Oil prices ease on Opec reassurance

Striking Venezuelan oil workers blockade an oil tanker

Oil prices have eased back from two-year highs amid signs that Opec, the oil producers' cartel, will act to push prices back down by increasing supplies to the market.

The cartel's stated aim is for a $22-28 a barrel trading range while prices have recently stood at more than $30 a barrel.

Prices climbed sharply in recent days as a general strike in Venezuela continued to halt supplies, and prospects grew of a war on Iraq, which could disrupt supplies from the Middle East.

Data has also shown US oil reserves near 26-year lows, triggering some nervousness in the world's biggest oil-consuming nation.

Saudi lead

Under Opec's informal pricing mechanism, cartel members would agree to increase production if the price of Opec's reference oil is still above $28 in mid-January.

The world's biggest oil producer and exporter, Saudi Arabia, has traditionally taken the lead in making extra supplies available - as it did in the 1991 Gulf war - partly as it is one of the few major producers with excess capacity.

Light sweet crude fell in New York to $32.10 a barrel in late deals, down 98 cents.

But traders warned the market would be far from settled in the coming weeks.

"With uncertainty over the Venezuelan strike and OPEC's response, I would expect volatile trade over the next few days," said Richard Savage at Bank of America.

Oil sales by Venezuela, the world's fifth largest exporter, were still only 500,000 barrels per day last week as a strike to remove President Hugo Chavez entered its sixth week.

Members of the oil cartel Opec again offered reassurances they would fill the shortfall, but Middle Eastern shipments could take up to six weeks to reach the US.

The US, the world's largest energy consumer, usually sources 13% of its oil from Venezuela.

Impact on economic growth?

"An increase [by Opec] could be anywhere between 500,000 to one million barrels per day... It will depend on consultations," Opec president and Qatari Oil Minister Abdullah al-Attiyah said on Sunday.

Saudi Oil Minister Ali al-Naimi and Russian Energy Minister Igor Iusufov also promised "to restore stability to the markets and make sure they do not rise to a level which could have a negative impact on world economic growth," the official Saudi Press Agency said.

Traders' fears of supply disruption have also been raised by increases in US troop numbers in the Gulf.