Oil Prices Tumble, Rebound Wildly to Close Up $1.26
With a dramatic last-minute surge, crude oil prices on Monday--after falling steeply earlier in the day--shot up $1.26 to more than $31 a barrel on apparently unfounded rumors of Iraqi troop movements toward Jordan and Saudi Arabia.
The day’s wild swings were symbolic of the tension and uncertainty that have loomed over energy markets since the Iraqi invasion of Kuwait on Aug. 2. “This shows how nervous the market really is,” said Andrew Lebow, oil analyst with E. D. & F. Man International Futures Inc. “At 3 p.m. it just started to blow. I really can’t tell you why.”
The price of a barrel of West Texas Intermediate, the nation’s benchmark crude, to be delivered in October rose to $31.30 on the New York Mercantile Exchange. Earlier in the day, prices had fallen as low as $28.35 a barrel in reaction to Sunday’s meeting of President Bush and Soviet President Mikhail S. Gorbachev in Helsinki, Finland.
The October contract price of regular unleaded gasoline, which had fallen to 87 cents a gallon early in the day, closed up 1.5 cents at 94.56 cents a gallon. Heating oil rose 1.91 cents to 85.89 cents a gallon.
Shock waves from the turbulent trading session in the energy markets spilled over onto Wall Street. The Dow Jones industrial average rose about 30 points on early news of falling oil prices, only to close down 3.96 points at 2,615.59 following the increase in energy prices.
The market had initially expected an easing of Mideast tensions as a result of the Helsinki summit, where Bush and Gorbachev called on Iraq to withdraw its troops from Kuwait. Many analysts believed their united front would force Iraqi President Saddam Hussein to seek a peaceful resolution to the conflict.
Prices remained relatively unchanged later in the day after Hussein offered free oil to Third World nations that were able to arrange for its transportation. The offer would require the nations to break the worldwide embargo and blockade of Iraqi and Kuwaiti imports and exports.
Then about 15 minutes before the close, market watchers were stunned as prices shot up to recoup earlier losses on Monday as well as those on Friday. Traders said various unconfirmed umors began to circulate late in the day, including one about Iraqi troops massing on the Jordanian border and of Saddam Hussein sending commando units to destroy Saudi Arabian oil fields. There were no news reports to support the rumors.
“I came out of a meeting and rang up the (Quotron) screen and said, ‘Whoa, what happened?” said Robert Weiss, oil industry analyst at Standard & Poors Corp. “There is a lot of jitteriness, and the slightest rumor sets off something.”
Tom Bentz, director of trading at United Energy, a futures trading firm, said market players jumped into the spiral, fearing that they would be left behind if they did not buy.
“People were not waiting for confirmation” of rumors, Bentz said. “People don’t want to be waiting around to see what the real story is. They just panic and are just buying on the close.”
While the crude oil market see-sawed, U.S. energy officials in Washington predicted that supplies of gasoline and fuel oil for the rest of the year would be tight but adequate unless war breaks out or if there is an unusually cold winter.
Calvin A. Kent, head of the department’s Energy Information Administration, which collects and analyzes energy information, told the House energy and power subcommittee that U.S. petroleum inventories “appear adequate” and that a worldwide crude oil shortage of a million barrels a day later this winter “can be handled.” The shortfall is linked to the embargo of Iraqi and Kuwaiti oil shipments.
Subcommittee Chairman Rep. Philip R. Sharp (D-Ind.) was more pessimistic. “There now is a very small margin of safety,” he said. The Energy Department, he added, “tends to underestimate what can go wrong.”
But some other energy experts said they believe the nation will be able to ride out the shortage.
Energy consultant Scott T. Jones, president of AUS Consultants in Philadelphia, estimated that to offset the shortfall the United States will draw down its record high oil inventories by an average of 1.5 million barrels a day during the three months ending Sept. 30. But that figure should fall to an average of 700,000 barrels a day during the last three months of the year.
“It will be close, but we should be all right,” Jones said.
