued an injunction freezing as much as $12 billion in Petroleos's assets.

"If you end up freezing [Venezuelan assets] and it harms us, we're going to harm you," Chávez said. "Do you know how? We aren't going to send oil to the United States."

Mike Fitzpatrick, vice president of energy and risk management at MF Global, said it was hard to weigh the comment. "How much credence you want to give him is always a question mark," Fitzpatrick said.

Traders were clearly worried about the potential cutoff of Venezuelan oil. Light, sweet crude for March delivery jumped $1.82 to settle at $93.59 a barrel on the New York Mercantile Exchange after spiking to $94.72 earlier, a one-month high.

Word of power outages at a Valero Energy refinery in Delaware City, Del., and a Citgo Petroleum refinery in Lake Charles, La., also helped push prices higher. Both plants were being restarted Monday, Dow Jones Newswires reported.

Traders also were unnerved by new violence in Nigeria, Africa's largest oil producer and a major supplier to the United States. On Monday, unidentified gunmen attacked a naval vessel escorting petroleum industry boats, killing one sailor and injuring another. Militant attacks have cut Nigeria's oil output by nearly one-quarter in the past two years, helping send oil prices to all-time highs.

If Chávez cuts off supplies the United States, the impact would be mostly symbolic, said oil analyst Peter Beutel of Cameron Hanover in New Canaan, Conn. Any short-term supply disruption would dissipate as other nations make arrangements to take the Venezuelan crude and the United States makes up its shortfall by purchasing additional barrels from the Middle East, Africa and other regions.

"It makes no sense for Mr. Chávez to follow through on his threats" because the U.S. refining industry's plants -- some of which are owned by Venezuela -- are customized to handle much of Venezuela's high-sulfur crude oil, said Tom Kloza, chief oil analyst at the Oil Price Information Service in Wall, N.J. If Venezuela's crude were low in sulfur content, making it more valuable on the global market, he might have a better hand to play, Kloza said.

Indeed, the United States remains the No. 1 buyer of Venezuelan oil, purchasing more than 41 million barrels in November, accounting for roughly 10 percent of all crude-oil imports that month, according to the most recent Energy Department data available.

With oil prices hovering above $90 a barrel, Chávez relies largely on U.S. oil money to stimulate his economy and bankroll social programs that have traditionally boosted his popularity. Nevertheless, Chávez in December lost a vote on constitutional changes that would have let him run for re-election indefinitely.

"It would be the worst time politically for Chávez to cut oil shipments to the U.S.," said Patrick Esteruelas, Latin America analyst at the Eurasia Group in New York.