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Breakdown of U.N. talks, imminent military action sparks trader buying; London halted by protests. March 17, 2003: 10:42 AM EST

NEW YORK (Reuters) - NYMEX crude oil futures rose $1 early Monday as the United States, Britain and Spain ended diplomatic efforts to win U.N. approval for an ultimatum to Iraq to disarm or face war.

That, analysts said, now clears the way for the three nations to launch a war without a vote in the Security Council.

At 10:18 a.m. EST (1518 GMT), NYMEX April crude was up 82 cents at $36.20 a barrel, near an early high of $36.40. It ended overnight ACCESS trade up 57 cents at $35.95.

On Friday, the contract ended at 63 cents lower at $35.38, adding to a $2.50 loss in two days as traders speculated that a war in Iraq would be short.

The NYMEX open outcry session opened normally, unaffected by an interruption in trading on the International Petroleum Exchange in London by anti-war protesters.

Before the interruption, May Brent crude, debuting in the front-month spot, traded 32 cents higher at $30.45 a barrel.

IPE trading was to resume at 11 a.m. EST (1600 GMT), London dealers said.

Prices rose overnight on fears that Iraq oil exports, currently at 1.7 million barrels per day (bpd), would stop once U.N. arms inspectors were pulled out of Iraq.

Just as the market opened, U.S. Rep. Bill Tauzin, R-La., said the U.S. Strategic Petroleum Reserve (SPR) had been switched to "flow mode" and was prepared to be put in the market if ordered by President Bush. That nipped the market's budding rally.

Iraqi President Saddam Hussein said early Monday that while Iraq had weapons of mass destruction in the past, it no longer had them.

The U.S. has vowed to lead a coalition to disarm Saddam, who it accuses of violating U.N. disarmament resolutions, with or without U.N. support. Bush will address the nation at 8 a.m. ET, and is expected to say Saddam has a limited time to leave Iraq in order to avoid war.

"Although last-minute diplomacy will be a feature today, the market is factoring in at least a 95 percent possibility of military action and will begin attempting to discount the war's impact on oil field damage in the early stages of a conflict," said Jim Ritterbusch, energy market analyst and president of Ritterbusch & Associates in Illinois.

Nevertheless, Ritterbusch said "despite some minor chart damage, the April (crude) contract's quick rebound keeps the bullish case alive," keeping in mind the approach of a war and Thursday's April contract expiration.

Iraq's oil exports under the U.N. oil-for-food program, currently averaging about 1.7 million bpd, will halt when U.N. inspectors are pulled out of the country, U.N. officials said Monday.

The two top U.N. arms inspectors are expected to advise the U.N. Security Council on Monday that their inspection teams should be pulled out of Iraq within 24 hours, the officials said.

All U.N. staff will be evacuated once the order is given by U.N. Secretary-General Kofi Annan, including weapons inspectors and oil-for-food monitors handling humanitarian goods and oil export programs, the officials said.

International Atomic Energy Agency chief Mohamed El Baradei said he had been advised by the United States that U.N. weapons inspectors should be withdrawn from Iraq.

The impetus to remove inspectors followed an ultimatum from Bush on Sunday that the world body had just one more day to give its blessing to a resolution sanctioning the use of force to rid Iraq of suspected weapons of mass destruction.

The divided Security Council had been expected to begin consultations at 10 a.m. (1500 GMT) Monday in New York.

NYMEX April heating oil futures were up 1.53 cents at 95.60 cents a gallon, after ending ACCESS trade 0.93 cent higher at 95.00 cents.

NYMEX April gasoline futures were 2.01 cents higher at $1.0605 a gallon, after ending overnight trade higher at $1.0535.

Late Sunday, the U.S. State Department said it had ordered non-essential diplomats and all embassy dependents out of Kuwait, Israel and Syria because of the threat of war. The notice mirrored U.S. precautions before the 1991 Gulf War.

Iraq denies possessing weapons of mass destruction and President Saddam Hussein vowed that Iraq would fight back "anywhere in the world" if invaded.

The Organization of the Petroleum Exporting Countries (OPEC) has pledged that it will fill any shortfall in supplies if war disrupts oil flows.

