Oil prices drop to 3-month lows. TRADING VOLATILE IN MARKET'S 6TH STRAIGHT DECLINE

www.bayarea.com Posted on Fri, Mar. 21, 2003 By Christina Hoag Knight Ridder

As the United States intensified its military assault on Iraq on Thursday, crude oil prices tumbled again to three-month lows in a day of price swings sparked by reports of oil well fires.

Crude oil futures sank for the sixth consecutive trading session, to $28.80 per barrel, a slide of $1.08 from Wednesday.

But during the day, prices swung between a high of $30.60 and a low of $28, volatility caused by U.S. military reports that three or four oil wells in the southern Iraqi field of Rumaila were ablaze.

The market is pricing based on a best-case scenario of a pristine military operation by U.S.-led forces,'' said John Kilduff, energy-risk management analyst at Fimat USA. But the volatility is incredible.''

Experts warned that although the market still anticipates a quick victory for the U.S.-led coalition, oil field sabotage and shipping lane disruption could easily cause prices to skyrocket. Because of that, motorists will see no immediate relief at the gasoline pump.

Gasoline prices remain at near record levels.

Looking better

Things are looking a lot better,'' said Lawrence J. Goldstein, president of the Petroleum Research Industry Foundation. The market is sensing that and we're seeing a reduction in prices, but there will be a lag before we see that in the gasoline on the street.''

Over the past week, the so-called ``war premium'' that has added $5 to $8 to oil prices since last fall has been almost wiped out.

Prices have plunged 28 percent since hitting a 12-year high on Feb. 27 of $39.99 despite the loss of almost all Iraqi production of 2.5 million barrels a day. The United Nations shuttered its Food for Oil program Monday.

``The irony of the situation is that Iraq's exports have been cut off,'' said John Kingston, global director of oil for Platts, an energy information provider.

A similar price plunge occurred in January 1991 when U.S.-led forces launched air raids on Iraq. Oil plummeted by a third from the pre-war escalation that jacked up prices to $41.15 in October 1990 when Iraq invaded Kuwait.

This time around, analysts say other factors besides anticipation of Saddam's easy defeat are softening prices.

OPEC's pledge

The market has been reassured by OPEC's pledge to goose output should supplies be disrupted for a prolonged period, and by the extra one million barrels a day from Saudi Arabia.

The Saudis also said this week that they are harboring a 50 million-barrel emergency reserve. And both the United States and Europe are showing more flexibility about releasing their strategic supplies.

Demand will also start dropping as the Northern Hemisphere moves into spring, and Venezuela's output is ramped up after a crippling workers' strike.

In other good news, U.S. crude stocks, which reached record lows as refiners were drawing down inventories rather than buying supplies at a premium price, are also starting to swell, although they remain at uncomfortably low levels unseen since the 1970s.

Sabotage outside Iraq is also a threat, analysts said. That danger pervades the Persian Gulf, above all at oil installations and shipping terminals.

Muslim fundamentalists can do anything to cut off production in another country,'' said W. David Montgomery, energy expert with Charles River Associates in Washington. Saudi security is really important, there are a lot of internal threats.''