Oil Prices Jump Sharply as Hope for Peace Fades
With hopes for a peaceful resolution in the gulf fading fast, oil futures prices shot up nearly $5 to $32 a barrel on Monday before retreating as nervous traders expected prices to climb even higher.
On the day before a United Nation’s deadline requires Iraq to withdraw from Kuwait or face military force, a barrel of light sweet crude oil to be delivered in February shot up $3.49 to close at $30.78 on the New York Mercantile Exchange. The daily increase was the second-highest ever for the exchange.
Prices for refined petroleum products also jumped sharply. A gallon of February unleaded gasoline soared 9.38 cents to 82.26 cents a gallon, and February home heating oil ended the day at 88.98 cents a gallon, up 11.62 cents.
“Last week the market was hopeful that there was a chance of a peaceful resolution,” said Andrew Lebow, a crude oil analyst at E.D.& F. Man International Futures, a New York-based oil brokerage firm. But “right now, a lot of traders feel that war is inevitable. It’s a very grim market.”
When the market opened in New York, oil prices immediately jumped $4 a barrel, reflecting higher prices in Europe and the failure of U.N. Secretary General Javier Perez de Cuellar’s weekend peace mission in Baghdad. At one point, oil prices climbed $4.71 to $32 a barrel before profit takers took the market back to the $30 range for the rest of the day.
“It sat there all afternoon and didn’t really do anything,” said Tom Bentz, director of trading at United Energy, an oil futures brokerage firm in New York.
Earlier in European trading, February delivery of Britain’s North Sea Brent crude oil rose as high as $31.20 a barrel on the London International Petroleum Exchange before ending the day at $29.17, up $3.50.
Despite record-high inventories of crude oil around the world, traders were focused on the potential for warfare in the oil rich region.
“We’re basically in a market that is ignoring fundamentals, ignoring many technicals, though not all, and it is a 90% psychological market,” said Peter Beutel, an analyst with Pegasus Econometric Group in Hoboken, N.J.
“Fundamentals should dictate that prices should be lower,” Bentz said. But “it’s pretty hard to go with a fundamental analysis with the threat of war in front of your face. The tensions are going to remain in the market for a while.”
The threat of hostilities will force prices above $35 a barrel, traders said. The outbreak of war and damage to oil facilities could send prices soaring to between $41 to $51 a barrel, Beutel said.
“If we get into a shooting war, all kinds of questions arise,” Beutel said. Among his questions: Will this presage a wider conflict? Are insurance rates likely to get so prohibitively high that tankers won’t go into the gulf? Will the Saudis close oil fields?
“We have unleashed a sea of variables on the market,” Beutel said.
Crude Oil Prices February delivery, light, sweet crude, price per 42-gallon barrel Monday: $30.78, up $3.49
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