Oil prices fell sharply Thursday after rising early in the day as traders reacted to reports from U.S. military officers that oil wells in southern Iraq were burning.
Prices initially jumped after reports from officers with the 1st Marine Division that three wells had been “torched.” But as it became evident that damage to Iraq’s oil fields was minor so far and that U.S. forces were encountering little resistance, prices declined steadily on markets in London and New York.
At the New York Mercantile Exchange, crude oil for April delivery closed down $1.27 a barrel at $28.61, after rising as high as $30.60.
It was the last day of trading for the April crude contract, which peaked March 12 at $37.83 a barrel.
Oil prices, which spiked as tensions grew in the Middle East, tumbled as it became more certain that the U.S. would attack Iraq and oil traders laid bets on a quick U.S. victory.
However, in after-hours trading Thursday on the new May crude contract, prices inched back up as traders fretted about the duration of the war.
Earlier in the day, John Kilduff, a trader at Fimat USA in New York, described several oil wells burning in southern Iraq as a “very small item” as far as energy traders were concerned, and said it would take more extensive damage to make markets jittery. Iraq has nearly 1,700 wells.
Kilduff and other traders cautioned that prices could remain volatile. Traders are particularly eager to hear from the military that Iraq’s biggest oil fields have been secured.
In 1991, Iraqi troops destroyed more than 700 well heads, setting Kuwait’s occupied oil fields ablaze.
Witnesses near the Kuwait-Iraq border Thursday told Associated Press that they could see orange flames in the direction of Basra, a city that is the center of Iraq’s oil industry.
The witnesses, located about eight miles south of the border on the Kuwaiti side, said the flames were seen after a series of explosions that shook buildings in the area. It was not known if the flames were caused by the explosions.
The Organization of the Petroleum Exporting Countries sought to calm oil markets earlier by announcing that its members had pledged to maximize output to make up for any disruption in crude exports from Iraq.
“I am herewith reiterating OPEC’s resolve to make up for any supply shortfall resulting from developing events. To this end, member countries have pledged to use, in the interim, their available excess capacities to ensure continued supply,” OPEC President Abdullah bin Hamad Al-Attiyah said in a statement.
Iraqi crude exports, totaling 2 million barrels a day, are expected to cease as the war intensifies.
OPEC officials have indicated often in recent weeks that the group would pump more oil if necessary to ensure ample supplies. OPEC’s statement Thursday was an explicit commitment to do so.
In other trading, April gasoline futures on the Nymex settled down 3.26 cents at 90.99 cents per gallon. April heating oil futures fell 1.17 cents to settle at 82.44 cents a gallon.