Oil prices reached a 26-month high at $35.60 a barrel today as the United States continued to press its case for military force against oil exporter Iraq despite opposition from key allies.
Expectations that a blast of Arctic weather had further eaten away at wafer-thin winter fuel stocks in the United States also underpinned oil prices, which are a little more than $5 below peaks in the build-up to the 1991 Gulf War.
US light crude traded 15 cents up to $35.60 a barrel, the highest level since late November 2000.
Brokers said heightened alerts of possible terror attacks in Britain and the United States following the release of an audio tape believed to have been recorded by Osama bin Laden imparted a bullish influence to prices.
Meanwhile global oil output has partially recovered from a Venezuelan supply shock, but stronger-than-expected demand for winter fuels is still stretching the world's oil supply system, the West's energy watchdog said today.
The International Energy Agency (IEA) said oil companies would take time to restore spare capacity and rebuild stocks amid a two-month-old strike in Venezuela, and warned of more "price volatility and instability" this year.
"The global oil supply and distribution system has been stretched such that it has less margin for error," the agency said in its monthly Oil Market Report.
Venezuelan oil output recovered strongly during January to reach 1.4 million bpd by early February, versus a pre-strike level of 3.4 million bpd.
The agency's estimates closely match those of striking Venezuelan oil workers, and are substantially lower than the government's estimate of 1.9 million bpd in early February.
The IEA, which advises 26 industrialised countries on energy policy, also reinforced the Venezuelan strikers' view that further gains will be slower.
"Markedly higher production will be difficult to achieve and take longer," the report said.
The global oil market was highly unstable, the agency added, and shortage could become glut very quickly.