Join Date: May 2001
Location: Somewhere over the rainbow
Oil prices plunge on expectation of quick war
March 19 2003
The price of oil plunged nine per cent today, falling to its lowest level in more than two months. Traders were betting that the impending United States invasion of Iraq will go smoothly and that global stockpiles of crude are sufficient to offset any supply disruptions.
The April futures contract fell $3.26 to $31.67 a barrel on the New York Mercantile Exchange, the lowest close since Jan. 8.
However, with US supplies low and uncertainty in the Middle East high, traders said petroleum prices were likely to 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 US Energy Department data 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 US Northeast and fewer imports from Venezuela, whose oil industry was crippled for months by a nationwide strike.
Yet Bentz and other traders mostly expressed confidence today that the loss of Iraqi crude could be made up elsewhere and that the US government will tap its own 600 million barrel stockpile, the Strategic Petroleum Reserve, in the event of a supply emergency.
European nations have their own stockpiles that could help make up for any supply shortages resulting from war, which could begin as early as tomorrow night.
Furthermore, industry watchers said OPEC producers - with the exception of Iraq and Venezuela - all are pumping over their quotas, eager to take advantage of the high prices. That extra supply could hit the market just as northern hemisphere demand for petrol, 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.
He said Saudi Arabia may have as much as 50 million barrels in storage or en route to markets.
"They've chartered 25 vessels over the last month and a half," said Drollas in a telephone interview, with each tanker capable of carrying two million barrels of crude.
The United States consumes roughly 19.5 million barrels of crude a day and more than half of that is imported.
Fadel Gheit, senior oil analyst at Fahnestock & Co in New York, said traders were coming to the conclusion that the world has enough oil to meet demand, even assuming that Iraq's daily production of 1.5 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.
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 Kuwait or Saudi Arabia, could be attacked - a scenario that would cause oil prices to shoot higher very quickly, Gheit said.
Short of that, he said prices could easily drop another $5 a barrel in the coming weeks.
The price of crude, which reached a 12 year high of $37.83 last Wednesday, has fallen 16 per cent over the past four trading sessions.
Today's decline in oil prices also drove down wholesale prices for petrol and heating oil. Heating oil for April delivery fell 5.79 cents to close at 85.78 cents a barrel, while petrol 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 a barrel, down $2.23.
You know, somebody actually complimented me on my driving today. They left a little note on the windscreen. It said, 'Parking Fine.'So that was nice.