Prices could easily drop another $5 (U.S.) a barrel in the coming weeks.
www.thestar.com Mar. 18, 2003. 05:52 PM
NEW YORK (AP) — The price of oil plunged 9 per cent today, to its lowest level since early January, as traders bet the impending U.S.-led invasion of Iraq will go smoothly and that global stockpiles are sufficient to offset any supply disruptions.
The April futures contract fell $3.26 to $31.67 (U.S.) a barrel on the New York Mercantile Exchange, the lowest close since Jan. 8. The price of crude, which hit a 12-year high of $37.83 (U.S.) last Wednesday, has since fallen 16 per cent.
However, with U.S. supplies low and uncertainty in the Middle East high, traders said petroleum prices likely will remain volatile in the short term.
"This thing could go right back up," said Tom Bentz, an analyst at BNP Paribas in New York. "We're still vulnerable because inventories are tight."
The most recent data from the U.S. Energy Department showed commercial stockpiles of crude at 269.8 million barrels, 18 per cent below year-ago levels.
Supplies have dwindled as a result of high demand for heating oil in the northeastern United States, which has endured an especially cold winter, and fewer imports from Venezuela because of a prolonged nationwide strike.
Yet Bentz and other traders mostly expressed confidence today that the loss of Iraqi crude due to war could be made up elsewhere and that the U.S. government will tap its own 600 million barrel stockpile in an emergency.
European countries have their own stockpiles that could help make up for any supply shortages resulting from war, which is expected to begin as early as Wednesday night.
Furthermore, industry watchers said OPEC producers — with the exception of Iraq and Venezuela — are pumping over their quotas to take advantage of high prices. That extra supply could hit the market just as demand for gasoline, heating oil and other fuels drops to seasonal lows.
"There's quite a bit of oil in vessels and it's now beginning to hit the consuming areas," said Leo Drollas, chief economist of the London-based Centre for Global Energy Studies.
Saudi Arabia may have as much as 50 million barrels in storage or en route to markets, he said.
The United States consumes roughly 19.5 million barrels of crude a day and more than half of that is imported — much of it from neighbouring Canada and Mexico, as well as the Persian Gulf region and other areas of the world.
Fadel Gheit, senior oil analyst at Fahnestock & Co. in New York, said traders are coming to the conclusion that the world has enough oil to meet demand, even assuming that Iraq's daily production of two million barrels is taken out of the equation.
Venezuela, whose oil industry was all but shut down earlier in the year because of a nationwide strike, is now producing enough oil to make up for an Iraqi shortfall, Gheit said.
And Saudi Arabia has increased its production by one million barrels a day to more than nine million barrels a day, Gheit said.
"We have plenty of oil," he said. "This war premium has to come out of the price."
The biggest fear in the market is that oil facilities in other Middle Eastern countries, such as Iraq's neighbours Kuwait or Saudi Arabia, could be attacked — a scenario that would cause oil prices to shoot higher, Gheit said.
Short of that, he said prices could easily drop another $5 (U.S.) a barrel in the coming weeks.
Tuesday's decline in oil prices also drove down wholesale prices for gasoline and heating oil. Heating oil for April delivery fell 5.79 cents to close at 85.78 cents a barrel, while gasoline futures dropped 6.52 cents to close at 96.19 cents a gallon.
On London's International Petroleum Exchange, Brent crude from the North Sea closed at $27.75 (U.S.) per barrel, down $2.23.