Dealers Retreat to Sidelines; Oil Prices Fall

Oil prices dropped in the final minutes of trading Tuesday as dealers got out of the market before the U.N. deadline for an Iraqi withdrawal from Kuwait.

“It’s now a case of waiting for the whole thing to start,” said Tim Fox, economist at Midland Montagu. “People are resigned to conflict but unwilling to commit themselves.”

Oil for February delivery on the New York Mercantile Exchange closed down 71 cents to $30.07 a barrel after Monday’s sharp rise of $3.49. Prices fell sharply in the final few minutes of hectic trading.

Oil has been rising on the likelihood of conflict in the Middle East, but as a possible war approached, traders sold Tuesday, fearing that measures by U.S. regulators would hinder movements in the speculative market.

Prices were higher in early trading in New York then swung slowly back and forth throughout the day. In London, North Sea Brent Blend closed at $28.19 a barrel, down 98 cents, on the International Petroleum Exchange after moving in tandem with the New York prices.

For much of the day, the markets focused on late diplomatic attempts to devise a peace plan.

Some traders were surprised to see crude falling in the hours before Iraq’s deadline to withdraw its troops from Kuwait.

Late in the day, crude fell as low as $29.90, down 88 cents from the previous close in New York.

“Crude was down almost 90 cents, which is kind of difficult to explain,” said Andrew Lebow, an analyst with E. D. & F. Man International Futures Inc. “The market is still holding out hope that there will be a last-minute solution, but things look pretty grim.”

The Commodity Futures Trading Commission, the federal regulatory agency, on Tuesday approved emergency measures already adopted by the New York Mercantile Exchange to curb wild energy price reactions to a conflict in the gulf.

“It’s extremely chancy to trade oil because the NYMEX has a standby plan to limit trading if war breaks out,” said Susan Hammargren of commodities firm Geldermann Inc.

Oil products prices also sank, with unleaded gasoline for February delivery ending 5.22 cents down at 77.04 cents a gallon after giving back an early gain to 84.25 cents. Heating oil for February delivery closed 4.28 cents lower at 84.70 cents a gallon.

Analysts said the thin volume had clearly increased the risk of speculating in the oil market and traders turned late sellers, preferring to take a fresh look at the market today.

“Headlines can change so quickly and you have no means to get out of the market,” said one analyst.

Traders appeared to lose hope that war could be averted after Jordan’s King Hussein said war was imminent since all efforts to settle the crisis had failed.

King Hussein, one of the few Arab leaders on speaking terms with Iraq’s President Saddam Hussein, has tried in vain to mediate in the crisis.