- The Washington Times - Friday, March 28, 2003

Oil prices surged back above $30 a barrel yesterday as the prospect of a prolonged conflict in Iraq and civil unrest in Nigeria revived fears of oil shortages during the summer driving season.

After falling dramatically last week with the hope of a quick allied victory in Iraq, oil prices resumed their climb this week as U.S. and British leaders said it will take months rather than weeks to restore Iraq's oil production and end the war.

Yesterday, oil prices jumped 6 percent to $30.37 in New York trading after allied commanders said Iraq's southern oil wells are in "terrible condition" and each one must be checked for booby traps before oil exports can resume a process that is likely to take three months and cost $1 billion.

"It's becoming obvious that there won't be a quick and easy victory," said John Kilduff, senior vice president at Fimat USA Inc. "The war may take months and more importantly for oil, it may be months for the oil fields to be up and running."

Meanwhile, civil unrest in Nigeria is keeping more than 800,000 barrels of premium crude oil a day off the market at a time when the West African crude is most in demand for making the refined gasoline blends needed during America's peak summer driving season.

Even before the cutoff of 40 percent of Nigeria's oil exports in the past two weeks, the buildup of gasoline inventories was being hampered by the lowest stocks of crude oil in three decades. Nigeria and Iraq earlier this year were the fourth- and fifth-largest suppliers of oil to the United States.

"Inventories need to start climbing very sharply to give any chance of avoiding a huge spike in gasoline prices," which are already near record highs, said Paul Horsnell, analyst with J.P. Morgan.

"Current oil prices are not fully reflecting the tightness in inventories and the gasoline problem, let alone the current geopolitical context," he said.

While worries about the effect of high oil prices on the U.S. economy eased in the wake of last week's 25 percent price decline, concern began to crop up again this week as the oil outlook deteriorated. Oil prices have risen 13 percent so far this week.

"Oil prices do not have to reach $40 to mess up the American economy," said Girard Miller, president of ICMA Retirement Corp.

"Clearly $2 a gallon gasoline is a problem, as prices at that level or above work like a tax on consumers," he said. "One only need to look at Winnebago Industries, makers of recreational vehicles, which has cut back its production lines by 20 percent to a four-day workweek because orders are down."

High energy prices were cutting into consumer and business spending plans even before the start of the war, bringing growth in the U.S. economy to a near-standstill.

Fears that high oil prices will continue to drag down the U.S. economy weighed on the stock market this week, reversing some of last week's spectacular gains.

"The U.S. economy presently is teetering on the very brink of a double-dip recession," said Mr. Miller, who added that the instability in Nigeria and the war and subsequent occupation of Iraq will pose more complications than many people think.

The U.S. Army officer in charge of rehabilitating Iraq's southern oil fields yesterday said it would take several months to get the fields pumping again because of suspected booby traps, blazing wellheads and neglect. The Rumeila oil field near Basra, Iraq's largest, is in particularly poor condition.

Meanwhile, the threat of clashes between warring tribal factions in Nigeria's oil-rich Niger Delta has kept Royal Dutch/Shell, ChevronTexaco and other oil companies from resuming production.

Nigeria's "sweet" crudes are low in sulfur and produce a high yield of gasoline when refined, making them particularly sought after by U.S. refiners that are cranking up gasoline production ahead of the peak summer season.

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