Oil Prices Dive on Easing of Iraq War Fears

Market prices for crude oil and gasoline tumbled Monday as fears of a U.S. war with Iraq abated, but the price drop won’t necessarily open the door to further declines in California pump prices, analysts said.

After climbing back above $30 a barrel last week, crude oil prices abruptly turned south after Secretary of State Colin L. Powell appeared to soften the U.S. position toward Iraq. He said the United States might not try to oust Saddam Hussein if the Iraqi leader abandons weapons of mass destruction.

His remarks eased concerns of a disruption in imports of Middle East oil, and crude for current delivery fell $1.23, or 4.2%, to $28.37 a barrel on the New York Mercantile Exchange. It was the sharpest one-day decline since July 22.

Crude oil prices have jumped more than 40% this year because of the Iraqi war fears, recent terrorist bombings in Bali and Yemen, and tropical storms along the Gulf of Mexico that hobbled production there.

Despite the turmoil, gasoline prices have dropped recently in California and remained stable nationwide.

In Los Angeles, the average price of self-serve regular as of Monday had fallen to $1.541 a gallon from $1.617 a month ago, the American Automobile Assn. reported. In Orange County, the price has dropped to $1.555 a gallon from $1.631 a month ago. At some Southland service stations, the price of regular has dipped below $1.40 a gallon.

California heavily relies on crude oil pumped from Alaska, and supplies have been sufficient until now to meet the demands of motorists in recent weeks without sending prices spiraling higher in tandem with market prices for crude, said David Pursell, a vice president at Simmons & Co., an energy investment banking firm in Houston. Demand also has slackened recently because the busy summer travel season is over.

But while motorists might get a bit more relief from Monday’s sharp decline in crude prices, the volatile oil market could just as quickly move back up, he said. “Odds are it’s a one-day event” and the price of crude “is not going down to $20 [a barrel] on the news” of Powell’s remarks, Pursell added.

And California oil executive Bob van der Valk, who has been predicting higher pump prices for California, said Monday’s drop in crude oil prices did nothing to change his mind. Recent cuts in retail prices are “coming to a screeching halt,” said Van der Valk, bulk fuels manager at Cosby Oil Co., an independent fuel distributor based in Santa Fe Springs.

Gasoline supplies in the state are starting to tighten as producers respond to the seasonally slow travel period with less production, which should nudge prices higher, he said. It’s a situation that cannot be easily offset by importing fuel from other states, because few refineries outside California can produce the state’s cleaner-burning gasoline that’s mandated by air-pollution rules.

In addition, several major refiners are preparing to switch to a new clean-air additive, ethanol, on Jan. 1, and that transfer will at least temporarily shrink overall gasoline supplies, Van der Valk predicted. The refiners are moving to ethanol in place of methyl tertiary butyl ether, or MTBE, a low-emissions additive that is being banned by Gov. Gray Davis because studies showed it had leaked into underground water supplies.

National market prices for gasoline and other refined products followed crude oil’s decline Monday.

Gasoline for November delivery skidded 4.14 cents, or 4.9%, to 81.03 cents a gallon on the mercantile exchange. That represents the wholesale price on trading markets, before taxes and dealer markups.

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