Oil Prices Drop as Market Awaits Further Developments in Gulf War

Oil prices fell Tuesday as traders, awaiting further developments in the Persian Gulf war between OPEC members Iran and Iraq, moved to consolidate sharp gains scored last week when Iran unexpectedly accepted a U.N. cease-fire resolution.

West Texas Intermediate, the benchmark U.S. crude for immediate delivery, fell 9 cents to $15.96 a barrel in trading on the New York Mercantile Exchange.

In U.S. Gulf Coast spot trading, where oil is sold to the highest bidder, West Texas Intermediate fell 20 cents to $15.85 a barrel.

“There is a feeling that the market has come up $2 in the last week and now it has to pause and catch its breath,” said Robert Murphy, a vice president on the international energy desk at Shearson Lehman Hutton Inc. in New York.

“The market wants to stay firm and will probably move higher, but it needs time to digest the (price) developments over the past couple of days,” he added.

Withdrawal Announced

In the gulf, Iraq announced that it was withdrawing its army from Iranian soil, but Iran said a joint force of Iraqi soldiers and Iranian rebels based in Iraq captured two cities in stepped-up fighting across its western border.

At the United Nations, Secretary General Javier Perez de Cuellar began talks with Iranian Foreign Minister Ali Akbar Velayati a day ahead of schedule. U.N. officials, who said the secretary-general would meet Iraqi Foreign Minister Tariq Aziz on Wednesday, said a truce could begin within 10 days of the start of the talks.

Many oil market observers say an end to the hostilities will hurt prices because the two countries will raise production in an effort to maximize revenues both need to rebuild their economies but in the process will worsen a global supply glut.

Others believe an end to the Iran-Iraq war will spell higher prices as the Organization of Petroleum Exporting Countries reasserts control over its members’ production and pricing policies.