Barrel of oil down 23% as war begins

[JBA]

Feature Story
Friday, March 21, 2003
   
 
 
 
Oil Prices Tumble Despite Fire Reports
BY JED GRAHAM

INVESTOR'S BUSINESS DAILY

The initial clashes in the war against Iraq boosted investor confidence in a quick victory and sent oil prices down another 4% on Thursday to their lowest level since Dec. 13.

May crude oil futures fell $1.24 to $28.12 a barrel, and in the past six sessions have tumbled 23% from $37.83.

The dive in oil prices came amid reports that the U.S. may have taken out some top Iraqi leaders with its initial attacks, while the first shots fired by Iraq into Kuwait did little damage. The further pullback in crude came in spite of reports that Iraq had set fire to some of its oil wells.

The big fear that caused oil to spike as high as $39.99 a barrel in late February was that Iraq would target oil fields in Kuwait and Saudi Arabia, potentially disrupting production that the world couldn't do without. But oil markets have been less troubled about the loss of Iraqi oil, which other countries could replace.

So the possibility that only a few out of some 500 Iraqi oil wells have been set on fire is a good sign, says Peter Zeihan, energy analyst at Stratfor, a geopolitical and industry consulting group. It also suggests that the wells may not be rigged to go up all at once, he said.

Orange flames could be seen Thursday in the direction of the southern Iraqi oil center Basra, and Defense Secretary Donald Rumsfeld said three or four oil wells may have been torched.

The Arab satellite television channel al-Arabiya reported that fires had erupted in Iraq's valuable al-Rumeila field west of Basra and just north of the Kuwaiti border.


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 Image: Wells Near Basra May Be Burning


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The reason Iraq would destroy its oil infrastructure isn't just to deny U.S. and British governments an asset they hope will help pay for postwar efforts, Zeihan says. It could be done as part of a military strategy.

As the U.S.-led coalition forces approach Basra, a southern oil center, Iraq could decide to set them ablaze to impair visibility and give Iraqi forces a better chance.

But Zeihan said the time for using that strategy is running out. "Coalition forces are already across the border," he said. "If they're going to blow them they're going to have to do it soon."

The possibility that much of Iraq's oil infrastructure may survive the war intact added to growing expectations of a short war to spark the drop in oil prices.

"Everybody just figures the U.S. is going to win convincingly and win quickly," said Global Insight oil analyst Bruce Cavella.

"Chances are that we've seen the worst and prices should stay down," barring any unexpected developments in the war, he said.

Cavella confesses to being a bit surprised by the $10 drop in prices with the conflict just under way and speculates any further easing of prices could take some time.

"We're still going to be faced with low gasoline inventories in the U.S. and the approach of the driving season," he said.

Just how quickly the big drop in oil prices will work its way to gasoline stations is unclear, Cavella says. "Prices tend to fall slower than they rise," he said.

The average price at the pump on Thursday was $1.714, according to AAA's Daily Fuel Gauge Report. That's just off the record $1.722 Tuesday.

As the war headed into its second day, officials around the world tried to calm markets by assuring that supplies were adequate.

Saudi Oil Minister Ali al-Naimi said Thursday that the kingdom as well as other members of OPEC were ready to pump more oil to stabilize markets.

The Saudis are now cranking out well over 9 million barrels per day of their 10.5 million bpd capacity, independent analysts say.

The IEA, the West's energy watchdog, said on Thursday there was no need to release oil from emergency stockpiles because it was confident OPEC could make up for the disruption to supply.

But if the war goes as easy as some now expect, Cavella says, OPEC may find the need to rein in production to keep prices falling below the target range of about $24-$30 a barrel in the U.S.

[Ripsnort]

(Sniff, sniff) Isn't that Lazs burning rubber?

[Saurdaukar]

Originally posted by Ripsnort
(Sniff, sniff) Isn't that Lazs burning rubber?

Nah thats mine.  

[Curval]

Someone at lunch just tried to use these stats to say "See America is already gtting what they are "after"...cheap oil."

How much was oil a year ago?  Answer $30/barrel.  How much is it now?  About $28.

