Oil prices fell on Tuesday as fears eased that Venezuela would follow through on a threat to cut off shipments to the United States and on forecasts for an increase in US crude inventories. The Opec nation softened its tone over a threat to stop oil sales to its largest customer, saying a supply cut would be undesirable a day after world oil prices rose due to President Hugo Chavez's warning.
The threat came in response to a legal challenge by US oil company Exxon Mobil Corp against the nationalisation of a Venezuelan heavy oil project last year. US crude settled 81 cents lower at $92.78 a barrel. London Brent crude settled 67 cents lower at $92.86 a barrel. Bernard Mommer, a senior official at Venezuelan state oil company PDVSA and top strategist in Chavez's drive to bring Venezuela's energy resources under government control, said an export halt was feasible but not desirable.
"It would cost us money and would cost the other side money, too," Mommer said.
Chavez threatened the stoppage after Exxon won court rulings freezing $12 billion in Venezuelan assets in a fight over compensation for a nationalised project, boosting oil prices on Monday.
But the US government has received assurances the world's top oil producers could compensate for any Venezuelan disruption, a US government official, who declined to be named, told Reuters.
"While a disruption in short-haul Venezuelan supplies would be a blow to the US economy, it would arguably be much more devastating to Venezuela itself," said energy analyst Antoine Halff of Newedge Group.
Oil prices were also pressured by forecasts that US government inventory data to be released on Wednesday would show a 2.7 million-barrel build in crude stocks in the week to February 8.
The increase would mark the fifth consecutive weekly rise in crude stocks amid concerns that the wider US economic situation was damping oil demand. US crude prices have tumbled from record highs above $100 a barrel struck in early January as the credit crisis continues to drag on the US economy. Analysts also forecast a 1.4 million-barrel decline in distillate stocks and a 1.8 million-barrel build in gasoline inventories.
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