www.thestar.com Mar. 18, 2003. 05:52 PM

NEW YORK (AP) — The price of oil plunged 9 per cent today, to its lowest level since early January, as traders bet the impending U.S.-led invasion of Iraq will go smoothly and that global stockpiles are sufficient to offset any supply disruptions.

The April futures contract fell $3.26 to $31.67 (U.S.) a barrel on the New York Mercantile Exchange, the lowest close since Jan. 8. The price of crude, which hit a 12-year high of $37.83 (U.S.) last Wednesday, has since fallen 16 per cent.

However, with U.S. supplies low and uncertainty in the Middle East high, traders said petroleum prices likely will remain volatile in the short term.

"This thing could go right back up," said Tom Bentz, an analyst at BNP Paribas in New York. "We're still vulnerable because inventories are tight."

The most recent data from the U.S. Energy Department showed commercial stockpiles of crude at 269.8 million barrels, 18 per cent below year-ago levels.

Supplies have dwindled as a result of high demand for heating oil in the northeastern United States, which has endured an especially cold winter, and fewer imports from Venezuela because of a prolonged nationwide strike.

Yet Bentz and other traders mostly expressed confidence today that the loss of Iraqi crude due to war could be made up elsewhere and that the U.S. government will tap its own 600 million barrel stockpile in an emergency.

European countries have their own stockpiles that could help make up for any supply shortages resulting from war, which is expected to begin as early as Wednesday night.

Furthermore, industry watchers said OPEC producers — with the exception of Iraq and Venezuela — are pumping over their quotas to take advantage of high prices. That extra supply could hit the market just as demand for gasoline, heating oil and other fuels drops to seasonal lows.

"There's quite a bit of oil in vessels and it's now beginning to hit the consuming areas," said Leo Drollas, chief economist of the London-based Centre for Global Energy Studies.

Saudi Arabia may have as much as 50 million barrels in storage or en route to markets, he said.

The United States consumes roughly 19.5 million barrels of crude a day and more than half of that is imported — much of it from neighbouring Canada and Mexico, as well as the Persian Gulf region and other areas of the world.

Fadel Gheit, senior oil analyst at Fahnestock & Co. in New York, said traders are coming to the conclusion that the world has enough oil to meet demand, even assuming that Iraq's daily production of two million barrels is taken out of the equation.

Venezuela, whose oil industry was all but shut down earlier in the year because of a nationwide strike, is now producing enough oil to make up for an Iraqi shortfall, Gheit said.

And Saudi Arabia has increased its production by one million barrels a day to more than nine million barrels a day, Gheit said.

"We have plenty of oil," he said. "This war premium has to come out of the price."

The biggest fear in the market is that oil facilities in other Middle Eastern countries, such as Iraq's neighbours Kuwait or Saudi Arabia, could be attacked — a scenario that would cause oil prices to shoot higher, Gheit said.

Short of that, he said prices could easily drop another $5 (U.S.) a barrel in the coming weeks.

Tuesday's decline in oil prices also drove down wholesale prices for gasoline and heating oil. Heating oil for April delivery fell 5.79 cents to close at 85.78 cents a barrel, while gasoline futures dropped 6.52 cents to close at 96.19 cents a gallon.

On London's International Petroleum Exchange, Brent crude from the North Sea closed at $27.75 (U.S.) per barrel, down $2.23.

www.news24.com 18/03/2003 22:58  - (SA)  

London - A recent sharp drop in oil prices ahead of a likely war with Iraq is based on shaky foundations, analysts said on Tuesday, warning that prices could rocket upwards again if the conflict drags on or oil facilities in the region are damaged.

The oil price in London has dropped by almost 10% since the start of the week, even falling below $27 per barrel briefly on Tuesday on the assumption of a short conflict.

The drop was precipitated by a series of announcements suggesting military action was imminent, prompting traders to start cashing in a "war premium" of between $2 and $6 a barrel factored in during recent diplomatic uncertainty.

But analysts said the plunge could be quickly reversed if the war does not follow US plans.

"If the war goes on for more than two or three weeks, then prices will shoot up again," said Manouchehr Takin, an expert with leading consultancy the Centre for Global Energy Studies (CGES).

