reuters.com Mon March 17, 2003 02:05 PM ET

NEW YORK (Reuters) - World oil prices eased further on Monday as dealers wager that the looming war in Iraq would be short and inflict only limited damage on Middle East oil flows. The possibility that the United States could release oil from its 600-million-barrel emergency oil stockpile further weighed on prices, which have fallen more than eight percent over the last three trading sessions.

"The market believes the war will be short and quick, so there should be a relatively soft landing for crude prices," said Charlie Luke at Aberdeen Asset Management.

U.S. light crude futures dropped 63 cents to $34.75 per barrel, down from a 12-year high of $39.99 hit late last month. That is $6 short of a $41.15 all-time peak during the 1990-91 Gulf War crisis.

Brent crude oil fell 71 cents to $29.42 per barrel on London's International Petroleum Exchange, which was forced to close for two hours when anti-war protesters raided the London market waving banners saying "Oil fuels war."

Prices fell as the United States and its allies ended diplomatic efforts to win U.N. approval for an ultimatum to Iraq, clearing the way to launch war without Security Council authority.

Speculative investors that fueled a 60 percent rise in oil prices in just over three months are now selling to avoid being caught out by a sudden price slide if Middle East oil flows escape severe disruption.

In the first Gulf War, prices sank from over $30 to barely $20 when the U.S. launched its January 1991 offensive as it became clear that Iraq would not harm oilfields in Saudi Arabia.

But prices could quickly go back up if Iraq inflicts substantial damage on its own oilfields, or the war is prolonged, analysts said. Iraq and its Gulf neighbors together pump about 40 percent of global crude exports.

U.S. plans to quickly secure Iraq's northern Kirkuk oilfields in the event of war has also been undercut by Turkey's refusal to let U.S. troops through its territory.

"The market is betting on a short, straightforward campaign that would be over fairly quickly," said Steve Turner of Commerzbank in London.

"But there is definitely upside if the war is long and difficult and there are repercussions across the Middle East."

NO MARGIN FOR ERROR

A cold winter and prolonged supply hitch from Venezuela simultaneously drained commercial stockpiles to historic lows, and the OPEC oil cartel has little spare production capacity to cover further supply disruption.

U.S. gasoline pump prices have already hit a new all-time high of $1.719 a gallon for an average price of regular unleaded, the American Automobile Association said on Monday. A sustained increase in energy costs could further weaken an already soft economy, analysts say.

Iraq's U.N.-supervised oil exports, which recently averaged almost two million barrels daily, will slow to a trickle this week as dealers have already stopped buying for fear of an imminent attack.

Iraq's two authorized export terminals in Turkey and the Gulf were both idle early on Monday. The United Nations later announced that it was pulling out all inspectors, including oil monitors.

Further pressuring prices, the chairman of the U.S. House Energy and Commerce Committee said the Energy Department told him the Strategic Petroleum Reserve is ready to release oil to counter a disruption in crude supplies, if necessary.

"The SPR has, for some time now, transitioned from the 'fill' mode to the 'flow' mode and is prepared to flow upon orders from the President," Republican Rep. Billy Tauzin said in a letter to fellow lawmakers.

The United States and other members of the International Energy Agency (IEA), which comprises 26 industrialized nations, has said that it will allow OPEC oil producers to try to cover any shortages in war, releasing inventories from emergency stockpiles only as a last resort.

The IEA built strategic oil reserves after the 1974 Arab oil embargo. They were last used in the 1990-91 Gulf War after Iraq's invasion of Kuwait.

