Startling Leap in Oil Prices Leaves Traders Baffled : Commodities: Lower U.S. reserves and speculation about a canceled speech play a role.

Abruptly ending two days of sharp declines, crude oil prices soared more than $3 a barrel Wednesday on news of lower U.S. oil reserves and speculation surrounding the postponement of a U.N. speech by the Iraqi ambassador.

But surprised traders were hard-pressed to account for the intensity of the rebound, which erased more than half the $5.56-a-barrel that crude oil dropped Monday and Tuesday after messages from President Bush and Iraqi President Saddam Hussein eased fears of war in the Middle East.

“It looks like the EKG of a guy who just got cardiac shock,” said William Byers, managing director of commodities futures research at Bear Stearns & Co. in New York.

Crude oil for November delivery closed up $3.37 a barrel at $37.32 Wednesday in trading on the New York Mercantile Exchange. Prices of refined products also closed much higher. Crude oil for delivery in later months closed up, though to a lesser degree.

Crude oil prices opened higher, as expected, Wednesday morning in the wake of a report late Tuesday by the industry’s main trade group, the American Petroleum Institute, which showed that U.S. crude oil reserves had fallen by 9.4 million barrels from the week before, the third consecutive week of declines.

The large drawdown, which brought stocks to 354.6 million barrels in the week ended Sept. 28, partly reflected lower imports and was concentrated on the West Coast, an API spokesman said.

“Additionally, there was a counter-seasonal drop in heating oil stocks, which was not expected,” said Peter Beutel, an oil industry analyst with the Pegasus Econometric Group Inc. in Hoboken, N.J. “Normally, you don’t see a drop in stocks until mid-December.”

But the statistics were not sufficient to raise oil prices more than $1 or so--crude stocks still remain about 20 million barrels above levels a year ago.

Prices were driven up partly on statements by Secretary of State James A. Baker III that foreign ministers of several nations had indicated that they would not oppose military action against Iraq.

After rising initially, prices held steady at around $35.50 a barrel for most of the day. They started to climb again in late afternoon after traders got word that Iraqi Ambassador Abdul Amir Al Anbari had postponed an address before the United Nations for the second time this week.

Although no reason for the postponement was given, traders immediately interpreted the move as bullish.

“People were expecting him to come out and make a conciliatory speech,” said Tom Bentz, director of trading at United Energy Inc. in New York, “and when he canceled,” traders started buying crude contracts.

Prices surged strongly in the last hour of trading as commodity houses, fund managers and others bought heavily, traders said.

Traders also may have been reacting to a flurry of news reports out of the Middle East: that Saddam Hussein toured Iraqi-occupied Kuwait to boost troop morale, that French and Japanese leaders were in the Middle East, and that Palestinian guerrilla leader Abul Abass threatened terrorist acts in reaction to the U.S.-led embargo of Iraq.

But after the close, analysts were loathe to say that Wednesday’s movement signaled any shift in the market’s psychology, which remains skittish and emotional.

“What we’re left with right now is an extremely volatile market that moves on the slightest information, whether a rumor on a psychological level, or whether a technical factor, or a fundamental report, even from the API,” Beutel said.

Wednesday’s rebound “was a normal correction of a very steep decline,” Byers added. “There was a snowball effect (on the way down), which carried it too far, and today’s trading was more or less a natural reaction.”

Unleaded gasoline for November delivery closed up 6.21 cents a gallon at 93.14 cents. Gasoline for delivery in later months also rose.

Home heating oil for November delivery closed up 7.38 cents at 99.41 cents a gallon. Heating oil for delivery in December and later also closed higher.

Meanwhile, instability in crude oil prices was blamed for the continuing decline in California crude oil production, which fell in 1989 for the fourth year in a row, the California Energy Commission reported Wednesday.

Oil production in the state was 364.3 million barrels in 1989, down from 387 million barrels in 1988. The low point in recent years was 1980’s production of 346.9 million barrels, the commission reported.