Sam Fletcher
Senior Writer
HOUSTON, Mar. 14 -- Energy futures prices plummeted Thursday as President George W. Bush apparently backed down from his previous insistence on an immediate vote by the United Nations Security Council on a new resolution to force Iraq to eliminate stockpiled weapons of mass destruction.
The April contract for benchmark US light, sweet crude plunged by $1.82 to $36.01/bbl on the New York Mercantile Exchange as traders interpreted the change in US strategy as a clear sign for the delay of any military action against Iraq, with the US facing increased opposition around the world. The May contract fell $1.68 to $34.67/bbl.
However, Paul Horsnell, head of energy research at J.P. Morgan Securities Inc., London, denounced Thursday the "shambolic" diplomatic maneuvering on the issue of Iraq. "Our concerns grow that a slip from a relatively benign path for oil prices is looking more likely, especially after mounting reports of the mining of Iraqi oil infrastructure," he said.
Friday, Merrill Lynch Global Securities Research & Economics Group, New York, raised its projected "very short-term" 30-day crude price to $46/bbl, up from $41/bbl previously, on "reliable indications" that Iraqi officials have placed explosives "in or around oil-producing structures" in that country.
"It is not clear whether this action involves all three primary producing basins—Mosul (and) Kirkuk in the north and Basra in the south. However, the elevated prospect for potential damage to the country's oil infrastructure was something we explicitly did not assume in any of our previous assessments," said Michael Rothman, first vice-president and senior energy market specialist at Merrill Lynch.
"Such a price trek (to $46/bbl) would eclipse the all-time high of $41.15(/bbl) posted in early October 1990 following Iraq's invasion of Kuwait," he said.
If the US does take military action against Iraq, Rothman expects the loss of oil supplies to be limited to Iraq's current exports of 2 million b/d, including 1.7 million b/d under the UN-administered oil-for-aid program and 300,000 b/d supplied to Jordan and Syria.
Other members of the Organization of Petroleum Exporting Countries could make up that difference. However, Rothman said, "The cartel's spare capacity would be exhausted and commercial oil inventories would remain sharply in deficit."
Crude oil prices eventually would "gravitate back into the mid-$20 range" favored by both OPEC and consumer nations. "However, the trip back to a mid-$20s level is not expected by us to be so immediate" as in 1991 when oil prices fell immediately with the action of allied forces to drive Iraqi troops out of Kuwait.
Because of other market pressures, it will take longer for oil prices to retreat from a war peak "even assuming no harm befalls Iraq's oil infrastructure," he said.
Other prices
Heating oil for April delivery tumbled 6.81¢ to 96.71¢/gal Thursday on NYMEX. Unleaded gasoline for the same month lost 5.62¢ to $1.06/gal. The April natural gas contract fell 50.4¢ to $5.36/Mcf.
In London, the April contract for North Sea Brent oil dropped $1.48 to $32.43/bbl on the International Petroleum Exchange. The April natural gas contract lost 2.8¢ to the equivalent of $2.91/Mcf on IPE.
The average price for OPEC's basket of seven benchmark crudes lost 32¢ to $32.42/bbl Thursday.
Contact Sam Fletcher at [email protected]
