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To: Thean who wrote (9811)	1/26/1998 11:14:00 PM
From: Lucretius	Read Replies (1) \| Respond to of 95453

Monday January 26, 7:48 pm Eastern Time FOCUS - Crude rallies on short covering, Iraq news By Harry Milling NEW YORK, Jan 26 (Reuters) - Crude oil futures in New York staged a powerful rally Monday after talk of a possible U.S. military strike in the oil-rich Middle East Gulf ignited heavy short covering. ''The huge short position held by speculators was like a time-bomb ticking everyday, and today it finally went off,'' said Pat Hughes, analyst with Chevron Corp [NYSE:CHV - news] in Walnut Creek, California. Crude for March delivery on the New York Mercantile Exchange (NYMEX) settled up $1.08 a barrel at $16.82. March crude rose as much as $1.58 to $17.32 late session, the highest level for the nearby contract since early January and the largest point gain for crude in almost a year. Analysts said the rally was probably not a decisive end to a four-month old bear market which has sent oil prices down 30 percent to their lowest levels since April 1994. But, they said the rally certainly left the market at a crossroads where further 44-month lows were no longer probable. ''The fundamentals of the market are still bearish. But, while prices may still be generally depressed for the next couple of months, prices may now turn volatile enough where we could see prices even higher than today,'' said Hughes. Dealers said heavy short covering by funds was triggered on news over the weekend that the U.S. is moving closer to deciding whether to launch a military strike on Iraq but has made no decision on the matter. On Saturday, President Bill Clinton met with his foreign policy advisers to discuss Iraq's continued refusal to allow unfettered inspections by U.N. officials seeking to root out and eliminate Iraqi weapons of mass destruction. Then, on Monday, the U.S. State Department said time was ''running out'' for a diplomatic solution to the weapons standoff with Iraq. ''We don't know what is going to happen with Iraq, so this short covering may not be a temporary phenomenon,'' said John Saucer, analyst with Salomon Smith Barney in Houston. Dealers noted Iraqi oil sales could conceivably continue uninterrupted even with military strikes since the U.N. and the U.S. have not linked the row over weapons inspections to the U.N. oil-for-food deal with Iraq. The U.N. has eased sanctions against Iraq and allowed Iraq to sell $2 billion worth of oil every six months in exchange for humanitarian aid for its people suffering from the sanctions imposed after Iraq's 1990 invasion of Kuwait. ''There is a decoupling of oil sales and the inspections, so we could have a bombing while Iraqi continues to add to oversupply,'' said John Kilduff, trader with Chicago Corp in New York. Meanwhile, the uncertainty governing supply in case of a military strike has speculators on edge. ''To say that funds had a large short position at session's open would have been an understatement, and there are a lot of jittery shorts out there still,'' said Saucer. Dealers noted much of the short covering was simply pieces of larger short positions accumulated by funds over the four-month oil price decline. A short position is a bet that prices will decline, and recent government data showed funds and other speculators holding one of the largest net short positions in ten years. Since October, prompt crude has fallen a steep $7.45 a barrel, with the decline gaining momentum in November when OPEC raised its production ceiling by 10 percent. Concerns of a surplus have mounted since the OPEC hike was met with flagging global demand amid Asia's economic turmoil and a mild winter in the West dampening heating oil demand. --------------------------------------------------------------------------------