Oil prices fall further as Iraq scraps missiles

www.forbes.com Reuters, 03.03.03, 2:57 AM ET

SINGAPORE, March 3 (Reuters) - Oil prices fell again on Monday as the timetable for a war in Iraq appeared to get pushed back with Baghdad complying with U.N. demands to destroy illegal missiles, while Turkey rejected hosting U.S. troops on its soil. U.S. light crude fell 50 cents to $36.10 a barrel, extending Friday's 60-cent loss in New York. "The pendulum of market sentiment appears to be focused on a delay to a military strike, which will erode the war premium," said Sydney-based independent oil analyst Simon Games-Thomas. "Without the war factor and against a backdrop of low inventory and the loss of Venezuelan production, a fair value for crude is somewhere in the region of $30-$32." Crude has fallen sharply after briefly touching $39.99 on February 27, which was just short of a $41.15 record struck in October 1990 in the build up to the Gulf War. Washington's continued talk of an invasion to disarm Iraq of weapons of mass destruction and wafer-thin winter heating fuel stocks in the United States as temperatures remain unseasonally low bolstered prices to 12-year highs last week. But Iraq's compliance to destroy its al-Samoud 2 missiles as ordered by chief U.N. weapons inspector Hans Blix and calls from France and Russia for a peaceful solution to the crisis have taken some of the steam out of the prospects for imminent war. Last week analysts pegged the so-called war premium at between $2 and $6 a barrel, with traders fearing an attack on Iraq, the world's eighth biggest oil exporter, could disrupt crude supplies from other Middle East producers. OPEC President Abdullah al-Attiyah said on Monday that oil prices were currently carrying a war premium of about $5. Attiyah, also Qatari oil minister, said the producers' cartel would suspend its oil output limits if a war were to halt Iraqi exports, which are roughly two million barrels per day. Asked in an interview on BBC television if OPEC would remove its production ceiling if a U.S.-led attack were to disrupt Iraqi oil supplies, Attiyah said: "Yes. If there is a shortage and the world needs more oil, we will do it...We will pump maximum capacity if the market needs it." The Organisation of the Petroleum Exporting Countries is expected at a March 11 meeting to establish a war contingency plan that would suspend limits once hostilities start. Kuwait was swift to lend its support to a temporary suspension of the group's ceiling -- lifted twice already this year to 24.5 million bpd to cover a shortfall from strike-bound member Venezuela. "Whatever OPEC will decide, Kuwait will cooperate," Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah told Reuters.

TURKEY REJECTION Turkey's parliament threw a spanner in U.S. war plans and narrowly voted at the weekend against allowing the deployment of U.S. troops on Turkish soil, from which Washington hoped to open a northern front against Iraq in any war. The United States had offered Ankara up to $30 billion in grants and loan guarantees to shore up its frail economy for the deployment of U.S. troops. Turkish leader Tayyip Erdogan said on Sunday the government would review its options and did not rule out a second attempt to win permission from parliament. Iraq scrapped two batches of its al-Samoud 2 missiles at the weekend and opened talks on VX nerve gas and anthrax stocks it said it had destroyed. The United States has accused Baghdad of playing a "game of deception" and hiding banned weapons.