Oil Price Dips as War Nears

19/03/2003| IslamWeb

The prospect of an imminent war has sent the price of oil plummeting. US crude oil futures plunged dlrs 3.53 to a two-month low of dlrs31.40 per barrel, before closing at dlrs 31.67. In London, international benchmark Brent crude oil slumped by dlrs 2.23, or 7.6%, to dlrs 27.25 per barrel. The falls are consolidating a trend set during the past few trading sessions as war has become increasingly likely.

But President George W Bush's speech on Monday night, giving Saddam Hussein and his sons 48 hours to get out of Iraq, sparked a more dramatic movement.

Traders are betting on a rapid war with minimal disruption to deliveries, and on Iraqi forces leaving the wells in Mosul and Kirkuk intact.

"The oil market is working on the basis that there will be an overwhelming allied victory," said Simon Games-Thomas, an independent oil analyst in Sydney.

The price falls had a knock-on effect, helping to support comfortable gains across European stock markets as investors moved back out of commodities and into equities.

Airline shares in particular were in demand, with British Airways climbing almost 9% and Lufthansa up more than 5%.
But despite Tuesday's falls, the trend in the oil market is far from clear, dealers warned.

Prices could soon start rising again if the action against Iraq does not go as planned, and the integrity of some Saudi fields, some reports say, could be under threat as the kingdom pumps extra oil to keep supply within touching distance of demand.

The "blowtorch" scenario, as some economists are calling it - the torching of Iraqi wells - could see prices shooting up as high as dlrs 50 a barrel, they fear.

And German chemicals firm BASF predicted the price would surge back above dlrs 35 a barrel if war starts, slowing world economic growth.

Foreign oil companies have stopped buying Iraqi crude after the United Nations suspended the oil-for-food programme it has run for the past 12 years, although most shipping ceased on Monday thanks to a moratorium by shipping insurers.

PHOTO CAPTION

Oil traders work in the pit at the New York Mercantile Exchange, Tuesday March 18, 2003. The price of oil fell to its lowest level in more than two months Tuesday as traders bet that an impending U.S. attack on Iraq would go smoothly and that any supply disruptions in the Middle East could be offset with government stockpiles. (AP Photo/Richard Drew)