Crude Prices Dive $1.71 After Topsy-Turvy Day
In a roller coaster trading day, oil prices soared to a record high of more than $41 a barrel Wednesday, then just as quickly plummeted nearly $2.50 on profit taking and the unfounded rumor that Iraqi President Saddam Hussein had been assassinated or overthrown.
But prices of crude oil for November delivery moved back up near the close to settle at $38.69 a barrel, down $1.71 from the previous day’s record closing price on the New York Mercantile Exchange.
The volatility highlighted the nervousness that has overshadowed the fundamentals of supply and demand in oil markets. “Today’s activities are a microcosm of everything that’s happened since Aug. 2,” when Iraq invaded Kuwait, said Sal Gilbertie, a trader with Merrill Lynch Futures in New York.
November crude skyrocketed to a high of $41.15 a barrel in early trading Wednesday before beginning a dramatic plunge that took prices as low as $38 a barrel on the NYMEX.
Prices of refined products also closed down. Unleaded gasoline for November delivery lost 4.66 cents a gallon to close at 93.60 cents. Heating oil for November delivery closed down 5.10 cents a gallon at $1.0105.
The fall ended three days of rapidly rising prices, spurred by political tensions arising from the shooting deaths of 19 Palestinians in the Old City of Jerusalem on Monday and the subsequent harsh speech by Saddam Hussein a day later.
But there was little news Wednesday to sustain the high prices. “The market is a bit like a hot-air balloon, and it requires fresh doses of hot air to stay aloft,” said Michael Wilner, president of Hilltop Trading Co. in New York.
Wednesday’s high was a record for oil futures since contracts began trading in 1983. It also approached the record price for a U.S. grade of crude oil on cash markets, where oil is traded for immediate delivery.
Traders believe that record was set Tuesday, when some U.S. grades were offered for nearly $42 a barrel, apparently exceeding prices during the last oil crisis in 1979-1980 at the onset of the Iran-Iraq war. Records of cash transactions during that period are incomplete. On Wednesday, prices for U.S. crude on spot markets fell to around $38.70 a barrel.
Wednesday’s decline began as a rumor spilled over from other futures markets that Saddam Hussein had been shot or overthrown.
“No one took it seriously, but (the selloff) indicated that the market was looking for an excuse to take profits and technically correct itself,” Wilner said.
The plunge gained momentum as prices fell through the $40.10-a-barrel price that had been Tuesday’s low, then through $39, then lower.
“There was very nervous trading,” said Tom Bentz, director of trading at United Energy Inc. in New York. “It seems that whenever the market breaks, whether to the up side or to the down side . . . the volume comes in very quickly . . . It makes for a very exaggerated type of move.”
But market watchers denied that speculation was fueling the wide price swings, despite accusations to that effect by President Bush and others. On Wednesday, Sen. Joseph I. Lieberman (D-Conn.), was reported to have asked regulators to look into the way business is conducted on the mercantile exchange.
“My sense is that a substantial part of the buying all along has been from people who actually have a use for either the crude oil, the gasoline or the heating oil and that their primary motive or concern in life is having supplies to sell,” said William Byers, manager of commodity futures research at the investment firm of Bear, Stearns & Co. in New York.
Current supplies of oil remain adequate for now, analysts said. On Wednesday, Reuters news agency reported that Saudi Arabia has managed to boost its oil production to 7.7 million barrels a day, up from 7.5 million at the beginning of the month and an increase of more than 2 million since the Iraqi invasion.
Production boosts by other countries have replaced all but 1 million to 1.5 million barrels a day of the 4 million or so daily barrels lost to world production under the embargo of Iraq and Kuwait, said Joseph Stanislaw, a Paris-based international oil economist with Cambridge Energy Research Associates.
It is not clear where prices may go from here. Traders normally seek clues from weekly oil inventory statistics from the American Petroleum Institute, which were released after the close of trading Wednesday.
But those figures provided no clear signals. Oil stocks in the week ended Oct. 5 fell strongly, by 4.2 million barrels from the previous week. But crude stocks, which normally fall at this time of year as refiners turn large amounts of it into heating oil, remain above year-ago levels, analysts said.
Similarly, the figures showed an 1.8-million-barrel buildup of gasoline stocks, which is expected with the end of the vacation driving season. Stocks of distillates, including home heating oil, fell 1.5 million barrels, again in line with seasonal expectations.
