Oil Prices Heat Up as Hopes for Quick Mideast Settlement Fade
As hopes dimmed for a quick and peaceful settlement of the Middle East crisis, crude oil prices spurted higher Thursday, following some sharp declines earlier in the week. Wholesale gasoline and heating oil prices also rose.
The price of light crude oil for October delivery rose 85 cents to close at $26.77 a barrel on the New York Mercantile Exchange.
The price of the benchmark grade of oil traded as high as $32.25 a barrel last week, tying a 1983 record. But the price slipped $4 on Monday and nearly $2 on Wednesday on news reports that hostages would be freed and that Iraqi leader Saddam Hussein was negotiating a secret agreement with the United States.
However, when no hostages were let go on Thursday and Hussein denied any softening of his stance, prices bounced back up, traders said.
“The way the market was trading yesterday, you would think that peace had been declared, and we all know that it hasn’t,” said Thomas Bentz, director of trading for United Energy Inc. in New York.
“I think that people are starting to understand that Hussein is going to be there for a while,” said Thomas Lewis, energy analyst with Duff & Phelps, a Chicago-based investment firm. “The United States is not going to run in there and smash him to bits.”
Technical factors also played a part in Thursday’s price increase, said Walter Zimmerman, a trader with Shearson Lehman Bros. in New York. A price of about $25.30 a barrel has become a support level in recent days at which traders are not willing to “sell short” or bet that the price will drop even more, he said.
“We got down to where there were no sellers,” Zimmerman said. “You say, ‘The market’s looking for volunteers. Anybody want to sell short down here?’ Nobody volunteers, so we go higher.”
Traders also were unwilling to sell short heading into the uncertainty of a long Labor Day weekend, he said.
As a Middle East stalemate becomes likely, the market is becoming less volatile, said Kevin Kelly, manager of futures trading for Chevron Corp.'s international oil company in San Francisco. Kelly predicted a trading range between $25 and $30 a barrel, “so there is more upside within that range,” he said.
And even though President Bush said Thursday that he expects no “major imbalances” in the oil markets because of Iraq’s invasion of Kuwait, several oil experts said there will still be a shortfall despite the agreement by this week by the Organization of Petroleum Exporting Countries to temporarily boost production.
The wholesale price for unleaded gasoline for September delivery rose 4.35 cents to close at 89.07 cents a gallon. The price for September contracts for home heating oil increased 3.9 cents to close at 75.54 cents a gallon.
In related energy developments Thursday:
* Florida’s attorney general accused Phillips Petroleum of charging independent gas distributors more for gasoline than company-operated service stations. “The evidence gathered thus far suggests that independent jobbers and distributors could buy Phillips gas cheaper at a company-operated service station than by buying wholesale directly from the company,” Atty. Gen. Bob Butterworth said in a statement.
In a complaint filed in a state court, he asked for an injunction against the pricing practice and a $5,000 fine. A Phillips spokesman said the company was unaware of the allegations and hadn’t yet seen the complaint.
* Texas energy regulators voted in an emergency session to allow maximum output from most of the state’s oil wells starting Saturday, in a move that will boost output by between 20,000 and 30,000 barrels per day to help ease shortfalls caused by the Mideast crisis.