Crude Oil Falls as U.S.-U.K. Forces Move Closer to Baghdad

<a href=quote.bloomberg.com>Bloomber.com By Mark Shenk

New York, April 2 (Bloomberg) -- Crude oil fell on expectations the war in Iraq is moving closer to an end, after the U.S. said coalition forces advancing toward Baghdad destroyed two of Saddam Hussein's six Republican Guard divisions.

Fourteen days of fighting haven't slowed shipments from neighboring Saudi Arabia, the world's top exporter, said Lamees Al- Ali, a spokeswoman at state-owned Saudi Aramco. Kuwait and Qatar also said shipments are normal. Persian Gulf countries pump about a quarter of the world's oil. Price declines accelerated after the U.S. said oil imports rose to a record last week.

Traders are betting that the war will be over in a matter of a couple of weeks, with Iraqi exports back to normal in about three months,'' said Phil Flynn, a senior energy trader at Alaron Trading Corp. in Chicago. We've heard that there are people working on the southern fields now, so it could be even sooner.''

Crude oil for May delivery was down $1.18, or 4 percent, at $28.60 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Easing concern of disruptions to Persian Gulf exports has sent prices down 28 percent from a 12-year high of $39.99 a barrel on Feb. 27. The 1991 Gulf War lasted six weeks.

In London, the May Brent crude-oil futures contract fell $1.15, or 4.4 percent, to $25.21 a barrel on the International Petroleum Exchange.

The Energy Department in a weekly report said U.S. inventories rose a greater-than-expected 6.8 million barrels, or 2.5 percent, to 280.7 million barrels in the week ended March 28. A Bloomberg survey of analysts predicted an increase of about 2 million barrels.

Record Imports

``This week's report shows crude-oil imports are at the highest ever,'' said Doug MacIntyre, a senior oil market analyst with the department's Energy Information Administration. The department began compiling weekly figures in 1990.

Imports rose 7.3 percent to 10.36 million barrels a day. Venezuelan shipments were close to normal, the department said. A strike that began Dec. 2 had disrupted exports from the South American country, which in November provided about 10 percent of the oil used by U.S. refineries.

Saudi Arabia and Venezuela ``said they were increasing production and we are now seeing it reflected in inventories,'' said Jay Saunders, an analyst at Deutsche Bank Securities in New York.

Iraq, the third-largest producer in the Persian Gulf region, pumped about 3 percent of global supply in February, before the war started. The nation shipped about 7 percent of the oil imported by the U.S. in January.

Baghdad Guard Division

Allied forces have driven to within 30 miles of Baghdad, U.S. General Stanley McChrystal, vice director of operations for the Joint Chiefs of Staff, told reporters at a Pentagon briefing.

``We're now engaging the Republican Guard divisions defending the outskirts of Baghdad, and irregular forces throughout the south supporting the Iraqi regime,'' McChrystal said.

U.S. air and ground attacks have destroyed two of six Republican Guard divisions, McChrystal said.

In Nigeria, international oil companies have halted production of about 800,000 barrels a day in the past two weeks, more than a third of the country's output, because of fighting between government troops and ethnic Ijaw militants before presidential elections on April 19.