ENERGY : Oil Price Eases 72 Cents; Gas Up 1.8 Cents at Pump
In the absence of solid news from the Middle East, oil prices fell Tuesday from their record close a day earlier, closing at $37.53 a barrel. Other prices were mixed.
Crude oil for November delivery was off 72 cents from the record $38.25-a-barrel price in relatively light trading on the New York Mercantile Exchange as traders took profits after two days of skyrocketing prices. Earlier in the day, the contract traded as low as $37.10.
Crude oil for December delivery jumped $1.25 to $36.07 a barrel.
Wholesale prices for gasoline and home heating oil for October delivery were also off for the day, although prices for later months were up.
A survey released Tuesday by the American Automobile Assn. found that the nationwide average retail price for self-service regular unleaded gasoline jumped 1.8 cents to $1.31 a gallon over a week ago.
Retail gasoline prices are 23.5 cents higher than on Aug. 1, the day before Iraq invaded Kuwait, the AAA said. A separate poll of gasoline prices released last Sunday by the Lundberg Survey reported that the average national retail price for all grades of gasoline had reached an all-time high of $1.3835 a gallon.
The mixed finish on futures markets suggested that oil prices had peaked after several days of rapid increases on heightened fears that war might erupt in the Middle East. But analysts were reluctant to speculate where prices would go.
Short of war, analysts said, they believed that tensions would remain high and that the oil markets would remain jittery. That could mean continuing volatility in oil prices.
In the event of war, most analysts agree, prices would shoot up much higher. If the Middle East crisis somehow resolves itself without military action, some analysts predict, prices would return to pre-invasion levels of about $20 to $22 a barrel.
But oil markets have so far defied easy predictions, reacting more on paranoia and fear than on any change in real oil economics.
“What has happened on the mercantile exchange on Friday and again (on Monday) was just people’s perceptions of a change in the situation, which was really nothing more than saber rattling,” said Harry Johnson, a planning manager with Atlantic Richfield Co.’s products unit.
“Frankly, I think you need to talk to a psychoanalyst, not a financial analyst,” added Bernard J. Picchi, senior oil analyst at Salomon Bros. in New York. “The market is disconnected with any kind of fundamental assessment of oil supply and demand.”
In the event of a military confrontation, oil prices will almost certainly rise sharply. But analysts differed on the degree and duration of such an increase. Estimates varied from $45 to $65 a barrel. Some analysts felt that oil prices might fall after a few days of fighting if it became clear that oil output was not unduly threatened.
“We think that if war erupts . . . oil prices will shoot over $50 a barrel easily. But they won’t stay there,” said Scott Jones, president of AUS Consultants in Philadelphia. “Perhaps as soon as 72 hours after the initiation of hostilities, we expect to see some crude oil price weakness.”
Picchi, who is preparing a report on the outlook for oil prices, doubted that the Iraqi military would live up to its reputation as battle-hardened, and he questioned Iraq’s ability to attack Saudi oil fields, given U.S. air defenses. Consequently, he played down predictions that oil prices would jump to $65 a barrel if a war begins.
But Philip K. Verleger Jr., an economist at the Institute for International Economics in Washington, said prices would jump higher than $65 in the event of hostilities, particularly if things don’t go according to plan.
“It’s true that the Iraqis are unlikely to get to Saudi oil fields,” he said. “It is, however, also unlikely that Saudi oil workers will hang around to find out if they can.” As a result, most Saudi oil production could grind to a halt, and that would disrupt world oil markets completely.
Most analysts felt that, short of war, if the current stalemate continues, prices would not rise much further. Included in the current price is a “war premium”: a bet that hostilities will break out soon.
But oil supplies and demand don’t justify such a high price, analysts said. “Two factors in the marketplace dominate in the period between the rumors of war and actual war,” Jones said. “There are sufficient supplies of oil and refined products until the end of the year . . . and consumers are sending strong signals that $1.40 a gallon for gasoline is too high, and demand will fall.”
But Verleger argued that prices would remain relatively high, given imbalances in the supplies of gasoline, heating oil and other refined products in the world.
What if the crisis is resolved? Again, analysts disagreed. Some saw a return to the pre-invasion status quo, with market fundamentals--not fear--governing prices.
Verleger predicted oil prices falling back to $20 a barrel within three years. But others said the post-crisis Middle East would remain forever changed.
In Brussels, meanwhile, the International Energy Agency staff estimated that increased oil production by the Organization of Petroleum Exporting Countries will make up for much of the lost supplies from Iraq and Kuwait and prevent a worldwide oil crunch in the immediate future.
But if the Persian Gulf crisis continues at stalemate for another six months, the Paris-based IEA predicted, worldwide oil stocks will decline measurably from their levels of a year earlier.
An IEA official, asking to remain anonymous, described supplies as “adequate--but by adequate we do not mean comfortable.”
Consequently, the IEA governing board, which coordinates energy policy for 21 of the world’s industrial economies, is not expected to recommend dramatic action--either global conservation efforts or a drawdown of government-held oil stocks--when it meets Friday in Paris.
CRUDE PRICES
Daily close, November contract, West Texas intermediate crude:
Tuesday: $37.53, down 72 cents