Kuwait, Iraq's southern neighbor and the main launching pad for any military strike, said a U.S.-led war in Iraq was probably not more than 10 days away.  

www.azcentral.com O. Ricardo Pimentel Republic columnist Mar. 16, 2003 12:00 AM

Well, of course it's about oil. President Bush can talk all he wants about planting the seeds of democracy in Iraq that will one day bloom into flowers of freedom throughout the Middle East. He can tell us about weapons of mass destruction, dubious links to al-Qaida and what a nasty, nasty guy is Saddam Hussein. But the truth is we wouldn't be much bothering about Iraq were it not for oil and the fact that about 10 percent of the world's reserve happens to be under that country. And guess what? This concern for oil is entirely rational given our conspicuous consumption of it. In fact, Bush would be irresponsible if he wasn't concerned about regional stability in a place that supplies much of the world's go-juice. It's abundantly clear that Bush believes that Iraq is a rogue terrorist state. It's perfectly reasonable then to worry about potentially vast oil wealth funding such a nation's aims. The only valid question is why Bush does not simply own up. Well, partly it's because many anti-war critics make it so easy. They pitch the argument too simplistically, as about the United States wanting to "own" Iraqi oil. This is nonsense. Bush wants the next best thing: a friendly regime controlling the oil. What he wants is a regime not as likely to cause mischief among countries similarly attractive to us only as peddlers of the crude. There are valid geopolitical reasons to desire this. Yes, Saddam would be pleased as punch to sell us all the oil we want at a relatively low price. But even our best spinmeisters would have difficulty getting the rest of us to swallow trading with a guy they've been calling Hitler for the past 12 years or so. No matter. Bring up oil, and conservatives cry foul when, in fact, it's about the only argument for this war that makes any sense. Weapons of mass destruction? That Saddam harbors them is a foregone conclusion. But they pose an immediate threat to our national security only if we invade. Those aluminum tubes likely weren't for any nuclear weapons program, one defanged long ago in any case. Containment, you see, mostly works. Saddam's tyranny? If that were our reason, other tyrants register just as much or more on the atrocity meter. Unless oil or other strategic interests are involved, we're mostly not interested, Bosnia and Kosovo being exceptions. Different president, however, and didn't this current president pooh-pooh such nation-building? Al-Qaida? Even administration folks have trouble keeping straight faces selling this one by now. Liberian mercenary troops are allegedly invading the Ivory Coast. But we don't value cocoa, that country's major export, as much as we do oil. Well, most of us don't. And it's hard to keep track of which African country's troops have been sighted recently violating the Congo's sovereignty. Where's the outrage? Indonesia invaded East Timor in 1975. We did not erect any international military coalition to repel it. In this case, Indonesia had the oil. Hmm. When that clearly illegal coup briefly drove Hugo Chavez from office in Venezuela last year, we quickly endorsed the new government and then had to backtrack when Chavez was reinstalled. Chavez would be just another run-of-the-mill lefty to us if Venezuela wasn't swimming in oil. If Cuba had oil and we wanted some, Castro would be history. Look, I would be just as reluctant to go to war without broad international backing even if Bush, et al, were to own up to oil as the reason. Simply, clear and viable alternatives exist. But a little more honesty and much less false outrage, please. Yes, we have a bad case of the terrorist jitters, but oil is a great big reason that Saddam has the ability to rile us at all. Instead of owning up, however, the administration cops this how-dare-you-suggest-such-a-thing attitude every time the topic comes up. No one can say this next part enough. The fact that we find ourselves contemplating war, with oil as a major reason, is just the latest wake-up call that we need to wean ourselves. This is a tall order, requiring a monumental and transforming effort. And this might just be the real reason Bush doesn't own up to oil as a lubricant for this particular war. He apparently finds war easier than spearheading the changes domestically that might actually make the world a safer and better place to live.

Reach Pimentel at ricardo.pimentel@arizonarepublic.com or (602) 444-8210. His column appears Tuesdays, Thursdays and Sundays.

www.taipeitimes.com BLOOMBERG Sunday, Mar 16, 2003,Page 10

Futures broker Lannie Cohen is betting crude oil will tumble the day any US attack on Iraq begins, because it happened that way last time.

Cohen is a technical trader, meaning he charts past price movements to assess the likely direction of the market. He and other technicians downplay analysts and economists who say the world's oil producers can't pump enough to cover shortages should war disrupt supplies from Iraq or its neighbors in the Persian Gulf, source of a quarter of the world's oil.

Speculators' short positions in crude oil on the New York Mercantile Exchange have more than doubled in the past three months, to the highest in the 20-year history of the contract, according to Commodity Futures Trading Commission data. A short position is a bet that crude oil will fall.