www.msnbc.com NEW YORK, March 17 — Time is running out for extra oil supplies expected from the OPEC cartel to hit U.S. shores and allow the world’s biggest fuel consumer to smoothly build gasoline supplies ahead of the summer driving season.
THE SITUATION COULD MARK a large problem for the United States, leaving it more dependent on imports than ever at a time when the White House pushes to the brink of war on Iraq and retail gasoline prices hit all-time highs, threatening an economic recovery. “The U.S. needs large slugs of extra oil to cope with the increase in (refinery) runs, stop the erosion of inventories and to begin to claw back some cover,” JP Morgan said in a research note. “The U.S. oil market is undersupplied.” U.S. gas prices hit record highs U.S. oil stockpiles have fallen below 270 million barrels, the government’s suggested level for seamless operations, as supply disruptions from Venezuela and an unusually long, cold winter drained supplies.
The resulting low oil inventories, near the lowest level since 1975, will prove a problem for U.S. fuel suppliers, who tend to use the brief respite in consumer demand in the second quarter to refine more crude oil and build fuel stocks ahead of higher summer gasoline demand. “The main problem is that while global oil demand does indeed hit a minimum in (the second quarter), U.S. crude oil runs increase,” said JP Morgan, meaning deeper declines in crude supply are likely if imports don’t shoot higher. The U.S. second-quarter increase in crude oil demand averaged roughly 1 million barrels per day in 2001 and 2002, and is expected to be even sharper this year as the industry struggles to buffer paper-thin inventories — requiring a strong increase in imports.
“There’s potential for trouble,” said Tim Evans, senior analyst at IFR-Pegasus. “Low crude inventories limit the extent to which higher refinery rates can be sustained. But the cavalry rising up over the hillside is represented by OPEC, which has already started pumping away.” OPEC, which accounts for 60 percent of world oil exports, has signaled it will defend against global short supply by upping shipment volumes even as the group declines to lift its official production curbs due to worries over overall weakness in global demand. OPEC powerhouse Saudi Arabia has already raised production sharply in the first two months of this year to make up for lost Venezuelan supply. Tanker brokers said on Friday the kingdom snapped up 14 tankers to move 29.5 million barrels of crude oil to the U.S. Gulf for May delivery. So far, the increased production has yet to translate into higher U.S. crude stockpiles.
And, while Saudi Arabia has reassured the market it will continue to pump more oil in the event of a war, there are doubts whether Riyadh has enough spare capacity to compensate fully for disruptions from Iraq, which has a sustainable export capacity of 2.2 million bpd. The International Energy Agency in a monthly report on the oil market outlook released on Wednesday estimated that OPEC in total has only 900,000 bpd to spare, with 400,000 bpd in Saudi. If crude supplies become scarce enough to hinder the U.S. oil industry’s attempt to build up gasoline supplies before summer, pump prices are likely to continue to surge, pushing through record levels. The average retail price of gasoline in the United States on Saturday was $1.719 a gallon, a new all-time high, according to the American Automobile Association’s latest survey.
The inventory situation in the U.S. has worried the White House enough to consider the use of a release of the nation’s Strategic Petroleum Reserve — a move reserved for only the most dire of supply crunches. U.S. Energy Secretary Spencer Abraham said on Friday Washington reserved the right to make a unilateral release of crude from the emergency reserve in the event of a severe supply disruption. The statement came after a similar comment from Japan, which said it would tap its reserve if Iraq is invaded by U.S.-led forces.

www.oaoa.com Monday, March 17, 2003 By Julie Breaux Odessa American

John Bell said the Clinton administration and then-Texas Gov. George W. Bush nixed the idea of a differential tariff. Four years ago, he said the chairmen of Exxon Mobil and BP Amoco told him that crude oil would be priced at $12 to $14 through 2007, "and that I needed to sit down and shut up and go away. It was crazy."

At some point, everyone reaches his or her limit. John Bell reached his in 1998-99.

That’s when Venezuela flooded the market with crude oil, forcing some small, independent producers to shut in production. For Bell, a second-generation oil man from Kermit, the price of crude had fallen so low that any further production was unprofitable.

But, instead of grousing about the sad state of domestic oil and gas industry and accepting the status quo, Bell did something about it. And since that time, the soft-spoken Bell has been a consistent voice for regulatory and legislative change.

In January 1999, he organized an independent producers’ movement that climaxed when more than 300 producers demonstrated at the state Capitol to bring attention to the plight of Permian Basin oil producers then facing historically oil low prices.

He’s written scores of letters to top-level oil executives and to last few energy secretaries, sharing with them his concerns for the industry. He has also testified on the industry’s woes on Capitol Hill.

In early 2001, he applied for a position with the Department of Energy, hoping to influence debate on a national energy policy. At the time, though, Democrats controlled the Senate and his nomination never got out of committee.

Now, Bell wants to leverage his years of activism to obtain a seat in Congress.

Late last week, Bell said he was considering running for the open 19th Congressional District seat and would announce his decision sometime this week.

If he decides to run, Bell would have to hit the ground running. Since Rep. Larry Combest in January announced he would retire in May, about a dozen people from Odessa, Midland and Lubbock have announced their candidacies.

"I’m going to have to run like crazy."

Of the many issues he could focus on, the woeful status of the oil and gas industry would be his for the taking.

Bell has made it his mission to promote ways to stabilize energy prices, which, he says, would benefit producer and consumer alike.

"We’ve got to get off this (price) roller coaster," Bell said. "We need a long-term strategy to help us encourage stability instead of ‘Let’s spike it today and bust it tomorrow.’"

Out-of-control crude oil and natural gas prices typically spell trouble, too, he said, citing a 1997 Department of Energy study that found energy price spikes playing a significant role in nine of the 10 recessions since World War II.

"They (recessions) hurt the whole economy, and not just the United States but the world economy, because they send too many market shivers," Bell said. "All I used to think about were higher prices, but that’s not correct. I want a price that’s reasonable, that the public can afford and a price I can afford to produce it."

