Sam Fletcher
Senior Writer
HOUSTON, Mar. 18 -- Futures prices for oil and petroleum products continued to fall Monday as markets appeared quick to ratchet down the previous so-called "war premium" on oil, now that war between US-led forces and Iraq seems even more imminent.
In a televised address Monday night, President George W. Bush gave Iraqi President Saddam Hussein and his sons 48 hr to leave Iraq in exile or else face military action "at a time of our choosing."
That followed a Sunday meeting in the Azores with UK Prime Minister Tony Blair and Spanish Prime Minister José María Aznar at which Bush promised "a moment of truth for the world" Monday. That meeting seemed to signal an end to diplomatic maneuvering and the imminent threat of a US-led attack against Iraq, with or without the approval of the United Nations Security Council.
Markets seemed Monday to be in the classic mode of "buy the rumor and sell the fact" as they sold down positions for which "war premium" prices had previously escalated. Traders went into a selling mode from the start of Monday's session on the New York Mercantile Exchange, apparently covering short positions in case that swift action against Iraq leads to a substantial drop in oil prices.
Iraq's oil wells
Most market participants anticipate that any war with Iraq will be short-lived, as was Desert Storm in 1991 when US-led troops forced Iraq's military to withdraw from its occupation of Kuwait. But unlike 1991 when retreating Iraqi forces blew up hundreds of oil wells in Kuwait, the oil markets apparently expect little or no damage to oil production in Iraq or its neighboring states this time.
Not everyone shares that opinion, however. Dow Jones Newswires reported Houston-based Boots & Coots International Well Control Inc. led a surge Monday in stock sales of small-capital companies, as it stock price more than doubled to $1.20/share on the American Stock Exchange, up from 59¢ previously.
Boots & Coots was one of three US well control companies that killed the blowouts from most of the wells damaged by Iraqi troops in Kuwait in 1991.
Meanwhile, analysts at UBS Warburg LLC, New York, reported Tuesday, "The current (low) level of global oil inventories is likely to act as a counterbalance to any oil price fall following the potential resolution to any Iraqi conflict." They expect the postwar price for West Texas Intermediate crude to settle around $25/bbl "unless the US government exceeds our 20-30 million bbl Strategic Petroleum Reserve release assumption."
Energy prices
The April contract for benchmark US sweet, light crudes dropped by 45¢ to $34.93/bbl Monday on NYMEX, while the May position plunged 82¢ to $32.54/bbl. Heating oil for April delivery fell 2.5¢ to 91.57¢/gal. Unleaded gasoline for the same month lost 1.33¢ to $1.03/gal.
However, the April natural gas contract gained 7.8¢ to $5.51/Mcf Monday on NYMEX. "The market opened up and traded higher early, but fell quickly before midmorning, bottoming out at $5.28(/Mcf), and then steadily climbed higher all afternoon. Look for the market to begin a consolidation period with back-and-fill trading," analysts said Tuesday at Enerfax Daily.
They noted, "Natural gas storage remains near all-time lows, with the spring injection season around the corner as well as (increased) cooling demand. That buying competition could keep prices high into the summer injection season and next winter."
In London, peace demonstrators disrupted energy futures trading for 2 hr Monday on the International Petroleum Exchange. The May contact for North Sea Brent oil settled at $29.48/bbl, down 65¢ for the day, after trading in a range of $29-31.65/bbl. The April natural gas contract lost 2.6¢ to the equivalent of $2.75/Mcf on IPE.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes dropped $1.18 to $29.80/bbl on Monday.
Contact Sam Fletcher at [email protected]