War sends oil, gas prices plunging

www.nydailynews.com By NANCY DILLON DAILY NEWS BUSINESS WRITER

Oil and gasoline prices took another high-octane ride yesterday, plunging and zigzagging on reports pouring out of Iraq.

After falling as much as $1.82 per barrel on rumors Saddam Hussein had been killed and U.S. forces had seized the Kirkuk oil hub in northern Iraq, crude closed down $1.21 at $26.91 per barrel.

Crude prices inched back up in afternoon trading after U.S. officials said they didn't know Hussein's whereabouts and that forces had taken control of oil fields in southern Iraq but not the north.

Crude prices have dropped sharply since reaching a 12-year peak of $39.99 three weeks ago.

Gasoline,meanwhile, plunged 6.3% to a two and a half month low. This capped the market's largest weekly decline since the last Gulf War.

"The market has almost completely lost its head. Any [news] that comes out moves prices. It's raw emotion," said Martin King, a commodities analyst with FirstEnergy Capital.

"There was a huge change from the morning to the afternoon," said Peter Zeihan, senior energy analyst at Stratfor in Austin. "The markets loved hearing that Kirkuk had been secured, but the reports were patently false."

Even so, Kirkuk is not as strategic as the Rumaila oil field in southern Iraq, he said.

Rumaila, whose fields, pipeline and loading platforms were captured by American and British forces, pumps about 1.25 million barrels of oil per day, more than half Iraq's total production. Kirkuk, by comparison, produces about 600,000 barrels a day.

Zeihan said Rumaila has stopped pumping oil for the moment since the pipeline passes through Basrah, which has not yet been secured by U.S. forces. Kirkuk is still pumping oil through Turkey.

Nauman Barakat, oil trader at Fimat International Bank, said with Rumaila now in U.S. hands, American forces "should be able to minimize the ability of the Iraqis to set more oil wells on fire. That upward pressure on prices has almost totally disappeared."

Indeed, fear that dozens of wells had been set ablaze drove crude prices higher overnight on Thursday. Later reports pegged the number of fires at fewer than a dozen.

During the Gulf War of 1991, Iraqi forces torched more than 600 wells as they withdrew from Kuwait.

Experts said oil prices are so volatile right now because worldwide supplies are extremely tight thanks to production problems in Venezuela and Nigeria and a bitter cold winter. Originally published on March 22, 2003