Oil Prices Plunge on Iraq Move as Fears of War in the Gulf Ease

Oil prices fell sharply today on heavy selling stirred by news that Iraqi President Saddam Hussein had ordered the release of all foreign hostages in Iraq and Kuwait in an apparent bid to end the four-month Persian Gulf crisis.

In active trading on the New York Mercantile Exchange, oil for delivery in January closed down 89 cents at $26.40 a barrel after recovering from a low of $25.25.

Unleaded gasoline for January delivery continued to slide along with crude oil, closing 2.24 cents lower at 66.60 cents a gallon. Heating oil for January delivery closed down 1.43 cents at 79.71 cents a gallon after rebounding from 76.50 cents.

Hussein’s announcement “was a totally unexpected move by Iraq, and it strongly suggests that Saddam Hussein is proclaiming the end to the gulf crisis,” said George Nickas of Geldermann Inc.

Oil prices made an abrupt turnaround with the news, catching overnight traders by surprise.

Analysts said oil is quickly retreating to the levels before Aug. 2, when Iraqi forces overran Kuwait. On Aug. 1, spot oil was quoted at $21.54 a barrel.

Analysts said Hussein’s move had significantly eased war fears.

“The more good news we get, the less of a premium for war worries,” said Mehdi Varzi, analyst at Kleinwort Benson Securities.

But Varzi cautioned, “There are a lot of pitfalls over the next month. The two sides are still way apart, and the price will be all over the place. They haven’t even started negotiating yet. Things could go wrong.”