OIL UPDATE: Prices Plunge As Southern Oil Fields Secured
sg.biz.yahoo.com Saturday March 22, 1:31 AM By Masood Farivar OF DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--U.S. crude oil prices stretched their losses Friday, falling to a new three-month low as the U.S.-led coalition seemed to be making rapid progress against the Iraqi regime.
Admiral Michael Boyce, chief of the British defense staff, confirmed that allied forces had secured all key components of the oil fields in southern Iraq, including the strategic port in the southern Iraqi city of Umm Qasr and the nearby al-Faw peninsula - Iraq's access point to the Persian Gulf and the site of major oil facilities. Only seven wells had been set ablaze by Iraqi forces, not the original estimate of 30, Boyce said.
"This alleviates fears that there would be wide-scale destruction of the oil wells in Iraq," said Peter Beutel, an analyst at Cameron Hanover. "It is going to put additional selling pressure on the market."
About 60% of Iraq's oil production comes from the rich fields near the southern city of Basrah, and about half of the country's U.N.-sanctioned oil exports flow through the Persian Gulf port of Mina al-Bakr.
Iraq's 1.7 million barrels a day in exports have effectively stopped, though oil from the country's northern fields continues to flow through a pipeline to the Turkish port of Ceyhan. The seizure of the southern oil fields raised hopes that Iraqi oil there could start flowing again shortly, analysts said.
Northern Fields Said Contested
May light, sweet crude oil futures fell as much as $1.42 at the New York Mercantile Exchange to a low of $26.70 a barrel, the lowest price for a contract nearest to expiration since Dec. 4. May Brent blend futures fell as much as $1.10 to a low of $24.40.
A sustained drop in oil prices would be welcome news for the U.S. economy, which has been struggling to mount a recovery while burdened with high energy costs, and U.S. consumers, who are paying record prices for gasoline.
Control of oil fields in Northern Iraq was still being contested. ABC News reported that U.S. forces were still conducting air strikes near the northern city of Kirkuk and that there were several fires burning in the area.
Oil prices rallied briefly in New York and London Thursday on reports that some oil wells in southern Iraq were on fire, raising concerns about long-term damage to Iraq's production capabilities.
But such concerns have been swamped by expectations that the war won't greatly affect oil output or transport in the Persian Gulf. A lack of wider disruptions could cause the market to get flooded with extra oil pumped by producers to head off a supply shortage, traders fear.
"World energy supplies are more than adequate to compensate for any disruption these acts may cause," White House spokesman Ari Fleischer said Thursday.
Nymex crude oil futures, after soaring to nearly $40 a barrel ahead of the war, have dropped 28% in the past seven trading days in what more or less has been a replay of the first Persian Gulf War. Then, oil prices fell by a third on the day after the air attack began.
The price decline has come as officials in both producing and consuming countries reassured the market that they won't allow supply shortages to develop.
Supply Disruptions Minimal
In a departure from the events of the Persian Gulf War in 1991, however, neither the International Energy Agency, the Paris-based energy watchdog for the West, nor the U.S. has ordered the release of crude oil from their strategic reserves, saying supply disruptions haven't been sufficient to warrant the step.
U.S. Energy Secretary Spencer Abraham said Friday that global oil production has remained steady despite the loss of Iraqi and some Venezuelan output.
Analysts said such comments helped assuage fears that a war in Iraq - which produces 3% of the world's oil - could create severe supply shortages.
"Assuming that everything goes well, the fundamentals look fairly bearish," said Aaron Brady, an analyst at Energy Security Analysis Inc. in Wakefield, Mass. "OPEC is pumping at a high rate, Venezuela is back, and even if Iraqi oil is cut off for some period of time, it is manageable."
The possibility of further prices declines is of concern to OPEC members, who have already begun to talk about the need to cut output to head off a plunge in prices.
"If prices go through the floor, we will decide about cutting production in the same way that we put oil in the market when prices go through the roof," OPEC Secretary-General Alvero Silva said.
-By Masood Farivar, Dow Jones Newswires; 201-938-2094; masood.farivar@downones.com