Energy-related recessions could be avoided and price stability achieved through a federal price floor, which would be tied to supply and demand, Bell said. A price floor would encourage domestic drilling, which in turn, would reduce the United States’ dependency on foreign imports.

Bell and petroleum engineer Kirk Edwards are kicking around the idea of promoting a nickel tax on diesel and jet fuel. The tax would, in essence, pay for a price minimum, he said.

"I don’t know that it’s acceptable in government or economic circles, but I think it would be beneficial to the country, and there’s lot of people in the industry who want that," Bell said.

If a price floor won’t fly, Bell believes a "floating" tariff on imported oil would help break the vicious circle of unrealistically high or low prices routinely leading to supply gluts or shortages. The tax would kick in when a barrel of crude dipped below a certain price, say $20, and increase the lower the price fell.

"There would be zero tariff at $20, and at $18 it would be $2 a barrel. At $10 a barrel, the tax would be $10," Bell said.

The government could reap billions of dollars from the import tax, Bell said, but few have indicated much support for the plan.

"Everybody from the (Department of Energy) on down said we couldn’t do that. It was just impossible."

In addition to floor prices and import tariffs, Bell believes a restructuring of the use of the Strategic Petroleum Reserve would be a "natural way" to moderate wide swings in crude oil prices.

The Strategic Petroleum Reserve is a U.S. government complex of four sites created in deep underground salt caverns along the Texas and Louisiana Gulf Coast that hold emergency supplies of crude oil.

"I think the SPR needs to be expanded and full so we have the reserve supply to help soften the economic impact to the country," Bell said.

Bell was critical of the way Bush has been filling the 700-million-barrel reserve with crude averaging slightly more than $27 a barrel.

"Supply and demand influence prices," Bell said. "So, if you have dropping (private) inventories, it’s telling you that supply is not keeping up with demand. Then quit buying it. When you see excess supplies available, you buy."

Bell said he felt vindicated by the release of a report by Senate Democrats two weeks ago that maintained Bush’s decision to divert 40 million barrels of crude from the market into the SPR helped drive up gasoline and other energy prices.

During 2002, when oil was diverted steadily into the reserve, oil prices climbed from the low $20s early in the year to over $30 a barrel by September. After easing a bit, prices soared again toward the end of the year, remaining above $30 a barrel from Dec. 23 through last Thursday, or 50 days straight.

Abraham has rejected the notion, but Bell doesn’t.

"We don’t need to buy $35 oil and put it in storage," Bell said. "It’s just plain, simple Economics 101. It isn’t rocket science. This is just smart, intelligent buying that will help soften what we’re doing even without some of these other ideas. Adding to the SPR in times of shortage is adding fuel to the fire. And somebody somewhere at pretty high levels is not picking that up."

www.forbes.com Reuters, 03.17.03, 1:09 PM ET

NEW YORK (Reuters) - NYMEX crude oil futures were sharply lower at midday on Monday as traders speculated that a looming war with Iraq would be short. Traders also believed U.S. could offset any supply shortage from the Gulf region by releasing oil from its strategic reserves, which helped pull down prices. At 12:55 p.m. EST (1755 GMT), NYMEX April April crude was down 93 cents at $34.45. Nearby May was down $1.01 at $32.30 and June down $1.06 at $30.90. NYMEX April crude oil surged as much as $1.02 higher to $36.40 in volatile trading and then quickly nose-dived as low as $1.38 to $34.00. "It appears very likely that the attack on Iraq will begin late in the week or shortly after...the advice for U.N. inspectors to get out was a serious signal that the time is nigh," said an energy market analyst from Houston. In London, Brent crude's new prompt month May was down 88 cents at $29.25. The United States, Britain and Spain ended Monday morning diplomatic efforts to win U.N. approval for an ultimatum to Iraq to disarm or face war. That, analysts said, now clears the way for the three countries to launch a war without a vote in the Security Council. U.N. Secretary General Kofi Annan told the U.N. Security Council that he is now pulling U.N. staff out of Iraq and that all U.N. work in the country, including the oil-for-food program, would be suspended. U.N. arms inspectors were packing their bags and were expected to leave Baghdad early Tuesday, a diplomat in Baghdad told Reuters. The impetus to remove inspectors followed an ultimatum from Bush on Sunday that the U.N. Security Council had just one more day to give its blessing to a resolution sanctioning the use of force to rid Iraq of suspected weapons of mass destruction. The U.S. has vowed to lead a coalition to disarm Saddam, who it accuses of violating U.N. disarmament resolutions, with or without U.N. support. More than 250,000 American and British troops are already poised to attack if the signal is given. Bush will deliver a television message at 8:00 p.m. EST, in which he is expected to make a final ultimatum to Iraqi President Saddam Hussein to leave or face invasion. The U.S. has yet to decide whether it would tap its 600-million-barrel Strategic Petroleum Reserve to stabilize domestic supply once Iraqi oil exports stop flowing, the U.S. Department of Energy said. U.S. Rep. Bill Tauzin from Louisiana, the Republican chairman of the House Energy and Commerce Committee, said earlier that the reserves had been switched to "flow mode" and was prepared to be put in the market if ordered by Bush. Iraq currently exports about 1.7 million barrels per day (bpd) of crude under U.N. supervision as part of sanctions when it invaded Kuwait in 1990. Last January, Iraq sold about 600,000 bpd to the United States. On Monday, the U.N.-supervised Iraqi oil exports were at a standstill and will likely stay that way until after a U.S.-led assault, which is now expected imminently, trade and U.N. sources said. Iraq's oil exports will be halted indefinitely once U.N. oil export inspectors are evacuated, which is expected to coincide with the pullout of U.N. arms inspectors by Tuesday. Saddam said early Monday that while Iraq had weapons of mass destruction in the past, it no longer had them. The day's prices have erased about $5.50, or nearly 14 percent, since NYMEX crude hit a 12-year high of $39.99 on Feb. 27. From mid-November to that high point, NYMEX crude prices had built up more than $15, or 60 percent, about half of which was seen as a war premium amid fears of supply disruptions that a war with Iraq would entail. Crude prices also rose as U.S. supplies thinned due to a crippling two-month strike in Venezuela backed by its oil workers that began Dec. 2. Venezuela's production is gradually being restored. Crude futures jumped to an all time high of $41.15 in October 1990 after Iraq invaded Kuwait in August of that year. Meanwhile, NYMEX refined product futures tumbled sharply, moving with crude. April gasoline futures were off 1.74 cents at $1.023 a gallon while April heating oil futures were down 1.67 cents at 92.40 cents.

