Sam Fletcher
OGJ Senior Writer
HOUSTON, Sept. 4 -- Energy futures prices plummeted Tuesday in New York and London as Iraq's proposal to negotiate the possibility of renewed arms inspections deflated some of the "war premium" increase in oil prices in recent months.
Tariq Aziz, Iraq's deputy prime minister said his country will allow the United Nations to renew inspections for weapons of mass destruction only if there is a prospect of ending economic sanctions against Iraq.
That inspection process originally was to have been imposed for only 18 months after the end of the Desert Storm allied military action to push invading Iraqi forces out of Kuwait. But opposition and delays by Iraqi officials extended the process until 1998 when the last inspectors left Iraq because of imminent US air strikes. Iraqi officials have since refused to allow their return.
Meanwhile, once-strong expectations that the US would attack Iraq as part of its war on terrorism appear to be diffusing. Recent polls indicate US public support for a US attack against Iraq has fallen to 56% from 69% in early August. President George W. Bush appears to have trouble building support for such action both in Congress and among foreign governments.
Continued rumors of overproduction by some members of the Organization of Petroleum Exporting Countries also had a dampening effect on oil markets, said analysts. However, Rilwanu Lukman, OPEC's conference president, told the 17th World Petroleum Congress in Rio de Janeiro that OPEC succeeded in stabilizing world oil prices. Unless something extraordinary happens, he said, there will be no need for OPEC to change its current production quota at its Sept. 19 meeting in Osaka, Japan.
Purnomo Yusgiantoro, Indonesia's energy minister, meanwhile was quoted by Indonesian newspapers as saying that country will oppose any proposal at the OPEC meeting that would impact the present level of world oil prices. "Our government's policy is to see crude oil prices increase," he said.
The October contract for benchmark US light, sweet crudes plunged $1.19 to $27.79/bbl Tuesday as trading resumed on the New York Mercantile Exchange after the Labor Day holiday. The November position dropped $1.01 to match the October closing price of $27.79/bbl. Unleaded gasoline for October delivery fell 4.2¢ to 74.52¢/gal, while heating oil for the same month lost 3.54¢ to 72.81¢/gal.
Those losses annihilated a brief pre-holiday market rally that was triggered by traders' reluctance to hold short positions over the long weekend because of tensions between the US and Iraq.
The October natural gas contract retreated by 16.4¢ to $3.13/Mcf on NYMEX. "The market opened lower and traded under $3.15(/Mcf) the remainder of the day in a tight range. However, with the lowest demand so far this season, prices still managed to stay well above $3(/Mcf)," said analysts at Enerfax Daily.
"Some traders are skeptical of a continued sell-off prior to winter with supplies continuing to tighten. But the low demand may take its toll in the short-run," they reported Wednesday. "Look for some usual post-selloff short-covering (Wednesday), as the market waits for (Thursday's) Energy Information Agency (US natural gas) storage report."
Analysts said an injection figure of 50-60 bcf is expected to be reported, down from 75 bcf during the same period a year ago and from a 5-year average build of 61 bcf.
In London, the October contract for North Sea Brent oil dropped 97¢ to $26.57/bbl Tuesday on the International Petroleum Exchange. The October natural gas contract lost 2.4¢ to the equivalent of $2.61/Mcf on IPE.
The average price for OPEC's basket of seven benchmark crudes was down 63¢ to $26.14/bbl Tuesday.