Oil prices give up even more ground
www.chron.com March 19, 2003, 4:13PM Reuters News Service
LONDON - World oil prices fell again today, deepening a five-day rout that has knocked 21 percent off the cost of a barrel as dealers brace for an impending U.S. invasion of Iraq.
Prices have tumbled $8 in the last five trading days as dealers bet hard on an easy U.S.-led victory in military action they expect to cause only a brief disruption to Middle East oil flows.
U.S. crude futures for May delivery dropped 69 cents, or 2.3 percent, to $29.36, following Tuesday's nine-percent drop. The April contract, which saw only thin volumes ahead of its expiry Thursday, fell $1.79 to $29.88, the lowest level since early January.
International benchmark Brent crude oil dropped 50 cents, or 1.8 percent, to $26.75 a barrel in London, hitting a 3-month low.
"Prices have behaved as they would do after a very quick war, involving no destruction of oil infrastructure and fairly immediate post-war post-war political stability both inside Iraq and elsewhere," said Paul Horsnell of J.P. Morgan bank in a report.
The U.S. deadline for Iraqi President Saddam Hussein to quit Baghdad or face war stands at 8:00 p.m. EST Wednesday , but Saddam has already rejected the ultimatum.
All international U.N. staff, including weapons inspectors, have been evacuated from Iraq. Kuwaiti sources said U.S.-led troops had already moved into the demilitarized zone that straddles the border with Iraq.
Fears of a strike on Iraq and wider disruptions to Gulf supplies drove U.S. crude close to $40 last month, approaching the $41.15 record set in the buildup to the 1991 Gulf War.
During that war, prices dropped from over $30 to $20 when U.S.-led forces launched an offensive to expel Iraq from Kuwait, once it became clear Iraq would not harm oilfields in Saudi Arabia, the world's top exporter.
Dealers said the five days of falls had removed some of the "fear premium" in oil prices. Saudi Oil Minister Ali al-Naimi said in an interview published Wednesday it could be as large as $10.
"The fall indicates the market is looking beyond war. People are not expecting Saddam to have a scorched-earth policy," said Han-Pin Hsi at Deutsche Bank in Hong Kong.
Prices could easily spike back up if Iraq torches its own oilfields, or the conflict is drawn out.
An invasion will almost certainly close Iraqi crude output of 2.5 million barrels per day (bpd) and its southern neighbor, Kuwait may also be forced to shut some fields near its border.
Oil giant Royal Dutch/Shell said Wednesday it had closed an oilfield in Iran, close to the Iraqi border, because of its proximity to the potential conflict zone.
"The fall occurred before the start of war, and oil traders have no inside track on the war and its implications," said J.P. Morgan's Horsnell.
"Prices have been moved by a speculative bet of staggering proportions," he added.
IRAQ EXPORTS SLOW
Iraqi oil exports, ranked seventh largest in the world, have already slowed dramatically this week because most Western companies are unwilling to take the risk on uncertain supplies.
The president of OPEC spoke to the West's energy watchdog, the International Energy Agency, and told it the cartel would do its best to fill any supply gap caused by war.
Many members have already increased supplies to their full capacity and analysts believe any prolonged outage of Iraqi supply, with some impact on Kuwait, would test the group's spare capacity to the limit.
A cold northern winter and prolonged supply hitch from Venezuela have already drained commercial stockpiles to historic lows in the world's top oil consumer, the United States.
The United States is ready to release oil from its strategic reserves to prevent a severe supply interruption, but only as a last resort if OPEC producers are unable to overcome the shortage.
The U.S. Energy Department said Wednesday a halt in Iraq's oil exports would not automatically trigger a release of the U.S. Strategic Petroleum Reserve.
The spokesman said no decision was "imminent" on whether to release oil from the stockpile. Any decision would probably be taken in tandem with the International Energy Agency, which monitors government oil stocks in 26 industrialized nations.
These stocks, added to reserves held by industry, could cover those countries' total import needs for 114 days.