It was only at an inflated price because of the panic and uncertainty leading up to the start of the invasion.  Careful when you hear misleading stats.

[JBA]

Oil Plunges as West Secures Key Oilfields
March 21, 2003 3:13:00 PM ET


NEW YORK (Reuters) - Oil prices deepened a week-long plunge on Friday to hit four-month lows as U.S. and British forces secured key Iraqi oilfields and ports, calming market fears of widespread destruction by Iraqi troops.

A big wave of extra OPEC oil arriving in the West, replacing supply lost from war-torn Iraq, also helped ease the threat of shortages.

U.S. crude (CLK3) plumbed a four-month low of $26.30, ending the day down $1.12 cents at $27.00. Brent crude oil (LCOc1) futures in London fell $1.15 to $24.35 per barrel, having also hit a four-month low.

The value of oil has dropped by 30 percent in a week, having peaked at nearly $40 last month.

``The capture of key oil facilities intact is adding to bearish sentiment,'' said Tony Machacek, a broker at Prudential-Bache International.

British Defense Chief Sir Michael Boyce said all key components of the southern Iraqi oilfields, which normally pump half the country's output, had been secured.

British troops also captured Iraq's Faw peninsula on the Gulf, a strategic oil export route.

``We are trying to make sure that the economic infrastructure of Iraq is left as intact as possible,'' said Boyce.

Only seven oil wellheads had been torched in the south, less than the 30 previously reported, although oil-filled trenches were also ablaze, he added.

He could not confirm reports that Iraqi President Saddam Hussein may have been killed or injured in the first wave of attacks.

The wellhead fires are a long-term worry for oil markets, but have no immediate impact on supply because Iraq's Gulf exports stopped on Monday and this has already been factored into prices, said Leo Drollas of London's Center for Global Energy Studies.

``Whether Iraqi oil stays in the ground or is burned above ground, it still doesn't get to the market,'' he said.

Iraq ranked as the world's seventh largest oil exporter before the war.

EXTRA OUTPUT

OPEC exporters, especially Saudi Arabia, have hiked output over the past few months, first to cover a strike in Venezuela and then to cool a price spike fueled by war fears.

Imports of oil in the United States are rising despite the cutoff in Iraqi supplies.

``It is the weight of oil, rather than the force of bombs, which is pushing markets lower,'' Drollas said. ``OPEC is now producing more oil than has been lost.''

U.S. Energy Secretary Spencer Abraham said OPEC output was now in line with its total level last November despite shortfalls from Iraq, Venezuela and Nigeria.

Western oil companies operating in Nigeria have slashed production and are expected to close a key export terminal this weekend because of political unrest.

Brokers said investors were selling positions built up on futures markets when U.S. crude rallied to a 12-year peak close to $40 in late February.

``The market has now moved from a war premium to a victory discount,'' said independent oil analyst Simon Games-Thomas.

OPEC ROW

Price hawks in OPEC are already concerned about the slump, which is good news for world economic growth, but hits revenue for the cartel of mostly Middle Eastern countries.

The dive has also revealed deep splits in the 11-member Organization of the Petroleum Exporting Countries.

OPEC Secretary-General Alvaro Silva said on Thursday that members have been authorized to use spare output capacity if necessary to make up a shortfall in Iraq supply.

But Iranian Oil Ministry Adviser Hossein Kazempour Ardebili said any output hike would be a ``violation'' since no decision had been taken to raise OPEC quota limits.

He said extra oil would be a ``green light'' to the United States to launch an attack on one of OPEC's founding members.

Saudi Arabia, the world's top exporter and a key U.S. ally, is pumping more than a million bpd above its quota of 8 million bpd, according independent estimates.

So far Gulf states near Iraq have reported no disruptions to oil production, nor any disturbances to tanker movements in the Gulf, which is the artery for 40 percent of world oil exports.

An oil refinery depot in southwestern Iran close to the border with Iraq was hit by a rocket on Friday, Iranian government sources said. It was not clear where the rocket, which hit the depot in the city of Abadan, had come from.

Iraq's neighbor, Kuwait, said it cut throughput at its refineries as a precautionary move after a near miss by two Iraqi missiles on Thursday.