Oil Prices Briefly Top $30 a Barrel

AP Wire Posted on Thu, Mar. 27, 2003 BRAD FOSS Associated Press

NEW YORK - Oil prices rose above $30 a barrel Thursday for the first time since war broke out in Iraq, as concerns about worldwide supplies replaced early hopes for a quick end to the military conflict.

The price of oil on futures markets has risen nearly 13 percent since last Friday, when it dropped to a three-month low.

Traders, who expect the volatility to continue at least until the end of fighting in Iraq, have plenty to worry about:

_Commercial inventories of crude are extremely low in the United States at a time when refiners are cranking out gasoline for the summer driving season.

_Iraqi exports have ceased and supplies from Nigeria and Venezuela are down because of labor strife, taking more than 3 million barrels a day out of the world market.

_Finally, analysts said the extra petroleum being pumped by Saudi Arabia and other OPEC members to offset that shortfall hasn't entirely reached U.S. shores and might not be enough to calm markets when it does.

While these factors were in play as prices dropped last week, the stubborn fighting by Iraqi forces in recent days has convinced many oil - and military - analysts that a rapid conclusion to the battle is unlikely.

"Now, the market is recovering and trying to figure out where it should be," said Tom Bentz, a trader for BNP Paribas in New York. Bentz said prices are likely to vacillate between $26 and $31 a barrel as long as there is so much uncertainty.

At the upper end of that range, Bentz said, traders are likely to fret that there could be a reversal of fortunes if the extra supplies from Saudi Arabia were to arrive at U.S. ports at the same time that Nigeria resumes normal export levels of about 2.2 million barrels a day.

For now, oil traders are retreating from the view of ample supplies that emerged during the first 48 hours of the war.

Crude oil for May delivery rose $1.74 on Thursday to close at $30.37 a barrel on the New York Mercantile Exchange after trading as high as $30.45. Oil is up 13 percent from last Friday, when it closed at $26.91.

The nation's petroleum stocks rose by 3.7 million barrels last week to 273.9 million barrels, the Energy Department said Wednesday. However, that is still 17 percent below year-ago levels.

Mark Baxter, director of Southern Methodist University's Cox Maguire Energy Institute, said the extra crude supplied by certain members of the Organization of Petroleum Exporting Countries will not be enough to make up for what has been lost from others, including Iraq, Nigeria and Venezuela.

Baxter estimated that the global market would still come up short by 1 million barrels a day - an amount that could be made up, he pointed out, by tapping the nation's Strategic Petroleum Reserve, a stockpile that contains 599 million barrels.

John Felmy, chief economist at the American Petroleum Institute, a Washington-based trade group, said he was confident that OPEC can keep the world adequately supplied.

"It's quite possible that (the extra OPEC barrels) are hitting the shores now," Felmy said.

The reason U.S. oil inventories aren't growing more substantially, he said, is because "we are running a lot of it through refineries to meet the summer gasoline demand."