- The Washington Times - Wednesday, March 26, 2003

LOS ANGELES, March 26 (UPI) — The United States took steps to head off another potential problem for oil traders Wednesday by offering to provide shipping insurance and military escorts for merchant vessels and tankers in the Persian Gulf.

The move announced by the U.S. Department of State was aimed at keeping the vital flow of commerce in the Gulf moving at a time when oil markets have been beset by supply squeezes that have added to the crude market's current volatility.

"Coalition military forces will provide security (for ships) if required or requested," the State Department said in a statement. "The Department of Transportation will continue…to provide war risk insurance for vessels, including cargoes and crew entering the region, when commercial insurance cannot be obtained on reasonable terms and conditions."

While Foggy Bottom called the move a step toward insuring that shipments of humanitarian aid to Iraq are unimpeded, the risk of attacks on tankers in the Gulf poses the potential for a serious impact on crude exports from the region should tanker owners start turning down charters due to the risk of attack or the inability to obtain insurance.

Futures prices climbed Wednesday, erasing the previous day's declines. May crude on the New York Mercantile Exchange settled 66 higher at $28.63 per barrel while London's International Petroleum Exchange gained 47 cents to $25.28 per barrel.

The gains came as Nigerian crude production remained limited by ethnic violence in the oil-rich Niger Delta while hopes of a quick resolution in Iraq were muted by bad weather slowing the allied advance on Baghdad and the apparent crushing of an anti-government uprising in Basra.

Traders appeared to be giving up on the notion that the battles raging in Iraq would be over soon following cautious statements from British officials and President Bush, who told an audience in Florida, "We cannot know the duration of this war."

The war news Wednesday was largely positive for the oil markets as the southern oilfields remained in the hands of the allies and reports of increasing air attacks around the oil city of Kirkuk indicated that a second front was about to be opened in the north.

At the same time, statistics released Wednesday by the American Petroleum Institute and U.S. Energy Information Administration split on the status of the U.S. crude supply. The EIA reported that crude inventories grew by nearly 4 million barrels last week while the API found a 402,000-barrel decline.

The two reports were in agreement on gasoline. The EIA reported a 2.1-million gallon drop in gasoline inventories, the sixth consecutive weekly decline at a time when refiners are generally increasing supply in anticipation of a surge in demand during the summer months. The API found gasoline stocks off 2 million gallons.

April gasoline rose a healthy 3.93 cents to 92.42 cents per gallon on NYMEX while heating oil rose nearly 1 cent to 74.41 cents per gallon. Retail gasoline prices followed crude lower this week to an average of $1.69 per gallon, according to the EIA.

"While inventories of gasoline and distillate fuel are not nearly as low as crude oil, these products are also dwindling or in short supply," the EIA noted in an analysis Wednesday. "Gasoline inventories are currently about 6 million barrels below the lower end of the normal range and nearly 13 million barrels below the middle."

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