Oil Prices Keep Sliding on Hopes for Peace in Gulf : Energy: Crude tumbled $3.14 a barrel to close at $33.95. It traded last week at more than $40 a barrel.
Crude oil prices plunged for the second day in a row Tuesday, boosting optimism that the forces of supply and demand--rather than fear--will reassume control of the market and restore stability.
Crude oil for November delivery on the New York Mercantile Exchange tumbled $3.14 a barrel to close at $33.95 after trading during the day between $33.85 and $36.45. It was the second-biggest daily drop since the Persian Gulf crisis began in early August.
The fear of war in that oil-producing region pushed crude oil prices to a record--above $40 a barrel--last Thursday even though there was fundamentally no shortage of crude. But since the weekend, the psychology of the market has shifted, resulting in a drop of nearly $6.
The change apparently reflected continued hopes that conciliatory statements by President Bush on Monday would lead to a peaceful solution to the standoff in the Gulf. Iraqi President Saddam Hussein had also seemed to be willing to hold his fire Sunday when he called for a dialogue on the crisis and later ordered the release of nine French hostages.
“More people are thinking that maybe there’s a feeling that (Hussein) may grasp at a chance at some kind of diplomatic way out of this thing, because he’s starting to figure out the whole world is against him,” said Tom Bentz, director of trading at United Energy Inc.
Continued volatility in the market is a possibility, traders said. But, “at least during these 10 minutes, the perceptions are that there is a greater chance for a diplomatic solution,” said Andrew Lebow, crude oil analyst with E. D. & F. Man International Futures Inc.
Some traders said profit taking also contributed to Tuesday’s drop. “We’re seeing some people coming out and saying they missed the opportunity to sell $40 crude oil. Now they are selling at these prices to take profits,” said Randall Rothenberg, an analyst with Dean Witter International Futures Group. Prices are still far above the below-$20-a-barrel prices seen before the current crisis.
Traders underscored the psychological forces continuing to affect the market. “There is a lot of talk, a lot of speculative trading on pure political news,” said David Dwyer, market analyst with Energy Security Analysis.
In the absence of any significant political news from the Gulf that would set off another round of speculation, Dwyer said, traders might pay more attention to the fundamentals of the oil supply situation. Ordinarily, some price hikes would occur at this time of the year, he said, because demand for crude starts to pick up in the fall as people in cold-weather areas stock up on heating oil, but supplies are in good shape.
The American Petroleum Institute’s weekly report on U.S. oil stocks released Tuesday after the mercantile exchange closed showed a drawdown of nearly 9 million barrels from U.S. oil stocks, compared to the week before. That news might send prices up again today, Dwyer said. “That’s a fairly large draw on the surplus . . . a pretty strong signal that the market is tightening,” he added.
Overall, the API report is positive, said Harry Johnson, manager of pricing and forecasts at Atlantic Richfield Co. That kind of week-to-week change in the report--in itself--is not that significant, he said. “Crude oil inventories are still 21 million barrels above where they were this time last year,” he said. However, he added, “this market has gotten to the point that one week’s numbers could make a difference.”
Reaction to the API report will depend on the market’s expectations, Rothenberg said. If the numbers are what most traders expected, the market should return to trading on the fundamentals--”unless something else happens in the Gulf.”
At this point, it all seems to be revolving around the Gulf crisis and “the market’s perceptions of the Middle East from day to day,” Johnson said.
The API report showed motor gasoline stocks up about a million barrels from last week and up by a slightly smaller amount from a year ago. Thus far, at the pumps, the Persian Gulf crisis has pushed gasoline prices at the pump up more than 27 cents a gallon.
CRUDE PRICES
Daily close, November contract, West Texas intermediate crude, price per barrel:
Tuesday: $33.95, down $3.14
