Commodities-Looming war heats oil, wheat gains

www.forbes.com Reuters, 01.21.03, 5:08 PM ET

NEW YORK (Reuters) - Oil prices surged to 26-month highs on Tuesday as the prospect of war with Iraq loomed large with more U.S. troops heading to the Gulf region, while wheat futures rose as the U.S. Great Plains growing area remained dry.

In other commodity trading, cocoa futures were mixed as the industry kept a close watch on peace talks between rebels and the government in top grower Ivory Coast. Steep falls in the stock market and dollar lured safe-haven investors to gold.

NYMEX oil futures were again buoyed by war fears, which countered the bearish sentiment sparked by news that tanker pilots on a strategic export route in No. 5 petroleum exporter Venezuela had ended their part in a nation-wide labor strike.

Venezuela, which normally supplies about 13 percent of the crude oil imported by the United States, has seen its exports hobbled by the strike led by foes of President Hugo Chavez who want the leftist leader to step down and call fresh elections.

Fears of a war with Iraq, which could disrupt the flow of oil from the world's eighth largest oil exporter, took center stage in the market. President George W. Bush said Tuesday it was "clear to me now" that Iraqi President Saddam Hussein was failing to comply with U.S. demands to disarm.

"He's delaying. He's deceiving. He's playing hide and seek with inspectors," Bush told reporters at the White House.

"Time is running out," he said, as the Pentagon ordered two more U.S. aircraft carriers and another 37,000 combat troops to deploy to the Gulf region for a possible war with Iraq.

Oil traders said Bush's remarks appeared to leave little doubt that Washington was close to authorizing the use of military force against Iraq, accused by the U.S. of concealing weapons of mass destruction. Baghdad denies the charge.

Mohamed ElBaradei, head of the U.N. nuclear watchdog agency, said that "quite a few months" were needed to complete the search for any Iraqi weapons of mass destruction.

NYMEX February crude oil ended 70 cents higher at $34.61 per barrel after hitting $35.20. February gasoline was down 1.01 cents at 90.10 cents per gallon, while February heating oil was off 0.39 cent at 89.47 cents a gallon.

CBOT wheat futures were higher, supported by concerns of possible crop damage sparked by persistent dry weather in the Great Plains growing region.

"It's the weather -- that and it's been beat up pretty bad lately," a trader said, referring to recent sharp falls in wheat futures to 6-1/2 month lows on bearish official stocks data.

Part of the strength in CBOT soft red winter wheat came from strong gains in Minneapolis spring wheat futures.

Last Friday, trade sources said industry consultant Sparks Cos. forecast that farmers will sow 14.772 million acres with spring wheat this year in the United States, down from 15.714 million in 2002.

Traders and analysts said farmers saw better financial returns from other crops such as barley and soybeans.

CBOT March wheat ended 2-1/2 cents higher at $3.19-1/4 per bushel. March corn rose 1-1/4 cents to $2.33-3/4, while March soybeans finished unchanged at $5.56 per bushel.

CSCE cocoa futures were mixed, with industry selling capping gains. The market remained focused on peace talks between rebels and the Ivory Coast government in Paris.

The negotiations continued this week at trying to bring a resolution to a bloody war since a failed coup Sept. 19. U.N. Secretary-General Kofi Annan plans to attend the Paris summit, a U.N. spokesman said.

Even as the talks were progressing, Ivory Coast's army said it had repulsed an attack by Liberia a day after Liberia said it had been attacked by Ivory Coast.

Liberians have been fighting on both sides of the four-month war in Ivory Coast.

CSCE March cocoa ended $4 higher at $2,155 per tonne. COMEX gold futures were higher as U.S. equities and the dollar slumped, and amid Bush's tough talk on Iraq.

"Gold is going to react to any type of announcement that can impact the Iraqi situation. The comments from Bush today are certainly inflammatory," said Jim Pogoda, a trader at Mitsubishi International Corp. in New York.

Gold is about 25 percent higher than a year ago, making it one of the best-performing financial assets. Last week COMEX futures hit a six-year high.

The dollar fell to its weakest level in more than three years against the euro on Tuesday on the Iraqi tension. The dollar's dip made gold more affordable to overseas buyers.

COMEX February gold ended 70 cents higher at $357.5 an ounce.