Analysts mull effects of oil at $40 a barrel

| Thursday, December 19, 2002

Oil prices rose to $30.10 a barrel Dec. 16 as reduced crude oil supplies resulted from strikes in Venezuela by Petroleos de Venezuela, the state oil company, bringing oil prices up more than 50 percent from a year earlier, The New York Times reported.

Venezuela is the fourth-largest supplier of oil to the United States, accounting for 9 percent of its daily crude oil supply.

Before the strike began Dec. 2, Venezuela was exporting about 2.4 million barrels of oil a day, half to the United States. Strikers said just two oil tankers left Venezuelan ports last week. Normally, 12 to 14 tankers depart daily.

Oil at $30 per barrel does not threaten a return to recession, economists said. But "it is certainly enough to forestall a more sustained recovery in the economy when the recovery is still very tepid," said Mark Zandi, chief economist at Economy.com, a consulting firm in West Chester, PA.

Prices at $35 to $40 per barrel are much more of a threat, economists said. While that may seem far-fetched now, continuing conflict in Venezuela could combine with war in Iraq to disturb oil supplies so profoundly that even OPEC would lack the spare production capacity to make up for shortfalls, industry experts warned.

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