news.ft.com By Carola Hoyos, Energy Correspondent Published: February 28 2003 3:11 | Last Updated: February 28 2003 3:11

Crude oil prices on Thursday surged to almost $40 a barrel, a high not seen since just after Iraq invaded Kuwait in 1990. The $2 jump was fuelled by concerns over a lack of US oil supplies ahead of an increasingly inevitable war with Iraq.

The jump affected the US benchmark crude far more than its London counterpart and proved short-lived, however, with the Nymex contract closing at $37.20. One trader described the morning session as one of the "wildest rides" the energy futures market had seen in years.

Commercial stockpiles of US crude oil are smaller than they have been since 1976 and in the past week fell to the minimum 270m barrels needed to keep the US's vast system of refineries, pipelines and storage tanks running smoothly.

Meanwhile, a cold winter gripping the US north-east has cut stored heating oil to dangerously low levels, more than 30 per cent below last year's inventories.

Washington has tried in vain to calm the recent market jitters by announcing that it would consider in the event of a war with Iraq releasing some of the 600m barrels of crude oil it stores for emergencies. The Opec oil cartel has also tried to reassure markets, raising its output quota in January and promising to use its spare output capacity to fill the void of the expected 2m barrels a day in Iraqi exports that will almost certainly be lost if war occurs.

But the world faces supply interruptions not only from the Middle East. George Beranek, analyst at PFC Energy, a consulting company in Washington, said: "Inventories are low enough that the market really is working without a safety net, particularly in the US.

"If you have renewed problems in Venezuela or problems in Nigeria in the run-up to their April presidential elections, then you are going to have a serious problem very quickly."

The effect high oil prices will have on the world economy will largely depend on the length of time they maintain their lofty heights. For many countries, a big mitigating factor has been the recent drop in the value of the dollar, the currency in which oil is traded.

"The real problem comes if these problems last a long time. One month should not be a problem, three months will have an impact in developing economies and six-12 months could be serious," Mr Beranek said.

But alternatively, releasing extra Opec crude and stockpiles held in storage in Europe, Japan and the US could swamp the market. Prices could drop to well below $20 a barrel if a short war in Iraq causes little damage to the country's oil fields and the worries about oil supply interruptions in countries such as Venezuela prove unfounded.

www.heraldtribune.com The Associated Press

Crude oil futures ended lower Thursday after soaring to a 12-year high, as early panic buying sparked by concerns over tight supplies and a looming war with Iraq gave way to panic selling. "A lot of it was profit taking," said Bill O'Grady, an energy analyst at A.G. Edwards in St. Louis. "It highlights the extreme uncertainty in the market." At the New York Mercantile Exchange, front-month April crude oil futures climbed as much as $2 to $39.99 a barrel, the highest level since October 1990, when prices set a record high of $41.15 after Iraq's invasion of Kuwait. The contract settled at $37.20 a barrel, down 50 cents. March heating oil futures ended down 0.06 cent at $1.1543 a gallon, while March gasoline settled at $1.0188 a gallon, down 0.03 cent. March heating oil and gasoline futures expire Friday, the last trading day of the month. On London's International Petroleum Exchange, the volatility was less extreme. April Brent ended down three cents at $33.04 a barrel. Natural gas for March delivery rose 9.5 cents to settle at $7.485 per 1,000 cubic feet. O'Grady said that crude is likely to recover Friday as traders cover short positions ahead of the weekend. "I cannot imagine anyone carrying shorts over the weekend," he said. "We'll probably see the market do better going into tomorrow's close." The early gains came amid concerns over tight U.S. crude inventories - now at their lowest level since 1975 thanks to cold weather and a strike in Venezuela - and growing jitters over a possible U.S.-led attack on Iraq, traders said. President Bush's tough speech on Iraq Wednesday night, along with indications that the United States might win U.N. approval for a second resolution on Iraq, heightened fears that a war on Iraq may be inevitable. But while worries about an Iraq war continue to support prices, bears found some support in a report that indicated Iraq may consider destroying its Al Samoud missiles to try to avert an attack. Iraqi officials had no comment on the issue, but Egypt's Middle East News Agency quoted unidentified sources in Baghdad as saying the step was intended to deprive Washington of an excuse to attack. Chief weapons inspector Hans Blix sent his top deputy to Baghdad, saying the envoy would be discussing with the Iraqis "the pace of the destruction " of the Al Samoud 2. There was also concern that prices have reached an unsustainably high level, which could prompt the White House to tap the nation's Strategic Petroleum Reserve. The Bush administration has so far resisted calls for a release of oil from the SPR, saying the reserve, which holds 600 million barrels of crude oil in salt along the Gulf Coast, is designed to be used in case of war or severe supply disruptions. Analysts say the White House is likely to order a release when a war begins. Secretary of Energy Spencer Abraham said earlier this week the U.S. would act quickly to offset any supply disruption caused by a war. Traders worry that an attack on Iraq would disrupt the country's oil exports and could potentially spill over to halt oil exports from other Persian Gulf countries. Analysts say that the release of oil from the emergency reserve coupled with a smooth victory in Iraq could lead to a sharp decline in oil prices, much as during the last Persian Gulf War.

