War Fever Pushes Oil to 19-Month Peak
By Andrew Mitchell
Sunday September 22, 9:58 pm ET
OSAKA, Japan (Reuters) - War fever drove U.S. oil prices to a new 19-month high on Monday as dealers took fright at the growing threat of a U.S. assault on Iraq.
U.S. crude futures in electronic trade by 8:35 p.m. EDT Sunday jumped 61 cents to $30.45 a barrel after setting a high of $30.48.
Dealers said Baghdad's decision to reject any new U.N. resolution on weapons inspections, combined with Israel's siege of Palestinian leader Yasser Arafat's Ramallah headquarters drove the gains.
"The U.S. wants a new resolution and Saddam is rejecting that -- that's bullish. With Ramallah as well the tension is getting very high," said Gary Ross of Petroleum Industry Research Associates (PIRA) in New York.
Sustained tension in the Middle East has already helped force up oil prices some 40 percent this year on fear of a supply disruption in a region that pumps a third of the world's crude.
Israeli troops on Monday dug in around Yasser Arafat's headquarters in the West Bank city of Ramallah amid rising Palestinian fury at the siege on their leader, which has devastated his presidential complex.
And the threat of a U.S.-led strike on Iraq grew after Baghdad vowed on Saturday to reject any new Security Council resolution differing from an agreement reached with the U.N. secretary-general.
The Middle East-dominated OPEC cartel has said it will move to make up for any supply disruptions but could not guarantee to quell a speculative oil price spike driven by war fever.
OPEC last week opted to hold official output limits at the lowest level in a decade, defying consuming countries calls for more oil ahead of the northern winter.
UAE oil minister Obaid bin Saif al-Nasseri said on Monday it was too early to say whether OPEC would increase oil output if prices went above the $28 top end of its target range for a basket of its crude oils. The basket was last valued at $27.45 on Thursday.
IEA
Gains have accelerated on word from the International Energy Agency, which controls emergency stocks among 26 industrialized oil consumer nations, that it would not order a release if a war stopped only Iraqi exports.
"No, I don't think so, no, because we have had such an erratic performance in output from Iraq," the IEA's Executive Director Robert Priddle told Reuters in an interview.
Iraqi exports have been running well below normal because of tough pricing controls imposed by the United States and Britain in its U.N. oil-for-food program.
The words reinforced concern that world oil supplies would not be topped up automatically in the event of military conflict. "The statement by Priddle is very important. In 1990 the IEA released oil almost immediately," said PIRA's Ross.
Economists have warned the fragile U.S. and Asian economies are in no state to absorb further gains in oil prices, which hit drivers at the gasoline pump, eat into company profits and hamper economic growth.
Monday's gains were further bolstered by fears that Hurricane Isidore could cut oil and gas operations in the Gulf of Mexico, and the threat of labor unrest in major suppliers Mexico and Nigeria.
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