Price of oil plummets 4.8 per cent in New York - U.N. wrangling delays path to war U.S. winter thaw eases supply fears

www.thestar.com Mar. 14, 2003. 01:00 AM RICHARD VALDMANIS REUTERS NEWS AGENCY

NEW YORK—World oil prices plunged yesterday as wrangling at the United Nations further delayed a vote on a new resolution that could pave the way to war with Iraq.

U.S. light, sweet crude dropped $1.82 (U.S.), or 4.8 per cent, to $36.01 a barrel in New York. London's benchmark Brent crude oil slid $1.44 to $32.47.

Oil prices are still up roughly 12 per cent this year, underpinned by concerns that a war in Iraq, which ships around 4 per cent of world oil exports, could upset supplies from other producers in the Middle East.

A report that Japan, Asia's largest oil consumer, may sell 300,000 barrels per day from its emergency petroleum reserves if U.S.-led forces invade Iraq added to the day's slide, oil dealers said.

Prices slumped after the White House said diplomatic efforts to secure a consensus at the United Nations on a new resolution on Iraq could spill over into next week.

U.S. Secretary of State Colin Powell told a congressional committee there may be no vote at all on the resolution, widely seen as a war trigger. Some see that as a sign Washington fears it may not get enough support at the international body to lead a war against Iraq.

A German government source said in an interview that a compromise on an Iraq proposal was unlikely, even if a vote in the U.N. security council is put off until next week. France has threatened to veto any resolution that would call for military force, and China, Russia and Germany have all expressed opposition.

Further relief from soaring oil prices came from an end to freezing U.S. temperatures that have supported heating oil prices at near-record levels in recent weeks.

Prices had jumped on Wednesday as a fall in U.S. stocks combined with worries that the Organization of Petroleum Exporting Countries would not be able to compensate for lost Iraqi exports in event of war.

The latest U.S. data showed crude inventories at a 27-year low. Sharp drops also hit gasoline inventories, which ought to be growing to accommodate the summer driving season. Analysts say core oil stocks are now 89 million barrels below normal.

"Given the reported ramping of OPEC production and the continued recovery of Venezuelan production, the shortfall is shocking," SG Securities said in a research note.

The OPEC cartel has stepped up output this year to cover the lack of crude from Venezuela, where an anti-government strike brought production to little more than a trickle in December and January.

Venezuela, normally the fifth-biggest exporter, providing about 13 per cent of U.S. oil imports, has since increased shipments of crude and oil products, although rebel oil workers say production is still less than half of normal amounts.

Analysts say timing is now key for a war in Iraq because oil demand is generally 2 million barrels a day lower in the second quarter of the year as spring advances, and the loss of Iraqi crude would not be as acutely felt.

The International Energy Agency, a Paris-based energy watchdog for industrialized countries, has said OPEC probably doesn't have enough production capacity to compensate immediately for the loss of Iraqi and Kuwaiti oil.

OPEC, however, has pledged to guarantee supplies if war breaks out.

Saudi Oil Minister Ali al-Naimi reiterated yesterday that OPEC can deliver more oil in case of war in Iraq.

The Nihon Kezai daily newspaper reported yesterday that Japan will consider releasing oil from emergency reserves with the United States.