"We have been moving steadily up on war fears. Once we invade, look out," said Cohen, president of Capitol Commodity Services Inc in Indianapolis. "All you have to do is look at the historicals."

New York crude oil plunged 40 percent in the first two trading sessions after a US-led coalition began bombing Iraqi forces on Jan. 17, 1991. The price touched a record US$41.15 a barrel on Oct. 11, 1990, as troops massed in the Persian Gulf.

This time, preparations for war have helped oil prices gain 54 percent from a year ago. New York oil rose as high as US$39.99 last month. The US and UK have moved nearly a quarter-million troops to the region.

"We won't have a precipitous drop like we did in 1991 because inventories are so much lower now," said Andrew Lebow, an energy broker at Man Financial Inc. in New York. "Things are way too tight."

US oil inventories are 17 percent lower than they were in January 1991, and demand is 13 percent higher, according to government and industry figures. A strike that began in December in Venezuela halted most exports from the world's fifth-largest source of petroleum, accounting for some drop in stockpiles.

Commercial supplies of crude in the US last week fell to 269.8 million barrels, matching a 28-year low, according to Energy Department figures. At the outset of Desert Storm, there were 326.8 million barrels in storage.

Most of the world's oil producers are pumping at full capacity. They have just 900,000 barrels per day of spare production capacity, less than the 2.5 million barrels of Iraqi supplies that could be knocked off world markets by a war, the International Energy Agency said in a report this week.

By the time missiles starting exploding over Baghdad in 1991, oil prices had already retreated 22 percent from the record. Saudi Arabia, the world's biggest crude producer, and other OPEC members had increased output in the months after Saddam Hussein's August 1990 invasion of Kuwait provoked a UN embargo on Iraqi oil exports.

Analysts also doubt US-led forces can repeat the quick success of the Gulf War. A full-scale invasion of Iraq might take longer than the four days it took for US-led troops to push Hussein's army out of Kuwait.

"We had a tremendous dropoff in prices when success became evident" in 1991, said Marshall Steeves, an energy analyst at Refco Group Ltd. "We won't see that again."

Steeves predicts oil at US$50 a barrel if OPEC and other producers fail to cover lost Iraqi supplies.

On the first day of the war in 1991, US and European governments tapped emergency reserves. That boosted already ample global supplies, assuaging fears that refiners might have difficulty acquiring cargoes, said Michael Fitzpatrick, an energy specialist at Fimat USA Inc.

US Energy Secretary Spencer Abraham has pledged to tap reserves again to cover any significant supply disruption. The US and 25 other countries hold 4 billion barrels of emergency supplies.

Still, traders worry Hussein may destroy wells in Iraq and neighboring countries, crippling supplies for years.

www.gulf-daily-news.com Vol XXV   NO. 361      Sunday      16 March 2003

NICOSIA: Crude production from the Opec soared by 8.6 per cent or 2.217 million barrels a day in February to 27.88m bpd, the Middle East Economic Survey (Mees) reported.

With Venezuela resuming output and a significant surge from Gulf states, output by the Opec 10 without Iraq climbed 10.1pc to 25.45m bpd last month from 23.113m bpd in January, the industry newsletter says.

Opec 10 output was 950,000 bpd above the ceiling of 24.5m bpd effective since February 1, Mees notes.

Iraqi production fell 120,000 bpd as exports to Turkey by truck were suspended, Indonesia dropped 60,000 bpd and Nigeria held steady at 2.15m bpd.

The biggest increases were seen in Venezuela which boosted output last month by 880,000 bpd and Saudi Arabia up 800,000 bpd.

Algerian production hit a new all-time high of 1.15m bpd which was expected to rise to 1.25m bpd this month, the Cyprus-based specialists said.

"Saudi Arabia, Kuwait and the UAE were expected to continue ramping up production through March with production set to rise to around 9.4m bpd, 2.4m bpd and 2.3m bpd respectively by the end of this month," Mees says.

World oil prices slipped for the second consecutive day on Friday as traders speculated that a quick, successful US-led war in Iraq would lead to a steep fall in prices.

New York's reference light sweet crude contract for April delivery skidded 63 cents to $35.38 a barrel, after having plunged by $1.82 a day earlier.

