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Oil above $96, but lacks momentum

business Updated: Feb 19, 2008 16:11 IST
Ikuko Kao
Ikuko Kao

Oil rose above $96 a barrel on Tuesday, but the rally lacked conviction as traders predicted a quarrel between OPEC member Venezuela and US energy major Exxon Mobil would have limited impact.

London Brent crude rose 29 cents to $95.20 a barrel by 0944 GMT, while US crude was up 93 cents at $96.43.

Tuesday's modest rally extends four days of gains, but Monday's trading was subdued by a US public holiday and analysts said the market could struggle to head much higher. "We don't see how the current fundamental backdrop could justify an advance beyond the $98 mark," MF Global said in a daily report. <b1>

"Although Venezuela is still an issue, we think the market will have to start discounting the fact that this dispute is relatively ring-fenced for now."

Venezuelan President Hugo Chavez said on Sunday the state could sue Exxon for unpaid oil taxes and repeated threats to cut oil sales to the United States.

Exxon said it was still prepared to talk to Caracas about an amicable settlement. It has won court orders to freeze $12 billion in Venezuelan assets to ensure compensation for an oil project Chavez nationalised last year.

Concerns about supply disruption are offset by expectations a slowdown in the United States, the world's biggest oil consumer, could reduce oil demand.

OPEC meet on March 5

The Organization of the Petroleum Exporting Countries (OPEC) will meet on March 5 in Vienna to assess how much oil the market needs. Ministers so far have signalled they will keep supplies steady or even cut them.

OPEC President Chakib Khelil told Reuters on Monday "production is not going to increase -- it will either decrease or be stable".

Regardless of fundamentals of supply and demand, technical analysts, who predict future price moves on the basis of interpretation of charts, say the market is unlikely to move much higher for now. "Most complexes are approaching key resistance points and could be vulnerable to a modest pullback," MF Global said.