18 February 2008, 18:21  Oil firms

Oil was firmer midday as fund buying picked up, with the market weighing up the possibility fundamentals could tighten amid fears the standoff between ExxonMobil and Venezuelan state oil company could disrupt US supply. "A recent spate of supply and geopolitically driven news has reminded the market of how tight available spare production capacity really is in view of strong demand growth in the emerging markets," noted BNP Paribas analyst Harry Tchilinguirian. "Nigeria and the North Sea featured alongside tension between Venezuela and ExxonMobil last week." However, fears that the gloomy economic outlook could translate into lower demand are continuing to cap gains. The President's Day holiday in the US is likely to keep volumes light, possibly exaggerating any price moves. US oil giant ExxonMobil is currently in arbitration with Venezuelan state oil company PDVSA over the nationalisation of assets in which it had an interest. Its successful bid to freeze assets held by PDVSA in the European courts last week led Venezuelan president Hugo Chavez to threaten to cut off oil supplies to the US, to which it is currently the fourth-largest supplier. Chavez said over the weekend that the country was not preparing to cut US supply, but added that it could halt exports if Washington "attacks Venezuela or tries to harm us". He also said his government may file a lawsuit against ExxonMobil over unpaid taxes. Speculation that oil cartel OPEC could consider a cut in supply at its next production meeting in March after Iranian oil minister Gholamhossein Nozari mooted the possibility over the weekend is also lending some support to the market, analysts said. Speaking to reporters in Tehran, Nozari said "in the normal course of events" a production cut in March would be expected, although he reiterated that the cartel would closely review the market before making a decision. Both Iran and Venezuela have previously called for a reduction in output to protect prices. Although oil remains near its all-time high above 100 usd a barrel, the sliding value of the US dollar has cut oil vendors' spending power overseas, they say. OPEC downgraded its demand outlook for 2008 on Friday, citing a slowdown in the US economy. The cartel said it sees oil demand growing by 1.2 mln barrels per day (bpd) this year, a downward revision of 0.08 mln bpd from the last monthly assessment. Its forecast is sharply below the International Energy Agency's call for growth of 1.67 mln bpd this year. However, with the US facing the possibility of recession and oil prices still at very high levels, the possibility of an output cut still remains a remote one. "I think they are unlikely to cut with prices at 95 usd a barrel," said Bache Commodities broker Christopher Bellew. "Perhaps if they were at 85 usd and falling, they would think about cutting."

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