Oil prices drop 9% on hints of fast war

www.boston.com By Associated Press, 3/19/2003

NEW YORK -- The price of oil plunged 9 percent yesterday, falling to its lowest level in more than two months as traders bet that the impending United States invasion of Iraq will go smoothly and that global stockpiles of crude are sufficient to offset any supply disruptions.

The April futures contract fell $3.26 to $31.67 a barrel on the New York Mercantile Exchange, the lowest close since Jan. 8.

However, with US 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 Energy Department data showed commercial stockpiles of crude at 269.8 million barrels, 18 percent below year-ago levels. Supplies have dwindled as a result of high demand for heating oil in the Northeast and fewer imports from Venezuela, whose oil industry was crippled for months by a nationwide strike.

Yet Bentz and other traders expressed confidence yesterday that the loss of Iraqi crude could be made up elsewhere and that the US government will tap its own 600 million-barrel stockpile, the Strategic Petroleum Reserve, in the event of a supply emergency. European nations have their own stockpiles that could help make up for any supply shortages resulting from war, which could begin as early as tonight.

Furthermore, industry watchers said OPEC producers -- with the exception of Iraq and Venezuela -- all are pumping over their quotas, eager to take advantage of the 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 Center for Global Energy Studies. He said Saudi Arabia may have as much as 50 million barrels in storage or en route to markets.

The United States consumes roughly 19.5 million barrels of crude a day and more than half of that is imported. 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 2 million barrels is taken out of the equation.

Yesterday'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.