World oil prices plummet - Slide comes amid delay of UN vote on Iraq action

www.boston.com By Reuters, 3/14/2003

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.

US light crude dropped $1.82, or 4.8 percent, to $36.01 a barrel. London benchmark Brent crude oil slid $1.44 to $32.47 a barrel.

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

A report that Japan, Asia's largest oil consumer, plans to sell 300,000 barrels per day from its emergency petroleum reserves if US-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. US 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 - a sign that Washington fears it may not get enough support at the international body.

A German government source said that a compromise on an Iraq proposal was unlikely, even if a vote in the UN 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 for soaring prices came from an end to freezing US temperatures which have supported heating oil prices at near record levels in recent weeks.

Prices had jumped on Wednesday as a fall in US stocks combined with worries that oil cartel OPEC would not be able to compensate for lost Iraqi exports in event of war.

Latest US data showed crude inventories at a 27-year low. There were also sharp drops in gasoline inventories, which ought to be growing as stockbuilding starts for 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 Organization of the Petroleum Exporting Countries has stepped up output this year to cover an outage 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 percent of U.S. oil imports, has increased shipments of crude and oil products though rebel oil workers say production is still less than half of normal levels.

Analysts say timing is now key for the war because oil demand is generally 2 million barrels lower in the second quarter of the year as spring advances and the loss of Iraqi crude would not be as acutely felt. The West's energy watchdog, the International Energy Agency, says the OPEC cartel likely lacks enough capacity to compensate immediately for the loss of Iraqi and Kuwaiti oil.

OPEC, however, has pledged to guarantee supplies should war break out and Saudi oil minister Ali al-Naimi reiterated yesterday OPEC's ability to deliver oil in case of war in Iraq.

Nihon Kezai Shibun reported yesterday that Japan will consider releasing oil with the United States, regardless of what the IEA advises. Japan and the United States are members of the 26-nation IEA, the energy watchdog for industrialized nations that is based in Paris.

The IEA has said that it will allow OPEC to try to cover any shortages in war before it considers, as a last resort, releasing inventories from emergency stockpiles held in consumer nations.

Those reserves, built after the 1974 Arab oil embargo, were last used in the 1990-91 Gulf War after Iraq's invasion of Kuwait.