Last modified: February 27. 2003 6:48PM

www.forbes.com Reuters, 02.27.03, 3:29 PM ET

NEW YORK (Reuters) - NYMEX crude oil futures tumbled Thursday as profit-taking set in after an early attempt to crack the $40-a-barrel mark failed. Speculative funds led the sell-off in volatile trading, traders said, with the day's highs spurred by rising Iraq war fears and thin U.S. petroleum inventories. NYMEX April crude fell 50 cents, or 1.3 percent, to settle at $37.20 a barrel. April crude earlier soared $2.29 to $39.99, the highest level since October 1990 when NYMEX crude hit an all-time high of $41.15, just prior to the U.S.-led Gulf War to liberate Kuwait after an Iraqi invasion. A suspected squeeze on the April contract intensified volatility, traders said. "The market couldn't move past $40 and the sell-off began at that point... but remember $37 is still a very high price," said a NYMEX floor trader. NYMEX prompt crude oil prices remain more than 50 percent higher from mid-November levels, a premium built in amid growing fears of a war in Iraq. A strike in major U.S. supplier Venezuela and a very cold winter have also propped up prices. In London, April Brent crude settled 3 cents lower at $33.04 a barrel, moving $32.80 to $33.80. A U.S. move to lower its terror threat level helped pare oil's move higher, traders said. A delay until the weekend of the Turkish parliament's vote to allow the use of Turkish territory as a possible launchpad for military action against Baghdad was also bearish, they added. The market remained nervous amid tough talk on Iraq by President Bush, who on Thursday said any Iraqi plan to destroy banned missiles was part of "a campaign of deception." He called for Baghdad to disarm completely. "The discussion about these rockets is part of his campaign of deception," Bush said. "See, he'll say 'I'm not going to destroy the rockets, and then he'll have a change of mind this weekend and destroy the rockets and say, 'I've disarmed."' U.N. arms inspectors said the al-Samoud 2 rockets violate the 93-mile (150-km) range limit imposed after the 1991 Gulf War and called for Iraq to start destroying them by March 1. Bush's comments to White House reporters followed a speech on Wednesday in which he reiterated his intention to disarm Iraq, which the U.S. accuses of having weapons of mass destruction, with or without approval of the U.N. Security Council. Earlier on Thursday, an Iraqi official said Iraq would respond to U.N. chief arms inspector Hans Blix's order that Baghdad destroy its al-Samoud missiles. News that Iraqi Republican Guard troops and equipment were moving from their base in northern Iraq toward Baghdad raised concerns that Iraq was preparing for a U.S.-led attack. A divided U.N. Security Council on Thursday discussed a U.S.-British-Spanish draft resolution that lays the groundwork for war. France, Germany and Russia are pushing for more time for U.N. inspectors to search for Iraq's alleged weapons of mass destruction. No vote is expected for about two weeks. Saudi Ambassador to Britain Turki al-Faisal told BBC radio his country would not back a U.S.-led war in Iraq if there is no new U.N. resolution explicitly permitting the use of force. Meanwhile, OPEC Secretary-General Alvaro Silva said the cartel could cover any stoppage of Iraqi oil if war erupts and consumer countries need not release emergency reserves. On Wednesday U.S. officials said Saudi Arabia had agreed to increase output by 1.5 million barrels per day if Iraqi oil flow is interrupted by war. Temperatures across much of the United States and Canada are forecast to stay below normal through early March, Salomon Smith Barney meteorologists Jon Davis and Mark Russo said on Thursday. Ahead of Friday's expiration for March refined products contracts, NYMEX March heating oil settled 0.06 cent lower at $1.1543 a gallon, trading $1.125 to $1.1770. The April contract ended 0.58 cent down at $1.0601. NYMEX March gasoline ended 0.03 cent lower at $1.018 a gallon, moving 99.25 cents to $1.04. April gasoline finished up 0.27 cent at $1.0938. Copyright 2003, Reuters News Service

news.ft.com By Carola Hoyos Published: February 27 2003 19:29 | Last Updated: February 27 2003 22:58

Crude oil prices surged on Thursday to almost $40 a barrel in New York, a high not seen since just after Iraq invaded Kuwait in 1990. The $2 jump was fueled by concerns over a lack of US oil supplies ahead of an increasingly inevitable war with Iraq.