While signs of a quick victory for US-led forces currently massed on Iraq's borders would trigger a further fall, this was not a foregone conclusion, he said.

"If the war drags on and on, placing a siege on Baghdad... that is really the scenario that could definitely cause the price to go up."

The price falls began on Monday afternoon when the White House announced that US President George W Bush was to address the nation that evening, following the end of diplomatic efforts to disarm Iraq without war.

Bush warned Iraqi leader Saddam Hussein that he and his family had 48 hours to leave the country for good or face invasion.

The oil price trajectory has been similar to that seen before the first Gulf War of 1991.

In October 1990, oil hit $41.15 per barrel - even more at today's prices - but the market slumped in January as a war to remove Iraqi forces from Kuwait grew nearer.

On the first day of US military action it plunged by almost seven dollars a barrel, eventually settling at $21.30.

However this time the size of any fall will be limited due to very different market conditions, said David Thomas, an analyst with Commerzbank.

"The fundamentals now are much stronger than they were 12 years ago. The possibility of a (price) collapse is going to be very much more muted than it was 12 years ago," he said.

The principal reason for this is the level of crude oil stocks, which were very high just before the 1991 conflict but are currently at a 27-year low in the United States after a strike in Venezuela crippled the country's oil exports.

And even if the market factors in a release of strategic oil reserves held by consumer nations and increased supplies arriving from producers, any dramatic news from the Gulf could have a massive impact, analysts said.

"Already there is this anti-American feeling all over the Middle East," said the CGES's Takin.

"There could be sabotage in the oil fields, in the export facilities of Saudi Arabia, Kuwait, the United Arab Emirates, and the oil flow would cease.

"These are the fears, because stocks are low," he said.

But for as long as the news remains positive for US and British forces, the price falls could well continue, said Orrin Middleton, an analyst with Barclays Capital.

"My guess is that it will keep going down for a while longer," he said.

www.thestar.com Mar. 18, 2003. 07:57 AM

NEW YORK—World oil prices eased further yesterday as dealers wagered that the looming war in Iraq would be short and inflict only limited damage on Middle East oil flows.

The possibility that the United States could release oil from its 600-million-barrel emergency oil stockpile further weighed on prices, which have fallen more than 8 per cent over the last three trading sessions.

"The market believes the war will be short and quick, so there should be a relatively soft landing for crude prices," said Charlie Luke at Aberdeen Asset Management.

U.S. light crude futures dropped 45 cents (U.S.) to $34.93 per barrel, down from a 12-year high of $39.99 late last month. The current price is $6 short of a $41.15 all-time peak during the 1990-91 Gulf War crisis.

Brent crude oil fell 65 cents to $29.48 per barrel on London's International Petroleum Exchange, which was forced to close for two hours when anti-war protesters raided the London market waving banners saying "Oil fuels war."

Prices fell as the United States and its allies ended diplomatic efforts to win U.N. approval for an ultimatum to Iraq, clearing the way to launch war without Security Council authority.

Speculative investors who fuelled a 60 per cent rise in oil prices in just over three months are now selling to avoid being caught out by a sudden price slide if Middle East oil flows escape severe disruption.

In the first Gulf War, prices sank from over $30 to barely $20 when the United States launched its January, 1991, offensive as it became clear that Iraq would not harm oil fields in Saudi Arabia.

But prices could go back up quickly if Iraq inflicted substantial damage on its own oil fields, or the war was prolonged, analysts said. Iraq and its Gulf neighbours together pump about 40 per cent of global crude exports.

U.S. plans to secure Iraq's northern Kirkuk oil fields quickly in the event of war have been undercut by Turkey's refusal to let U.S. troops through its territory.

"The market is betting on a short, straightforward campaign that would be over fairly quickly," said Steve Turner of Commerzbank in London.

"But there is definitely upside if the war is long and difficult and there are repercussions across the Middle East."

A cold winter and prolonged supply hitch from Venezuela simultaneously drained commercial stockpiles to historic lows, and the OPEC oil cartel has little spare production capacity to cover further supply disruption.

