By Frank Jack Daniel
CARACAS (Reuters) - Venezuela softened its tone on Tuesdayover a threat by President Hugo Chavez to stop oil sales toAmerica, with crude prices coming off a spike after a topofficial said a supply cut would be undesirable.
The deputy oil minister's pragmatism reinforced analysts'views the anti-U.S. president is likely to keep shipping oil,even as the OPEC nation repeated its conditional threat andvowed to get tough with Exxon Mobil in a dispute that sparkedChavez's anger.
Oil prices fell as fears eased of Venezuelan action and onforecasts for an increase in U.S. crude inventories.
Washington played down Chavez's threat, which he hasdelivered in different forms for years but never carried out.
Other major oil producers have assured the United Statesthey would make up for any interruption to Venezuelan supplies,a U.S. official who declined to be named said, adding a cutoffwould hurt ordinary Venezuelans.
Chavez said he could halt oil exports to the United Statesover a legal offensive by U.S. giant Exxon, which has wontemporary court rulings freezing up to $12 billion (6.1 billionpounds) in Venezuelan assets in a fight over payment for anationalized heavy crude project.
Curtailing supplies is "feasible" but would hurt bothnations' economies, said Bernard Mommer, deputy minister atstate-oil company PDVSA and top strategist in Chavez's drive tobring Venezuela's energy resources under government control.
Asked on state television if it was desirable to cut offsupplies, Mommer replied, "No. It would cost us money and wouldcost the other side money too."
Despite its legal attack, Exxon said on Tuesday it wasinterested in holding substantive talks with Venezuela tonegotiate fair compensation for the seizure of the project thatis based in one of the world's largest oil deposits.
BATTLE ESCALATION
Exxon is a proxy in Washington's economic war againstVenezuela, according to the self-styled socialist revolutionarywho clashes with the Bush administration over everything fromoil prices to democracy.
"We are ready" to stop supplies if these actions continue,Oil Minister Rafael Ramirez said in an interview with localnewspaper Ultimas Noticias published on Tuesday.
He also warned Venezuela was willing to fight tough againstExxon, saying the state oil company PDVSA was considering suingone of the world's largest oil companies for damages.
Ramirez and Mommer have led the South American country'stakeover of foreign-run oil projects. Most companies havereached deals over the seizures while Exxon has consistentlybeen the most tenacious in seeking compensation.
"Only Exxon maintains this aggressive and hostileattitude," Ramirez told the paper. "If they want this toescalate, it will escalate."
Exxon's legal move helps ensure Venezuela will pay if theoil major wins arbitration over its lost project. Industryanalysts also said it was a tactic to pressure the state oilcompany, which has shown signs of cash flow problems, to seek adeal.
"We do remain interested in getting into substantiveconversations with the Venezuelan government and with PDVSAaround the fair market value of the assets that have beenexpropriated," said Mark Albers, senior vice president atExxon.
Venezuela says compensation would be less than $6 billion.
James Mulva, chief executive of ConocoPhillips, another oilmajor forced out of Venezuela, said his company's talks withPDVSA over compensation were moving forward.
With two thirds of its oil exports going to the UnitedStates, industry analysts believe Chavez is unlikely to carryout his supply threat because it would slash revenue he uses tofund the social programs that underpin his popularity.
"Venezuela cannot easily find alternative destinations torefine its peculiarly heavy type of crude," said Goldman Sachseconomist Alberto Ramos.
PDVSA says the Exxon case has no impact on its operations.
(Additional reporting by Anna Driver, Bernie Woodall, ChrisBaltimore in Houston and Matt Daily in New York; Writing bySaul Hudson; editing by Jim Marshall)