The jump, which affected the US benchmark West Texas Intermediate contract far more than its Brent Light London counterpart, proved short-lived, however, with prices retreating to the $37 range by the early-afternoon. One trader described the morning session as one of the “wildest rides” the energy futures market had seen in years.

Commercial stockpiles of US crude oil are smaller than they have been since 1976 and in the past week fell to the minimum 270m barrels needed to keep the US’s vast system of refineries, pipelines and storage tanks running smoothly.

Meanwhile, a cold winter gripping the US Northeast has cut stored heating oil to dangerously low levels, more than 30 per cent below the inventories available last year.

Washington has tried in vain to calm the recent jitters in the oil market by announcing that it would consider in case of a war with Iraq to release some of the 600m barrels of crude oil it stores for emergencies.

The Opec oil cartel has also tried to reassure markets, raising its output quota in January and promising to use spare capacity to cover a possible reduction of 2m barrel a day from Iraqi exports in the event of US military action in Iraq.

But the world faces supply interruptions not only from the Middle East.

George Beranek, analyst at PFC Energy, a consulting firm in Washington, says: “Invetories are low enough that the market really is working without a safety net, particularly in the US. If you have renewed problem in Venezuela or problems in  Nigeria in the run up to their April presidential elections, then you are going to have a serious problem very quickly.”     

The effect of the high oil price on the world economy will largely depend on the length of time it continues at current levels. For many countries, a major mitigating factor has been the recent drop in the value of the dollar, the currency in which oil is traded.   

“The real problem comes if these problems last a long time. One month should not be a problem, three months will have an impact in developing economies and 6-12 months it could be serious,” Mr Beranek says.

On the down side, the release of extra Opec crude and stockpiles held in storage in Europe, Japan and the US could also swamp the market. Prices could drop to well below $20 a barrel if a short war in Iraq causes little damage to the country’s oil fields and the worries about oil supply interruptions in countries such as Venezuela and Nigeria prove unfounded.  

www.heraldsun.news.com.au This story is from our news.com.au network Source: AFP 28feb03

OIL prices have rocketed up to almost $US40 ($65.90) a barrel in New York for the first time since the 1990-91 Gulf War. Benchmark light sweet crude for April delivery surged more than $US2 to $US39.99 in late morning trade, a level not seen since October 1990 in the wake of the Iraqi invasion of Kuwait.

It later fell back to $US39.25 a barrel, still up $US1.55 from the previous close.

Traders chased prices higher on fears that a war in Iraq could be just around the corner, threatening disruption to Middle East supplies, while US oil stocks are close to a 27-year low.

"A potentially supply-disruptive war may begin at any moment," said Mike Fitzpatrick, an oil trader at Fimat USA in New York.

The price of reference London Brent North Sea crude for April delivery rose to $US33.20 in late trading from $US33.07 at the close of the previous session.

"Crude oil inventories remain about as low as they possibly can be in the States and then you throw in on top of that the geopolitical concerns and you've got the recipe for crude moving up towards $US40," said JP Morgan analyst Paul Horsnell.

"In terms of the key oil products, we're just running out."

Analysts said the decision taken last month by the Organisation of Petroleum Exporting Countries (OPEC) to pump more oil to compensate for a strike in Venezuela had come too late too quell a price spike.

"We had always warned that the market was on a knife-edge: additional crude supplies were expected to arrive in the coming weeks, but it was unclear whether they would arrive in time to prevent a squeeze in prices," said GNI-Man Financial analyst Lawrence Eagles.

"They did not. The squeeze is now well and truly under way, underpinned by cold weather demand and a surge in natural gas prices."

The market found little solace in comments from the OPEC oil cartel reassuring consumers it had four million barrels of spare capacity available to avert supply shortfalls and would not use oil as a weapon if war broke out against Iraq.

OPEC Secretary General Alvaro Silva Calderon "talked about having 4 million barrels a day of spare capacity and nobody really believes that", said Horsnell.

"I think JP Morgan is more optimistic than most on how much spare capacity there is within OPEC and we don't think there's much more than two (million bpd) left and there are others who have lower numbers than that.

"There's not really an awful lot the OPEC secretary general can say at this point to drag things down too quickly."