War Bumps Oil Prices Below $20

Oil prices tumbled below the $20 level for the first time in six months in late trading today, with confusion over the direction of the Persian Gulf war prompting traders to liquidate market positions before the weekend.

In volatile trading, crude oil for delivery in February on the New York Mercantile Exchange tumbled $2.64 to $18.80 a barrel.

Analysts said volume was light, exaggerating the market’s reaction to the selling.

Earlier, oil had shot up $1.06 on fears that the war would escalate after Iraqi missiles struck Israel Thursday night.

The U.S. benchmark oil has not been below the $20 level since July 20, 1990, when it closed at $19.61 a barrel.

In the early afternoon, crude prices shot up about $1.06 a barrel as traders watched live coverage of Cable News Network journalists in Tel Aviv donning gas masks in their news room amid fears of another Iraqi attack on Israel.

“It’s a little bit of psychology,” said Thomas P. Blakeslee, an energy analyst with Pegasus Econometric Group Inc., in Hoboken, N.J. “It has nothing to do with supplies.”

Oil had fallen sharply late in the morning as a flurry of news and rumors suggested to traders that the war is not going well for Iraqi President Saddam Hussein.

The British Broadcasting Corp. quoted unidentified sources as saying Hussein had sent his family and top Iraqi officials to the west African nation of Mauritania. An unconfirmed rumor that Hussein had been shot by one of his generals was also sweeping through the exchange floor, oil traders said.

Rumors have often moved oil prices in recent months.

Traders fear that an Israeli entry into the conflict would complicate the allied effort to expel Iraq from Kuwait and turn it into an Arab-Israeli confrontation. That would raise enormous uncertainties about the entire region, which supplies a critical portion of the world’s oil.

On Thursday, the oil markets put in one of their wildest performances ever.

War in the Persian Gulf stunned oil traders by pushing crude into its biggest fall in history, a drop of $10.56 a barrel on the New York Mercantile Exchange.

During 5 1/2 months of the desert standoff, virtually everybody had predicted that once the first shots were fired, oil would soar to new heights. It did just the opposite.