Crude climbs on war fears

www.globeandmail.com Bloomberg News Thursday, January 30, 2003 – Page B22

Crude oil rose almost 3 per cent yesterday as U.S. inventories fell and U.S. President George W. Bush signalled that he was moving closer to an attack on Iraq.

Mr. Bush said yesterday that Iraq's ties to terrorists make it a danger, and said "the full force and might" of the U.S. military was available to disarm the country. An attack would threaten oil from the Persian Gulf, which accounts for almost a fourth of U.S. imports. The Energy Department said U.S. supplies were down 14 per cent from a year ago after falling last week.

"Prices will soar the moment it's clear an invasion is imminent," said Marshall Steeves, an analyst with Refco Group Ltd. in New York. "They could easily pass $40 [U.S.] a barrel. Once it's clear that the U.S. is about to take the oil fields, there will be a major collapse."

Oil has rallied 23 per cent during the past two months on concern that there might be a war in Iraq and as a strike in Venezuela disrupted exports.

The surge in crude oil yesterday helped pull gasoline futures to a 20-month high and heating oil to the highest price in two years.

Natural gas futures rose 4 per cent after freezing U.S. temperatures boosted heating demand in the past two weeks, shrinking fuel supplies that were already down from last year.

Analysts estimated that gas inventories fell 12 per cent last week after declining 9.6 per cent the previous week. That would be the largest single-week decline in three years and leave supplies down 27 per cent from last year, raising concern that production this year won't be enough to build supplies sufficiently before next winter.

"The trading community is looking for a very large drop" in stored supplies, said Joe Terranova, director of trading for MBF Clearing Corp. in New York. "It's much larger than you've seen in years past. It's suggesting that the demand is far greater, and supply is slightly less than what it needs to be to meet the demand."