The marginal fluctuations have come chiefly on the back of developments in the Iraq saga. A slight drop occurred when the Turkish parliament refused to allow the deployment of US troops and Baghdad agreed to destroy its Al-Samoud II missiles. Oil analysts estimate that the war risk premium is adding $3-6 a barrel.

However, while OPEC members, most importantly Saudi Arabia, have pledged to open the taps to make up for the loss of the roughly 2 million barrels a day (b/d) of Iraq supplies, war could have a wider impact. Kuwait Oil Company (KOC)chairman Ahmed al-Arbeed said on 3 March that oil fields accounting for about one-third of total Kuwaiti production of 2.1 million b/d might be shut down as a precaution in the event of war. Not only will the northern fields near the border with Iraq be closed, shutting off 300,000 b/d, but the 400,000-b/d Manakish field might also be shut.

Saudi Arabia is already pumping about 9 million b/d, leaving only about 1.5 million b/d in spare capacity. Only the UAE has significant leeway for increasing production.

US oil inventories, which reached their lowest level for more than two decades in February, have fallen still further as the unusually harsh and long winter eats into heating fuel stocks. Future supply shortages are being created as refiners increase their output of heating oil, rather than building up gasoline stocks ahead of the summer driving season.

Depleted Venezuelan production, the other main source of high prices in recent months, continues to creep upwards, and the past week has seen further positive signs. February output is estimated at an average 1.7 million b/d, up from 700,000 million b/d in January. ChevronTexaco has become the first oil major to resume tanker lifts from Venezuelan terminals following safety verification, taking 270,000 barrels from the Boscan terminal. Synthetic oil upgraders are also ready to restart activities, which should push output above 2 million b/d by late March.