Energy Futures Surge on Concern Over Iraqi Oil Fields

www.smartmoney.com January 24, 2003

NEW YORK -- Crude-oil and petroleum-products futures rallied Friday on fears that Saddam Hussein might destroy Iraqi oil fields in the event of a U.S.-led attack.

At the New York Mercantile Exchange, crude set for March delivery jumped $1.03 to settle at $33.28 a barrel. February heating oil rose 3.49 cents to 95.02 cents a gallon. February gasoline was up 2.44 cents to 92.25 cents a gallon.

At London's International Petroleum Exchange, March Brent rose 77 cents to close at $30.49 a barrel. February gasoil climbed $6.25 to $262 a metric ton.

A senior U.S. military official said the U.S. has learned through intelligence sources that Iraq will try to damage or destroy its oil fields if it is attacked.

The U.S. has developed plans to seize control of the oil fields as soon as fighting begins, and before Iraq can blow them up, the official said.

Reports that the Iraqi leader may be planning to blow up oil fields in his country have been floating around for weeks. But the likelihood that Iraq may have already wired some of the fields heightened worries about the future of Iraqi oil supplies, analysts said.

"It's a pretty critical concept," said Bernard Deverin, principal of American Commodities Trading, based in Westport, Conn. "If this in fact does come to pass, it could easily take a million or so barrels off the market."

Iraq is the fourth-largest producer among the members of the Organization of Petroleum Exporting Countries. Iraq's crude output, recovering from a slump last year, jumped to 2.5 million barrels a day in January, according to Petrologistics, a Geneva-based tanker tracker.

The disclosure that Iraq may have plans to damage its oil fields comes as the administration of President Bush steps up preparation for a possible attack despite growing international opposition to war.

U.S. officials have threatened Iraq with military action if it doesn't destroy its weapons of mass destruction.

Iraq says it has no such weapons, and United Nations inspectors working in Iraq have yet to turn up evidence that the Iraqi regime is in possession of banned arms. While inspectors have questioned Iraq's claims of innocence, they have also called for more time to carry out their work.

President Bush and his senior aides said earlier this week that time is running out for Mr. Hussein, suggesting that war has become increasingly likely.

Concern about Iraqi oil supplies comes at a time when Venezuela, another major OPEC producer, remains largely off the market. A strike that began in early December has severely disrupted Venezuela's oil industry.

In recent days, the government of President Hugo Chavez has managed to restore some oil operations. Nevertheless, oil prices are likely to remain high as long as the threat of a U.S. attack on Iraq remains, analysts said.

Separately, the Nymex February natural gas futures contract gained 6.6 cents to $5.524 per million British thermal units.

METALS: February gold on the Comex division of Nymex rose $3.70 to $368.40, while March silver was up 10 cents to $4.885 an ounce.

GRAINS: March oats lost four cents to $2.0425 a bushel at the Chicago Board of Trade. March wheat rose 6.75 cents to $3.185 a bushel.

(END) Dow Jones Newswires

01-24-03 1615ET