Crude Oil Futures End Lower on War Fears

www.heraldtribune.com The Associated Press

Crude oil futures ended lower Thursday after soaring to a 12-year high, as early panic buying sparked by concerns over tight supplies and a looming war with Iraq gave way to panic selling. "A lot of it was profit taking," said Bill O'Grady, an energy analyst at A.G. Edwards in St. Louis. "It highlights the extreme uncertainty in the market." At the New York Mercantile Exchange, front-month April crude oil futures climbed as much as $2 to $39.99 a barrel, the highest level since October 1990, when prices set a record high of $41.15 after Iraq's invasion of Kuwait. The contract settled at $37.20 a barrel, down 50 cents. March heating oil futures ended down 0.06 cent at $1.1543 a gallon, while March gasoline settled at $1.0188 a gallon, down 0.03 cent. March heating oil and gasoline futures expire Friday, the last trading day of the month. On London's International Petroleum Exchange, the volatility was less extreme. April Brent ended down three cents at $33.04 a barrel. Natural gas for March delivery rose 9.5 cents to settle at $7.485 per 1,000 cubic feet. O'Grady said that crude is likely to recover Friday as traders cover short positions ahead of the weekend. "I cannot imagine anyone carrying shorts over the weekend," he said. "We'll probably see the market do better going into tomorrow's close." The early gains came amid concerns over tight U.S. crude inventories - now at their lowest level since 1975 thanks to cold weather and a strike in Venezuela - and growing jitters over a possible U.S.-led attack on Iraq, traders said. President Bush's tough speech on Iraq Wednesday night, along with indications that the United States might win U.N. approval for a second resolution on Iraq, heightened fears that a war on Iraq may be inevitable. But while worries about an Iraq war continue to support prices, bears found some support in a report that indicated Iraq may consider destroying its Al Samoud missiles to try to avert an attack. Iraqi officials had no comment on the issue, but Egypt's Middle East News Agency quoted unidentified sources in Baghdad as saying the step was intended to deprive Washington of an excuse to attack. Chief weapons inspector Hans Blix sent his top deputy to Baghdad, saying the envoy would be discussing with the Iraqis "the pace of the destruction " of the Al Samoud 2. There was also concern that prices have reached an unsustainably high level, which could prompt the White House to tap the nation's Strategic Petroleum Reserve. The Bush administration has so far resisted calls for a release of oil from the SPR, saying the reserve, which holds 600 million barrels of crude oil in salt along the Gulf Coast, is designed to be used in case of war or severe supply disruptions. Analysts say the White House is likely to order a release when a war begins. Secretary of Energy Spencer Abraham said earlier this week the U.S. would act quickly to offset any supply disruption caused by a war. Traders worry that an attack on Iraq would disrupt the country's oil exports and could potentially spill over to halt oil exports from other Persian Gulf countries. Analysts say that the release of oil from the emergency reserve coupled with a smooth victory in Iraq could lead to a sharp decline in oil prices, much as during the last Persian Gulf War.

Last modified: February 27. 2003 6:48PM