Oil and Gasoline Prices Surge on Iraqi Action
U.S. missile strikes in Iraq and the postponement of a United Nations agreement letting the rogue nation sell oil on world markets caused crude oil and gasoline prices to jump on commodity markets Tuesday. Nervous investors also bid up oil stocks.
But analysts were divided on how the events would affect gasoline prices at the pump, with some saying the loss of Iraqi oil in itself is not significant enough to make a difference.
Experts noted that Iraq’s oil had yet to reach the market and would have added only 1% to the world’s average daily production had shipments begun in October for the agreed-to six-month period.
“Compared with what happened to California earlier this year, when you had refinery shutdowns that cost 10% of gasoline refining capacity, this is very, very small,” said energy economist Philip K. Verleger of Charles River Associates in Washington.
Instead, the effect might be to keep prices near their current level “instead of . . . falling later this year by $1 to $1.50 a barrel as we had expected,” said noted oil historian Daniel Yergin, president of Cambridge Energy Research Associates in Cambridge, Mass.
Still, there was wide agreement that petroleum prices, always sensitive to Middle East turmoil, would continue to rise if the conflict widens in scope or persists, creating uncertainty about oil supplies from elsewhere in the region. That could significantly fuel inflation.
The price of futures contracts for benchmark crude oil jumped $1.15 to close at $23.40 a barrel after trading as high as $24.25 the day after the United States launched Tomahawk cruise missiles against Iraqi military targets. Gasoline futures prices were up 1.35 cents a gallon to 62.96 cents.
Investors apparently were betting that the situation will worsen: Atlantic Richfield shares jumped $4.375 to $121.125, Mobil gained $2.375 to $115.375 and Texaco surged $3.125 to $91.875 on the New York Stock Exchange.
The volatile response of oil stocks “points out that the political situation in the Gulf region is very fragile. All you need is one other place where things go wrong--Iran, for example--and there is not a lot of flexibility in this,” said NatWest Securities oil analyst Adam Sieminski.
Those taking a pessimistic view said the unavailability of Iraqi oil will put further pressure on depleted U.S. fuel oil inventories as winter approaches. Fuel oil prices are already up 30% over this time last year, traders said.
“We’re going into a heating oil season when there is potential for cold weather or refinery problems that could make it a tight situation,” said Drew Dickson, director of research and trading at GSC Energy in Atlanta.
Most agreed, however, that the impact of the loss of Iraq’s oil in the world markets will be short-lived because the oil supply picture is improving. The introduction of more crude later this year from new Gulf of Mexico fields and other non-OPEC countries will add 2 million barrels in daily production, or twice what Iraq would have provided, Verleger said.
“The effect is [that] psychologically, the longer you delay Iraqi oil, the less it matters,” said NatWest Sieminski.
Iraq had received the go-ahead to begin selling enough oil to earn $2 billion designated for humanitarian aid over the six months starting Oct. 1. Based on current prices, Iraq could have sold about 700,000 barrels daily. The world consumes about 73 million barrels of oil per day.
The world oil market has been buffeted since the start of the year by speculation on the return of Iraqi oil, with crude oil prices rising and falling in response. Prior to being expelled from the market in 1990 after invading Kuwait, Iraq was selling 3.5 million barrels of oil a day, or 5% of world consumption.
But Iraq’s incursion into a Kurdish enclave that had been designated a protected area by the United States and its allies provoked a missile attack and the United Nations announced that the oil swap had been postponed.
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Rising Price
The spot price of U.S. crude oil jumped more than $1 a barrel Tuesday after U.S. missiles struck Iraq. Weekly closes except latest:
Tuesday: $23.40
Source: Cambridge Energy Research Associates
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