Oil prices scaled fresh 26-month highs yesterday, driven by drastic shortages of heating fuel in the United States, although renewed diplomatic efforts to disarm Iraq peacefully took some of the fire out of the rally.
On London's International Petroleum Exchange (IPE), benchmark Brent crude was trading 17 cents higher at $32.51 after reaching a session high of $32.70, the highest level since November 2000.
US light crude was two cents firmer at $35.10, after also hitting a new 26-month peak.
US heating oil was trading 1.43 cents firmer at $1.11 a gallon, after surging on Friday to its highest level since December 1979.
Adam Sieminski of Deutsche Bank said concerns about low inventories of refined products, especially heating oil in the United States, had deepened as the recovery of exports from Venezuela reached a plateau.
"Inventory levels are very low," Sieminski said. "There have also been reports that the recovery in Venezuela had slowed."
Shipments from Venezuela, the fifth biggest crude exporter and a key supplier to the mighty US market, have been choked by an opposition strike that began on December 2.
According to striking oil workers, exports have recovered to 1.3 million barrels per day (bpd) after dipping as low as 150,000 bpd at the height of the strike, compared with 3.1 million bpd in November.
President Hugo Chavez, whom the strikers have been seeking to oust, has said that oil production has recovered to nearly two million bpd.
But analysts have said many of the wells that remain shut in are more difficult to restore and that some output may not be recovered for months.
That would mean, a shortfall in Venezuelan supplies could coincide with supply disruption resulting from a possible war on oil producer Iraq and increased supplies from the Opec might not be enough.
Although many in the oil markets remain convinced there will be a US-led attack on Iraq, in the immediate term, diplomatic efforts were considered bearish for oil prices as they could postpone the threatened military action.
Top UN weapons inspectors left Iraq after a weekend of talks saying they were cautiously optimistic Baghdad might improve cooperation with arms inspectors in their search for biological, chemical and even nuclear weapons.
"We leave with a sense of cautious optimism as I hope we will have concrete action in the next three days," ElBaradei told Reuters yesterday before leaving Baghdad.
ElBaradei said on Sunday that he and Chief UN Weapons Inspector Hans Blix had seen "the beginning of a change of heart on the part of Iraq".
Germany and Russia renewed their opposition to the use of force against Iraq and pledged to coordinate diplomatic efforts, along with France, to ensure Baghdad held no weapons of mass destruction.
US officials accuse Iraq of concealing weapons from the inspectors, who returned to Iraq late last year after a four-year absence under a UN resolution giving Baghdad a last chance to disarm or face "serious consequences".