Oil Prices Drop on Smooth-War Forecast

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The price of oil plunged 9 percent Tuesday, falling to its lowest level in more than two months as traders bet that the impending U.S. 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 Tuesday on the New York Mercantile Exchange, the lowest close since Jan. 8. 
However, with U.S. supplies low and uncertainty in the Middle East high, traders said petroleum prices probably 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." 
Disaster scenarios suggest an economic recession if the war drags on and Iraq's immense oil fields are set on fire, reducing the volume of oil on world energy markets. 
Most forecasts, however, take a milder position. They predict the price of crude oil could surge briefly into the mid-$40s range as war begins. 
Pump prices gradually would fall in a short war, experts say, as long as Iraqi oil still flows and Persian Gulf oil ports stay free of disruptions by terrorists. 
"You'll have a spike in the price over the first couple of days. But if we have Bush's rosy scenario, the price will come down 10 or 15 cents a gallon fairly soon," said Dennis O'Brien, director of the Institute for Energy Economics and Policy at the University of Oklahoma. 
What is more worrisome than $45 per barrel of oil is the prospect of a prolonged war that erodes the confidence of Americans. Consumers have kept the economy rolling for two years, for example, in large part by buying new cars and trucks at a rate of about 16.8 million vehicles annually, keeping automakers busy and autoworkers employed. 
"If it turns into a quagmire in Iraq, it'll play havoc on consumer confidence and business confidence," said economist Bob Schnorbus, an auto-industry analyst in the Detroit office of the research firm J.D. Power and Associates. 
Schnorbus predicts auto sales will rebound and the industry will wind up with respectable sales of 16.4 million vehicles this year. But the forecast assumes a short and successful war. "If that doesn't happen," Schnorbus said, "the risk of going into another recession is real." 
While consumers brace for what may come, they already have seen a rapid rise in gasoline prices since last year, when crude prices dipped to less than $20 a barrel. 
Analysts contend the rise in pump prices has less to do with uncertainty over Iraq than with the weather. "You have a bunch