Oil prices plummet

Crude oil has biggest fall in 16 months
on Iraq war speculation

By Mark Shenk
Bloomberg News

New York >> Crude oil had its biggest decline in 16 months on speculation any war in Iraq will end quickly and with limited disruption to Middle East oil supplies.

U.S. President George W. Bush yesterday gave Iraqi leader Saddam Hussein and his sons 48 hours to leave his country or face attack. Prices have plunged 16 percent in the last four sessions as U.S. and U.K. troops prepared to invade Iraq, which pumps 3 percent of the world's oil. The Middle East is responsible for a third of global output.

"There is a lot of confidence that the U.S. and its allies will quickly defeat Iraq," said Phil Flynn, a senior energy trader at Alaron Trading Corp. in Chicago. "Any disruption will probably be minimal and any missing oil will be made up by the world's strategic reserves and extra shipments from Saudi Arabia."

Crude oil for April delivery dropped $3.26, or 9.5 percent, to $31.67 a barrel on the New York Mercantile Exchange. That's the biggest one-day drop for the contract nearest expiration since Nov. 15, 2001, when oil fell 11.6 percent on the threat of a price war between OPEC and Russia.

If oil settles at this level it would be the lowest closing price since Jan. 8. Oil remains 26 percent higher than a year earlier.

In London, the May Brent crude-oil futures contract was down $2.23, or 7.6 percent, to $27.25 a barrel on the International Petroleum Exchange.

New York oil prices peaked at a record $41.15 a barrel in October 1990 after Iraq invaded Kuwait. Oil then plunged by a third on Jan. 17, 1991, after U.S.-led forces began their air attack on Iraq, reducing the threat to neighboring oil producers.

Some traders "are looking for a repeat of 1991 and realize that if they wait till the shooting starts it will be too late," said Jim Steel, director of commodity research at Refco Inc. in New York.

Price declines accelerated today as automatic sell orders, known as stops, were triggered.

"We are seeing a hedging meltdown," said Philip Verleger, an energy specialist with the Council on Foreign Relations. Some banks are being forced to sell to "hedge" or protect against further declines. "There is a huge overhang," he said. "We could soon see prices in the mid-$20s."

Saudi Arabia, the Organization of Petroleum Exporting Countries largest oil producer, is pumping "close to" 9 million barrels a day to meet current market demands and avert any shortage that might emerge after an attack on Iraq, an official at state-owned Saudi Aramco said.

The world's largest oil company has filled storage tanks with about 50 million barrels, the highest level in more than 10 years, the unidentified official said.

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