- The Washington Times - Friday, March 21, 2003

LONDON (AP) Oil prices fell sharply yesterday after initially spiking when traders heard reports from U.S. military officers that oil wells in southern Iraq were burning.
Prices initially jumped following 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 and that U.S. forces were encountering little resistance, prices declined steadily on markets in London and New York.
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.
Mr. Kilduff and other traders still anticipate a quick resolution to the military conflict, though they caution that prices could remain volatile. Traders are particularly eager to hear from the military whether 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 Kuwaiti-Iraqi border yesterday said they could see orange flames on the horizon in the direction of the city of Basra, a 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.
On London's International Petroleum Exchange, May contracts of North Sea Brent crude dropped $1.25 to close at $25.50 a barrel, after hitting $27.50 early in the day.
At the New York Mercantile Exchange, April contracts for U.S. light sweet crude plunged $1.27 per barrel to close at $28.61. The April contract peaked at $30.60 yesterday.
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.
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.
The International Energy Agency thanked OPEC for its efforts and said it was ready to take action itself, if needed, to ensure market stability. The Paris-based IEA is a watchdog for the world's major oil-importing countries and has coordinated control over its members' 4 billion barrels in strategic oil reserves. Set up after the Arab oil embargo of 1973, it can authorize members to draw on their reserves to help offset a supply shortage.
The United States and other IEA members view OPEC as the first line of defense in preventing a supply shortage arising from the war.
"We appreciate steps producers have taken to prevent any shortage in world oil supply earlier this year and again now. We are determined to promote stability in world oil markets and remain ready to reinforce producers' efforts should the need arise," IEA Executive Director Claude Mandil said in a statement.

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