Will Oil Go Up...How High??
Compliments of the Tehran Times
Oil Prices Rise on Growing War Threat Against Iraq
LONDON -- Oil prices have risen close to levels reached after the September 11 terrorist attacks last year, in a tense market closely watching the growing threat of U.S. military action against Iraq.
Reference North Sea crude oil for October delivery rose to $27.38 in afternoon trading, extending Wednesday's climb to $27.10 following a sharp fall in U.S. oil inventory levels and continuing concerns over the prospect of war with Iraq, AFP quoted dealers as saying.
Weekly oil inventory figures released overnight by the private American Petroleum Institute revealed a fall in crude oil stocks of 6.3 million barrels to 298.9 million in the week to August 30 from the previous week, said traders.
U.S. President George W. Push's promise Wednesday to state the U.S. case against Iraqi Saddam Hussein to the United Nations next week has failed to ease concerns, with Australia saying Thursday it would not blindly follow the United States into war against Iraq. Dealers said the rally was sparked primarily by Bush's bellicose remarks, in which he described Iraqi President Saddam Hussein as a "serious menace."
"Doing nothing about that threat is not an option for the United States," he had added.
The U.S. leader's comments were heard by the market as the beginning of a countdown to military action.
"I have little doubt that at some stage or another there will be some action," said Leo Drollas, chief economist at the Center for Global Energy Studies.
The increase in oil prices is linked to several factors, analysts said.
"One is obviously a disruption of the Iraqi exports once action is taken," Drollas said.
But that is not the crucial problem, experts say, because the level of Iraqi exports currently is low, slightly less than a million barrels per day.
Any suspension of Iraqi exports could be easily compensated for by U.S. and European strategic oil reserves or an output increase by the Organization of Petroleum Exporting Countries.
"OPEC could easily produce triple that amount within days," said Lawrence Eagles, an analyst at GNI Brokerage.
Saudi Arabia, the world's biggest oil exporter, has an unused production capacity of three million barrels per day, Eagles noted.
The real question mark hanging over the market is whether Saudi Arabia has the political will to do it.
"The problem the market is worrying about is whether Saudi Arabia would increase output at a time when Iraq might be attacked because politically that might be difficult for Saudi Arabia to defend," Drollas said.
More worrying for the market is the possibility of an embargo, while the 22 members of the Arab League proclaimed Thursday their opposition to any attack against Iraq. GNI's Eagles said: "The danger is that if the Arab and the Persian Gulf countries oppose an attack on Saddam, if the U.S. was to take unilateral action, that the other oil-producing nations may decide to use oil as a tool to threaten the United States." Eagles warned that an Arab-led embargo could push up prices to "somewhere between $60 and $100 a barrel, the sky would be the limit."