U.S. gasoline pump prices already have hit a new all-time high of $1.719 a gallon for an average price of regular unleaded, the American Automobile Association said yesterday. A sustained increase in energy costs could weaken an already soft economy, analysts say.

Iraq's U.N.-supervised oil exports, which recently averaged almost 2 million barrels daily, will slow to a trickle this week as dealers have stopped buying for fear of an imminent attack.

Iraq's two authorized export terminals in Turkey and the Gulf were both idle yesterday.

Further pressuring prices, the chairman of the U.S. House energy and commerce committee said the energy department told him the Strategic Petroleum Reserve, or SPR, is ready to release oil to counter a disruption in crude supplies, if necessary.

"The SPR has, for some time now, transitioned from the fill' mode to the flow' mode and is prepared to flow upon orders from the president," Republican Billy Tauzin said in a letter to fellow lawmakers.

The United States and other members of the International Energy Agency has said it will allow OPEC oil producers to try to cover any shortages in war, releasing inventories from emergency stockpiles only as a last resort.

edition.cnn.com Tuesday, March 18, 2003 Posted: 0634 GMT ( 2:34 PM HKT)

SINGAPORE (Reuters) -- Oil prices fell sharply Tuesday as U.S. President George W. Bush gave Iraqi leader Saddam Hussein 48 hours to leave Iraq or face an invasion.

Analysts said Bush's ultimatum, in a televised address to the American public, firmed up the timing of a possible attack and took away uncertainty in the market, which drove oil close to $40 a barrel in February, a level not seen since the Gulf War.

"Saddam Hussein and his sons must leave Iraq within 48 hours," Bush said. "Their failure to do so will result in military conflict, commenced at a time of our choosing."

U.S. light crude fell to a near six-week low at $33.80 a barrel, down $1.13 cents. London's Brent crude dropped 78 cents to $28.70 a barrel, the lowest level since early January.

"Bush has confirmed that the United States is 48 hours away from starting an invasion and that means that the end of uncertainty for the market is near. No market likes uncertainty," said David Thurtell at Commonwealth Bank in Sydney.

Expectations of a quick allied victory with little chance of major disruptions to crude supplies from other Middle East producers also helped cool oil prices, which gained 60 percent in just over three months from the beginning of December.

"The oil market is working on the basis there will be an overwhelming allied victory. The only surprise in the market is for that [victory] not to happen," said Sydney-based independent oil analyst Simon Games-Thomas.

Selling by speculative investors has driven crude down 10 percent in the last four trading days. Investors want to avoid being caught out by a sudden price slide if Middle East oil flows escape severe disruption.

In the first Gulf War, prices dropped from over $30 to barely $20 when the United States launched its January 1991 offensive as it became clear Iraq would not harm oilfields in Saudi Arabia, the world's biggest oil exporter.

The Middle East supplies about 40 percent of global crude exports.

Analysts warn, however, that the main risk to crude oil remains to the upside if Iraq should destroy its own oilfields or any war is difficult and drawn out.

Iraq near standstill An invasion would almost certainly close Iraqi crude output for a period and its southern neighbour, Kuwait, may also be forced to halt pumping at some fields close to its borders with Iraq. Kuwait pumps roughly two million barrels daily.

Iraq's U.N. supervised oil exports, which until recently were running at about two million barrels per day (bpd), have already slowed to a trickle with traders unwilling to take a risk on uncertain supplies due to war fears.

U.N. officials said on Monday exports would come to a standstill when U.N. staff are pulled out of the country, which could happen as early as Tuesday.

The OPEC producers' cartel has pledged to meet any supply gap stemming from hostilities, but a prolonged outage of Iraqi or Kuwaiti crude would test the group's spare capacity to the limit.

The United States, the world's biggest oil guzzler, has made preparations to release strategic oil reserves to prevent any interruption to deliveries if needed, said Republican Rep. Billy Tauzin, who is also chairman of the U.S. House Energy and Commerce Committee.

Analysts said confidence had grown that it was unlikely there would be any major supply crunch in the second quarter, which sees a seasonal downturn in oil demand with the end of winter.

