Oil Slumps Below $30 a Barrel as ‘War Premium’ Declines Dramatically
Crude oil prices settled below the important $30-a-barrel level Friday for the first time in four weeks, as traders bet that war would not break out while President Bush visits Saudi Arabia.
Light sweet crude for December delivery closed down $1.24 at $29.78 a barrel in trading on the New York Mercantile Exchange. Later-month contracts were also down.
The selloff, spurred in part by technical factors, was a sign that the “war premium” that drove prices above $41 a barrel a month ago has diminished dramatically as the Middle East crisis had dragged on. (The premium is the extra price that traders pay out of fear that there will be supply disruptions during a war.)
Fears of shortages have diminished as demand has fallen and world production has hit levels higher than before Iraq invaded Kuwait on Aug. 2--even with the U.N. embargo.
“We’re having a real breakdown here,” said Thomas Blakeslee, an energy analyst with Pegasus Econometric Group Inc. in Hoboken, N.J. “We have broken down below the $30 level, and that is significant psychologically.”
Oil prices have lost about 27% of their value since peaking at $41.15 a barrel Oct. 10, an all-time high.
In the last week, prices have dropped about $4 a barrel. Before Iraq invaded Kuwait, oil was trading at about $21 a barrel.
Blakeslee said the war premium has fallen from a high of $20 a barrel to $7 to $9 a barrel. He sees crude prices stalling at $29 a barrel for now. They were as low as $29.25 on Friday before edging up.
Traders attributed Friday’s falling crude prices to the low likelihood of war breaking out in the next week.
Prices opened down, crept back up above $30 a barrel, then dropped again sharply on word that Iranian Foreign Minister Ali Akbar Velayati returned from a two-day visit to Baghdad with news that Iraqi leaders had not ruled out withdrawing from Kuwait.
In addition, Andrew Lebow, a trader with E. D. & F. Man International Futures Inc. in New York, said “the spin is that with Bush on the road for the next eight days. . . it’s unlikely hostilities will erupt.”
The President left Friday for Europe and the Middle East.
On Friday, the price of home heating oil for December delivery closed down 2.25 cents a gallon at 84.42 cents. Unleaded gasoline for December delivery also was down, 2.53 cents a gallon at 77.63 cents.
CRUDE PRICES
Friday: $29.78, down $1.34