money.cnn.com March 17, 2003: 12:05 PM EST

LONDON (Reuters) - Oil prices slumped Monday despite the imminent threat of war on the world's seventh largest exporter Iraq, as dealers bet on a short conflict.

The possibility of the United States releasing oil from its huge emergency stockpiles also dampened prices, which began the day sharply higher with war fever.

Brent crude oil for May delivery fell 83 cents to $29.30 per barrel on London's International Petroleum Exchange, which was forced to close for two hours when anti-war protesters raided the London market waving banners saying "Oil fuels war." U.S. crude futures fell 68 cents to $34.70 per barrel, some $6 short of their peak during the 1990-1991 Gulf crisis.

"The market believes the war will be short and quick, so there should be a relatively soft landing for crude prices," said Charlie Luke at Aberdeen Asset Management.

Crude oil futures have risen 40 percent in four months as President Bush has stepped up his rhetoric against Baghdad. Bush was scheduled to make an address at 8 p.m. ET (0100 GMT Tuesday) in which he's expected to give Iraqi President Saddam Hussein a limited to leave his country in order to avoid war.

A cold winter and prolonged supply hitch from Venezuela have simultaneously drained commercial stockpiles to historical lows.

But markets have fallen 10 percent in the last week as traders prepared for a quick war that could see Iraq resuming exports within weeks.

"The market is betting on a short, straightforward campaign that would be over fairly quickly," said Steve Turner of Commerzbank in London.

"But there is definitely upside if the war is long and difficult and there are repercussions across the Middle East."

Iraq's U.N.-supervised oil exports, which recently averaged almost two million barrels daily, will slow to a trickle this week as dealers have already stopped buying for fear of an imminent attack.

Iraq's two authorized export terminals in Turkey and the Gulf were both idle Monday morning.

"Apparently, the banks do not believe there is sufficient time for a ship to load at Mina al-Bakr (in the Gulf) and get out before the bombs start dropping," said an industry source.

Iraq and its Gulf neighbors together pump about 40 percent of global crude exports. Forecast stretches to $46

Mike Rothman of Merrill Lynch said oil prices could exceed their Gulf War high of $41, pegging the upper end of his short-term forecast at $46 per barrel for U.S. crude, after reports that Baghdad has placed explosives at oilfields.

"The prospect for crude prices to spike up sharply even from current levels and, more importantly, how long prices stay elevated above the $25 figure we see as oil's 'center of gravity' rests largely on actual events impacting oil flows from the Persian Gulf," Rothman said.

The United States and its allies ended diplomatic efforts to win U.N. approval for an ultimatum to Iraq, clearing the way for them to launch war without Security Council authority.

The State Department has ordered non-essential diplomats and all embassy dependents out of Kuwait, Israel and Syria because of the threat of war, a notice mirroring precautions before the 1991 Gulf War.

Iraq denies possessing weapons of mass destruction and President Saddam Hussein vowed that Iraq would fight back "anywhere in the world" if invaded.

The Organization of the Petroleum Exporting Countries has pledged that it will fill any shortfall in supplies if war disrupts oil flows.