Oil prices at highest since the Gulf war

news.ft.com By Carola Hoyos, Energy Correspondent Published: February 27 2003 1:18 | Last Updated: February 27 2003 1:18

Crude oil prices on Wednesday jumped to their highest level since the Gulf war as US commercial supplies dropped to the minimum level needed to maintain proper operations at refineries, storage facilities and pipelines.

The US Department of Energy revealed on Wednesday that US crude stocks fell 1m barrels to 271.9m barrels last week.

Supplies of heating oil fell 3.9m barrels to 36.1m barrels, 33 per cent below last year's levels, because of increased demand for heating oil due to cold weather in the north-eastern US.

In response, Nymex crude for April delivery surged $1.87, reaching $37.93, the highest since October 1990 when prices jumped to $41.15 a barrel following Iraq's invasion of Kuwait.

Nymex settled the day at $37.70 a barrel, up $1.64, while the London Brent benchmark gained 75 cents to $33.07 a barrel.

The rally was fueled by bullish news from Washington that made war in Iraq appear increasingly inevitable. President George W. Bush was on Wednesday expected to say that overthrowing Saddam Hussein would have a ripple effect in the Middle East and facilitate peace between Israel and the Palestinians.

US military action would almost certainly halt Iraq's 2m barrels per day of oil exports, adding to the void left by the slow recovery of Venezuela's exports following the country's debilitating general strike.

Nations in the Organisation of Petroleum Exporting Countries are already pumping extra crude oil, causing concern among traders that the world's spare capacity - mainly held by Saudi Arabia - has shrunk to only 1.5m barrels per day.

The most important weapon against a price spike in case of war is the stockpile of more than 1bn barrels of oil held by the US and other industrialised countries. Analyst expect governments to release 1m-2m barrels per day of their oil reserves as soon as war becomes apparent.