Oil falls on huge Saudi shipment
www.nj.com Saturday, March 15, 2003 BY BRUCE STANLEY Associated Press
LONDON -- Crude oil prices fell yesterday on reports that Saudi Arabia's state-run oil company, Saudi Aramco, had chartered supertankers to carry an exceptionally large shipment of crude -- 28 million barrels -- to the United States.
April contracts of U.S. light, sweet crude tumbled by more than $2 a barrel in New York before rebounding somewhat to close at $35.38, down 63 cents. In London, North Sea Brent crude futures settled down $1.05, at $31.38.
Analysts say fears of a wartime disruption in supply have swollen crude prices by at least $5 a barrel. This so-called war premium has increased along with tensions in the Persian Gulf because markets worry that hostilities with Iraq will paralyze its daily 2 million barrel production.
Although prices might rise in the last hours before any actual outbreak of hostilities, several analysts predicted that an attack on Iraq would knock the floor out from beneath the market -- just as it did when coalition forces launched Operation Desert Storm on Jan. 16, 1991.
"History would suggest that oil prices would go down fairly rapidly, maybe $5 to 7 a barrel, probably within one day," said Angus McPhail, an analyst at ING Financial Markets in Scotland.
He thinks markets will be awash in crude after a swift war, particularly if Venezuela continues to recover from an oil industry strike and other OPEC members keep producing more than their output quotas. For the second half of the year, ING Financial Markets foresees an average Brent crude price of $18.50 a barrel.
"We are adamant that oil prices will fall," McPhail said.
Matthew Cordaro, an energy specialist at Long Island University argued U.S. crude prices would fall to $25 to 28 a barrel within a couple of days of the start of a war.
Prices might fall by an additional $2 a barrel beyond that, Cordaro said, if President Bush authorizes a release of crude from the U.S. Strategic Petroleum Reserve.
Energy Secretary Spencer Abraham has repeatedly emphasized that the United States will tap into its 600 million barrels of strategic reserves only if it sees a serious disruption in crude supplies. A short war that didn't impair Iraq's ability to soon resume exporting oil would probably not warrant a release of the strategic reserves oil, Cordaro said.
The first line of defense for importing countries in the event of a war would be an increase in OPEC production. OPEC this week estimated its spare production capacity up to 4 million barrels a day, but the International Energy Agency said that OPEC might not be able to raise output quickly by more than 1 million barrels. The agency is the energy watchdog for major consuming countries.