Oil surges as war appears near
Breakdown of U.N. talks, imminent military action sparks trader buying; London halted by protests. March 17, 2003: 10:42 AM EST
NEW YORK (Reuters) - NYMEX crude oil futures rose $1 early Monday as the United States, Britain and Spain ended diplomatic efforts to win U.N. approval for an ultimatum to Iraq to disarm or face war.
That, analysts said, now clears the way for the three nations to launch a war without a vote in the Security Council.
At 10:18 a.m. EST (1518 GMT), NYMEX April crude was up 82 cents at $36.20 a barrel, near an early high of $36.40. It ended overnight ACCESS trade up 57 cents at $35.95.
On Friday, the contract ended at 63 cents lower at $35.38, adding to a $2.50 loss in two days as traders speculated that a war in Iraq would be short.
The NYMEX open outcry session opened normally, unaffected by an interruption in trading on the International Petroleum Exchange in London by anti-war protesters.
Before the interruption, May Brent crude, debuting in the front-month spot, traded 32 cents higher at $30.45 a barrel.
IPE trading was to resume at 11 a.m. EST (1600 GMT), London dealers said.
Prices rose overnight on fears that Iraq oil exports, currently at 1.7 million barrels per day (bpd), would stop once U.N. arms inspectors were pulled out of Iraq.
Just as the market opened, U.S. Rep. Bill Tauzin, R-La., said the U.S. Strategic Petroleum Reserve (SPR) had been switched to "flow mode" and was prepared to be put in the market if ordered by President Bush. That nipped the market's budding rally.
Iraqi President Saddam Hussein said early Monday that while Iraq had weapons of mass destruction in the past, it no longer had them.
The U.S. has vowed to lead a coalition to disarm Saddam, who it accuses of violating U.N. disarmament resolutions, with or without U.N. support. Bush will address the nation at 8 a.m. ET, and is expected to say Saddam has a limited time to leave Iraq in order to avoid war.
"Although last-minute diplomacy will be a feature today, the market is factoring in at least a 95 percent possibility of military action and will begin attempting to discount the war's impact on oil field damage in the early stages of a conflict," said Jim Ritterbusch, energy market analyst and president of Ritterbusch & Associates in Illinois.
Nevertheless, Ritterbusch said "despite some minor chart damage, the April (crude) contract's quick rebound keeps the bullish case alive," keeping in mind the approach of a war and Thursday's April contract expiration.
Iraq's oil exports under the U.N. oil-for-food program, currently averaging about 1.7 million bpd, will halt when U.N. inspectors are pulled out of the country, U.N. officials said Monday.
The two top U.N. arms inspectors are expected to advise the U.N. Security Council on Monday that their inspection teams should be pulled out of Iraq within 24 hours, the officials said.
All U.N. staff will be evacuated once the order is given by U.N. Secretary-General Kofi Annan, including weapons inspectors and oil-for-food monitors handling humanitarian goods and oil export programs, the officials said.
International Atomic Energy Agency chief Mohamed El Baradei said he had been advised by the United States that U.N. weapons inspectors should be withdrawn from Iraq.
The impetus to remove inspectors followed an ultimatum from Bush on Sunday that the world body had just one more day to give its blessing to a resolution sanctioning the use of force to rid Iraq of suspected weapons of mass destruction.
The divided Security Council had been expected to begin consultations at 10 a.m. (1500 GMT) Monday in New York.
NYMEX April heating oil futures were up 1.53 cents at 95.60 cents a gallon, after ending ACCESS trade 0.93 cent higher at 95.00 cents.
NYMEX April gasoline futures were 2.01 cents higher at $1.0605 a gallon, after ending overnight trade higher at $1.0535.
Late Sunday, the U.S. State Department said it had ordered non-essential diplomats and all embassy dependents out of Kuwait, Israel and Syria because of the threat of war. The notice mirrored U.S. precautions before the 1991 Gulf War.
Iraq denies possessing weapons of mass destruction and President Saddam Hussein vowed that Iraq would fight back "anywhere in the world" if invaded.
The Organization of the Petroleum Exporting Countries (OPEC) has pledged that it will fill any shortfall in supplies if war disrupts oil flows.
Kuwait, Iraq's southern neighbor and the main launching pad for any military strike, said a U.S.-led war in Iraq was probably not more than 10 days away.