The price of benchmark Brent North Sea crude for April delivery fell by $1.05 dollars to $31.38 a barrel. The contract had already lost $1.48 on Thursday.

newsobserver.com Saturday, March 15, 2003 3:08PM EST By THE ASSOCIATED PRESS

LONDON (AP) - If U.S.-led forces invade Iraq, world oil prices will probably plunge from current levels and stay there - so long as the conflict ends quickly and causes little damage to production capacity in the Persian Gulf, several energy analysts said Friday.

However, a war that spills into neighboring countries or one in which Saddam Hussein sabotages his own oil fields could panic markets and trigger a spike in prices to $50 or even $60 a barrel, some said. The wide range of forecasts is a sign of the difficulty analysts face in trying to envision how markets will react to a war of unpredictable severity.

Fighting might be over in a few days, or it might erupt into a regional conflagration that affects crude exports from Kuwait and even Saudi Arabia. How OPEC and oil-importing countries respond to a war will also have a great influence on prices.

Perhaps the only certainty is that markets will welcome any move that keeps supplies flowing.

Crude prices fell Friday on reports that Saudi Arabia's state-run oil company Saudi Aramco had chartered supertankers to carry an exceptionally large shipment of crude - 28 million barrels - to the United States for delivery in May. April contracts of U.S. light, sweet crude tumbled by more than $2 a barrel in New York before rebounding somewhat to $34.90, down $1.11 from Thursday's close. In London, North Sea Brent crude futures were trading 98 cents lower at $31.45.

Analysts say that fears of a wartime disruption in supply have swollen crude prices by at least $5 a barrel. This so-called war premium has increased along with tensions in the Persian Gulf because markets worry that hostilities with Iraq will paralyze that country's 2 million barrels in daily oil shipments.

Although prices might rise in the last hours before any actual outbreak of hostilities, several analysts predicted that an attack on Iraq would knock the floor out from beneath the market - just as it did when coalition forces launched Operation Desert Storm on Jan. 16, 1991.

Futures contracts of U.S. light, sweet crude plummeted by $10.90 a barrel on Jan. 17, 1991 to close in New York at $21.30.

"History would suggest that oil prices would go down fairly rapidly, maybe $5-7 a barrel, probably within one day," said Angus McPhail, an analyst at ING Financial Markets in Edinburgh, Scotland.

He believes that markets will be awash in crude after a swift war, particularly if Venezuela continues to recover from an oil industry strike and other members of the Organization of Petroleum Exporting Countries keep busting their output quotas. For the second half of the year, ING Financial Markets foresees an average Brent crude price of $18.50 a barrel.

"We are adamant that oil prices will fall," McPhail said.

Matthew Cordaro, an energy specialist at Long Island University, in Brookville, N.Y., argued that U.S. crude prices would fall to $25-28 a barrel "within a couple of days" of the start of a war.

Prices might fall by an additional $2 a barrel beyond that, Cordaro said, if President Bush authorizes a release of crude from the U.S. Strategic Petroleum Reserve, or SPR.

U.S. Energy Secretary Spencer Abraham has repeatedly emphasized that the United States will tap into its 600 million barrels of strategic reserves only if it sees a serious disruption in crude supplies. A short war that didn't impair Iraq's ability to soon resume exporting oil would probably not warrant a release of SPR oil, Cordaro said.

The first line of defense for importing countries in the event of a war would be an increase in OPEC oil production. OPEC this week estimated its spare production capacity at 2-4 million barrels a day, but the International Energy Agency said that OPEC might not be able to raise output quickly by more than 1 million barrels. The agency is the energy watchdog for major consuming countries.

Adam Sieminski, an oil price strategist at Deutsche Bank in London, argued that the Bush administration would most likely tap into U.S. strategic reserves in a war. If not, he said, "Bush will win the war but lose the 2004 election."

With no SPR oil, Sieminski said it was impossible to predict how high prices could go.

"Who knows? It's going to be much higher than it is now, with consequent damage to the world economy," he said.

In a worst-case scenario, a wider war could inflame regional hostility to the United States and lead to another Arab oil embargo. Prices might then spike to as much as $60 a barrel, said Rob Laughlin, managing director of London brokerage GNI Man Financial.

Former Saudi Arabian oil minister Sheikh Zaki Yamani agreed, telling an industry conference Friday that prices could exceed $50 a barrel if supplies from neighboring countries such as Kuwait and Saudi Arabia were interrupted.

However, Yamani said that a short and successful war against Iraq could push prices to under $25 a barrel.