ENERGY : Oil Prices Rise After Hussein Boosts Forces

Oil prices shot higher Monday after Iraqi President Saddam Hussein followed his weekend offer to free foreign hostages on Christmas with an order to reinforce Iraqi troops in occupied Kuwait

In feverish trading, oil for delivery in December on the New York Mercantile Exchange closed up $1.72 at $31.50 a barrel after shaking off an early setback of $1.28 spurred by Iraq’s offer to free hostages.

“Peace seemed to be blowing in the wind,” said John Geraghty of B & C Trading.

Prices reversed direction after news that Iraq said it was sending about 200,000 more troops to Kuwait.

Western diplomats say 400,000 Iraqi troops are already stationed in Kuwait and southern Iraq.

More than 230,000 U.S. troops are in the Persian Gulf as part of a multinational force facing Iraq following its Aug. 2 invasion of Kuwait. Washington is sending another 150,000 over in the next few weeks.

Despite the price upswing, analysts said the market was still likely to fall in the long term amid indications that Iraq still wanted a peaceful end to the Persian Gulf crisis.

Peace signals and ample supplies wiped $4.11 from the price of oil last week.

“I don’t see this going too far on the upside. It’s pretty amazing he (Saddam) does this after he says he wants peace,” said Scott Ross at SHB Commodities.

The oil market went into a tailspin in early trading Monday as traders sold on Saddam’s offer over the weekend to free foreign hostages, starting on Christmas. He said the foreigners would be let go if the climate of peace continued.

Analysts said the market was also focusing on a comment by the Al-Thawra newspaper, organ of Iraq’s ruling Baath Party, that Baghdad wanted a dialogue to resolve the Gulf crisis.

Reports of adequate global crude oil supplies pressured prices in recent weeks. Relatively mild temperatures in the main consumption centers also weighed on oil, analysts said.

“We’re in a kind of golden scenario--no war and mild weather,” said Keith Hamm, a consultant with Petroleum Economics Ltd. in London.

The Middle East Economic Survey, a Nicosia-based industry newsletter, reported Monday that Saudi Arabia would boost its output to 8.5 million barrels a day through December. Output in October was 7.8 million barrels daily, it said.

Oil industry officials agreed with the bearish oil market scenario.

“I’ve been a strong believer since day one (of the Persian Gulf crisis) that, with Saudi production running at these levels, we can make it through the winter,” said a U.S. oil industry executive. “And, come spring, demand normally drops by 2 million barrels (a day),”he added.

The 3-million-barrel-a-day boost in Saudi production since Iraq invaded Kuwait will cover 75% of the oil lost to the market due to the U.N. embargo on trade with Iraq and occupied Kuwait.