Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, January 13, 1993 TAG: 9301130092
SECTION: BUSINESS PAGE: A5 EDITION: METRO
SOURCE: Associated Press
DATELINE: NEW YORK LENGTH: Medium
OLDER, WISER OIL MARKET UNLIKELY TO PANIC THIS TIME
A renewed conflict might be brewing with Iraq, but the world's oil markets don't seem to care. Crude oil prices actually have fallen, and analysts doubt an attack on Iraq would bring any substantial increase.After watching prices swing wildly, from doubling to being halved, on shreds of news before and after the U.S.-led counterstrike on Iraq more than two years ago, the market has gotten older and a little wiser.
"The market's been through that. It saw the price of oil skyrocket and come down," said Eugene Nowak, head of the energy group at Dean Witter Reynolds Inc. "The market would have to see some glitch in the supply pattern this time."
With Iraq's depleted military strength, it is unlikely Saddam Hussein could substantially threaten his neighbors' oil production, analysts say.
Iraq has been barred by the United Nations from exporting oil since it invaded Kuwait in August 1990. What little oil it has been producing is used internally, except for a trickle that is reaching Jordan.
Other members of the Organization of Petroleum Exporting Countries, most notably Saudi Arabia, have compensated for the lost Iraqi supply; the cartel as a whole is pumping more now than before the invasion. Kuwait has been rebuilding its oil industry and is approaching prewar capacity.
Increased supply, sluggish economies in Europe and heavy U.S. refinery production have been depressing energy prices. The price of delivery over the next few months of light, sweet crude, a benchmark grade of oil, has declined more than $1.50 per barrel since Dec. 23 and about $4 since autumn to $18.38 per barrel Tuesday on the New York Mercantile Exchange.
Oil closed down 40 cents Tuesday to its lowest level since March.
Prices are slightly lower than they were in July 1990, when tensions between Iraq and Kuwait began to give the market jitters. When Iraqi forces invaded, oil prices leapt higher and reached more than $40 a barrel five months later when U.S.-led forces began bombing Baghdad.
Oil from Iraq and Iraqi-occupied Kuwait already was off the market, but many investors feared the rich oil fields of Saudi Arabia might be threatened. Saddam does not seem to have the might to threaten Saudi Arabia this time.
There also was concern that an oil slick in the Persian Gulf could find its way into coastal Saudi refineries and disrupt production, said Rita Beale, energy analyst at Shearson Lehman Brothers Inc.
In the sometimes perverse ways of the market, a U.S. invasion of Iraq actually could depress oil prices if it appears Saddam might be ousted.
"A march on Baghdad or an overthrow by his own people would be bearish," Beale said. "It could bring oil back onto the market."
Without Saddam in power in Iraq, the United Nations would be more likely to remove the economic sanctions against the country, which would disrupt oil markets and likely affect the stock price of oil companies, analysts say.
Iraq was producing almost 3.5 million barrels per day of oil before it invaded Kuwait. That's more than 10 percent of OPEC's current bloated production.
Whether or not Iraqi crude re-enters the market, the outlook for oil supplies is strong as OPEC prepares for a meeting Feb. 13, Nowak said. Spring will bring a seasonal decline in demand as less fuel is needed for home heating oil. Also, the U.S. economy is recovering slowly, but economies in Europe and Asia are having trouble.
The low prices for crude have enticed refiners to squeak out a little extra profit by selling more products such as gasoline and home heating oil, said Frank P. Knuettel, energy analyst at Prudential Bache Securities.
Combined with mild weather in the Northeast, the country's main heating oil consuming area, the result has been a buildup in supplies and lower prices.