- The Washington Times - Tuesday, November 2, 2004

Oil prices plunged to $50.13 yesterday, capping a 10 percent fall from record highs set last week and easing worries about high energy prices in financial markets.

The cause of yesterday’s nearly $2 drop in premium crude prices on the New York Mercantile Exchange was not clear, with some analysts crediting increased production in Iraq and others attributing it to falling demand and volatile trading in advance of the U.S. presidential election.

Exports from Iraq’s battered oil fields jumped 7 percent to 1.84 million barrels last month, the highest level since the U.S. invasion, shipping companies reported.

Meanwhile, demand for oil in the two highest-consuming countries — the United States and China — looks likely to cool next year, largely in response to this year’s record-high prices for oil and gasoline.

Some traders said the markets were anticipating a victory in today’s elections by Democratic nominee Sen. John Kerry, which could lead to eased tensions in the Middle East, where much of the world’s oil is pumped.

Turmoil in Iraq and Saudi Arabia — the world’s two biggest producers of oil — has been a major factor driving up prices by 70 percent in the last year.

“President Bush is more likely to be aggressive in the Middle East, particularly in Iran,” said Jamal Qureshi, market analyst at PFC Energy in Washington, referring to Mr. Bush’s dispute with another major Middle East oil producer, which he has labeled “evil” for pursuing weapons of mass destruction and harboring terrorists.

PFC is predicting that oil prices would be lower in a Kerry presidency than under the Bush administration, not only because of reduced tensions and increased diplomacy in the Middle East, but because the Massachusetts senator is advocating increased energy conservation and fuel efficiency in cars, appliances and buildings.

Premium crude prices in the first quarter of next year would be $52 on average if Mr. Bush takes office, as opposed to $45 under a Kerry presidency, the energy firm speculates.

In addition, Mr. Kerry would be more likely to use the government’s Strategic Petroleum Reserve to pre-empt big run-ups in energy prices like the one seen since the spring, Mr. Qureshi said.

Mr. Bush has steadfastly refused to tap into the reserves, which he says must be reserved for emergencies. The administration did allow loans of oil from the reserves this summer, when Hurricane Ivan devastated oil facilities and production in the Gulf of Mexico.

Whatever the reason, the steep drop in oil prices since setting a record high of $55.67 a week ago has caused relief in financial markets.

Stocks and bond prices have reacted in tandem with the rise of oil in recent months because of worries that the sky-high cost of energy will thwart consumer spending, economic growth and profits. Stocks rallied in the past week as oil prices declined, with the Dow Jones Industrial Average adding 27 points yesterday.

“People are starting to back off the notion that these oil prices are going to weaken the economy” next year, said William Prophet, a strategist at UBS Securities LLC.

“The biggest risk in the economic picture continues to be oil and energy prices,” said Dick Rippe, chief economist at Prudential Securities.

“The lower oil prices helped, but we still need another $10 to $15 drop” to put economic growth back on a healthy track, he said.

Not everyone is convinced that oil’s ascent to record highs is over.

Cambridge Energy Research Associates is predicting crude prices of $60 or higher if the heating season in the Northern Hemisphere is colder than normal this winter. The energy firm expects prices to stay at $50 or above even if temperatures are normal.

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