"OPEC has been storing crude for some months and there is a significant amount of OPEC crude already on the water heading to western ports. Venezuela production looks to be increasing," said Games-Thomas.

"It looks like there could be a surplus of crude in the short term, if there's no serious damage to oil facilities during the war," he said.

Production in OPEC-member Venezuela, whose oil exports were slashed by an anti-government strike since December 2, continued to recover with government officials putting output near to three million bpd. Rebel oil workers say output is closer to two million bpd.

reuters.com Tue March 18, 2003 01:02 AM ET

SINGAPORE (Reuters) - Oil prices fell sharply on Tuesday as President Bush gave Iraqi leader Saddam Hussein 48 hours to leave Iraq or face an invasion. Analysts said Bush's ultimatum, in a televised address to the American public, firmed up the timing of a possible attack and took away uncertainty in the market, which had driven oil close to $40 a barrel in February, a level not seen since the Gulf War.

"Saddam Hussein and his sons must leave Iraq within 48 hours," Bush said. "Their failure to do so will result in military conflict, commenced at a time of our choosing."

U.S. light crude CLc1 fell to a six-week low at $33.57 a barrel before recovering to $33.77, down $1.16. London's Brent crude dropped 83 cents to $28.65 a barrel, the lowest level since early January.

"Bush has confirmed that the United States is 48 hours away from starting an invasion and that means that the end of uncertainty for the market is near. No market likes uncertainty," said David Thurtell at Commonwealth Bank in Sydney.

Witnesses said a convoy of minibuses carrying U.N. weapons inspectors left their Baghdad headquarters on Tuesday for the city's airport. U.N. secretary-general Kofi Annan ordered all international U.N. staff on Monday to evacuate ahead of a likely U.S. invasion.

Expectations of a quick allied victory with little chance of major disruptions to crude supplies from other Middle East producers also helped cool oil prices, which gained 60 percent in just over three months from the beginning of December.

"The oil market is working on the basis there will be an overwhelming allied victory. The only surprise in the market is for that (victory) not to happen," said Sydney-based independent oil analyst Simon Games-Thomas.

Selling by speculative investors has driven crude down 10 percent in the last four trading days. Investors want to avoid being caught out by a sudden price slide if Middle East oil flows escape severe disruption.

In the first Gulf War, prices dropped from more than $30 to barely $20 when the United States launched its January 1991 offensive as it became clear Iraq would not harm oilfields in Saudi Arabia, the world's biggest oil exporter.

The Middle East supplies 40 percent of global crude exports.

Analysts warn, however, that the main risk to crude oil remains to the upside if Iraq should destroy its own oilfields or any war is difficult and drawn out.

IRAQI EXPORTS NEAR STANDSTILL

An invasion would almost certainly close Iraqi crude output for a period and its southern neighbor, Kuwait, may also be forced to halt pumping at some fields close to its borders with Iraq. Kuwait pumps roughly two million barrels a day.

Iraq's U.N. supervised oil exports, which until recently were running at about two million barrels per day, have already come to a near standstill with traders unwilling to take a risk on uncertain supplies due to war fears.

The OPEC producers' cartel has pledged to meet any supply gap stemming from hostilities, but a prolonged outage of Iraqi or Kuwaiti crude would test the group's spare capacity to the limit.

The United States, the world's biggest oil guzzler, has made preparations to release strategic oil reserves to prevent any interruption to deliveries if needed, said Republican Rep. Billy Tauzin, who is also chairman of the U.S. House Energy and Commerce Committee.

Analysts said confidence had grown that it was unlikely there would be any major supply crunch in the second quarter, which sees a seasonal downturn in oil demand with the end of winter.

"OPEC has been storing crude for some months and there is a significant amount of OPEC crude already on the water heading to western ports. Venezuela production looks to be increasing," said Games-Thomas.

"It looks like there could be a surplus of crude in the short term, if there's no serious damage to oil facilities during the war," he said.

Production in OPEC-member Venezuela, whose oil exports were slashed by an anti-government strike since December 2, continued to recover with government officials putting output near to three million bpd. Rebel oil workers say output is closer to two million bpd.