Oil Prices Fall as Shortage Fears Subside

Oil futures prices closed sharply lower Thursday, as new bearish sentiment took hold of the market after three days of rising prices.

Factors that had strengthened the market in recent days began to fade early in the trading day. Along with predictions that Hurricane Gilbert might miss the major oil refinery area on the Texas and Louisiana coasts, Iraq’s oil minister said his country would not lower its oil output if asked to do so by the Organization of Petroleum Exporting Countries and instead might increase production.

On the New York Mercantile Exchange, the contract for October delivery of West Texas Intermediate, the benchmark grade of U.S. crude, fell 50 cents to settle at $14.90 per 42-gallon barrel. Other contract months also declined.

The drop erased nearly a third of the gains from a rally that began late Monday after crude prices plunged briefly to $13.75, which was near a two-year low.

The Iraqi minister’s statement punctured the upward momentum that began Monday when Saudi Arabia’s King Fahd made a rare public statement calling for cooperation among OPEC and non-OPEC oil-producing nations in restraining oil production.

Iraq has refused to abide by its OPEC-assigned quota of 1.5 million barrels a day and is estimated to be producing about 2.7 million barrels a day. Some observers hoped that after the recent cease-fire in its 8-year-old war with Iran, Iraq would join with other OPEC nations in setting production limits that would bolster prices. Other OPEC nations are also exceeding quotas.

The Iraqi statement also dampened hopes that a Sept. 25 meeting of OPEC’s price monitoring committee would produce substantive results.

In the Gulf of Mexico, oil and gas companies evacuated many of their personnel from refineries and oil platforms, but observers said the prospect of a major disruption in oil supplies due to the approaching hurricane waned.

“Traders seem to feel that Gilbert is not going to do a lot of damage now,” said John Hill of Merrill Lynch Energy Futures.

Analysts said if refineries restarted operations by early next week, there would be no spot shortages of oil products such as gasoline and heating oil.