Oil traders switch to concern on oversupply

news.ft.com By Kevin Morrison in London and agencies Published: March 18 2003 23:06 | Last Updated: March 18 2003 23:06

Oil prices extended their slide on Tuesday, falling more than $2, and have now dropped more than 10 per cent in the past four days.

Traders said they could fall by the same margin before the weekend and have turned from fearing about prices exceeding $40 due to a war in Iraq and supply shortages to concern about oversupply as demand eases and Saudi Arabia and other Opec members boost production.

Reports that oil supplies from Venezuela were coming back stronger than expected following the almost crippling three-month strike that began late last year also eased supply concern.

Nymex light sweet crude settled $3.26 to $31.67 by the close in New York , having traded as low as $31.40, lowest since January 13, and it peaked at $33.40.

The front month Nymex contract has fallen 13 per cent in the last four trading sessions and traders expect the price could fall by the same margin during the rest of the week.

In London, IPE Brent or May delivery fell almost $3 to its lowest in three months before partly recovering to $27.25 a barrel, a drop of $2.23 by the close. The front month Brent contract has dropped 20 per cent since hitting a post Gulf War peak of $34.55 nine days ago.

"Technically, we have broken any bullish trend in the oil price, we have now entered a bear market and we are not going to find any support until the price falls to the low $20s," said one London-based trader. "Nobody wants to catch a falling knife, otherwise we would have seen a lot of people with missing fingers."

The swiftness of the market turnround has caught many investors by surprise, with several traders holding long positions.

"We have seen a massive unwinding of long positions over the last few days with some investors taking big hits," he said.

Spot gold gained about $3 to $339.50/$340.25 an ounce from $336.75/$337.50 at Monday's New York close as the precious metal gained as the US dollar slipped from its strong gains on Monday.

Base metals traded in a narrow range as concerns switched from the uncertainty about a Middle East conflict to the bearish outlook for the global economy.

Three-month copper was up about $5 to $1,686 a tonne in London Metal Exchange trading, while aluminium slipped by $4 to $1,383 a tonne and nickel added $100 to $8,210. Traders said that nickel's outperformance was due to concern about low stockpiles.