China (Platts) -- Feb 11-15, 2008

By reporters at Platts, the energy information division of the McGraw-Hill Companies. For more information about Platts' information products in China, contact Platts at china@platts.com, or call its representative office in Guangzhou at (+86) 20 2881 6588.

Oil futures prices rallied between 3% and 6% in value last week, depending on the part of the barrel you compare, as crude oil moved somewhat astonishingly back towards the all-time highs registered as the year began.

The move presents a conundrum to analysts: demand forecasts everywhere are being pared back and the economies of the world are clearly slowing down, so why aren't oil prices responding with a steady fall?

By this time in 2007, oil was trading near its lowest levels for the year as a whole, as seasonal pressures ahead of typically low second quarter demand allowed the markets time to cool off.

The story is different this year, begging the question of what might be in store when and if demand really kicks off again in the third and fourth quarters of this year.

Light, sweet crude oil futures ended last week at $95.50 per barrel on the New York Mercantile Exchange and $94.63 on London's ICE Futures. Both contracts were up around 3.5% from the week before, and both contracts are a breath-taking 65% more expensive than they were in mid-February 2007.

By contrast, US natural gas futures closed in New York at $8.66 per million British thermal units -- a gain of 4% on the week and "only" 18% above levels this time last year.

US heating oil and European gasoil futures are trading as much as 70% above their levels in February 2007, while gasoline -- the subject of most fears regarding the impact of a US recession -- is holding at 56% above year-ago levels.

Stocks offer little comfort in angry Venezuela spat

Prices were holding remarkably high given a gloomy set of downward revisions to demand forecasts from OPEC and the International Energy Agency.

Futures traders appeared to be alarmed by the relatively low cover offered by stockpiles in a week when geopolitical uncertainties began to ratchet higher again -- this time in the shape of a nasty dispute between Venezuelan national oil company PDVSA and ExxonMobil, the world's largest non-state oil company.

The IEA gave a warning signal on OECD oil stocks, which now stand at a four-year low in terms of forward cover. The IEA said total OECD industry stocks fell by 39.5 million barrels in December to 2.55 billion barrels, led by a 30.3 million barrel draw in crude inventories.

The fall brought the fourth quarter 2007 stock draw to 1.15 million barrels per day, substantially higher than the 10-year average of around 750,000 barrels per day. And OECD industry stock forward cover was therefore at 50.7 days, its weakest since December 2004.

Preliminary January data for the US, Japan, the EU-15 and Norway, however, indicate a 22.1 million barrel stock build, the IEA said. "Although stocks have recovered slightly in January, they remain low, as does spare capacity," the IEA said.

"Given the rapid upside recovery of prices following a resurgence of geopolitical issues in Nigeria, Venezuela, Iraq and Iran there is clearly, despite demand-side risks, the need to rebuild stocks," the agency said.

In a week that saw courts in London and the US surprisingly order a surprise freeze on PDVSA's finances after lawsuits filed by ExxonMobil against PDVSA, Venezuelan oil minister Rafael Ramirez said was defiant -- saying that Venezuela would be "radical" while protecting the interests of its oil sector.

He said sovereign matters would not be decided in foreign courtrooms, a point of view that will have a number of sympathizers in emerging markets around the world, and which sets the scene for a nasty fight behind the scenes between Venezuela and the US.

Animosity between the two nations has been growing in the oil sector for most of this decade.

Ramirez's appearance before the National Assembly came a day after a US judge upheld a court order secured by ExxonMobil freezing $315 million in a US bank account belonging to state PDVSA. ExxonMobil also won a $12 billion asset freeze in the UK High Court in London against PDVSA assets worldwide.

Venezuela later announced it would halt the sale of crude oil and refined products to ExxonMobil. Ramirez said Venezuela has put crude and refined products meant for ExxonMobil on the spot market, already selling two cargoes.

Ramirez also serves as president of PDVSA.

Updated: February 18, 2008