- The Washington Times - Monday, August 30, 2004


Oil prices dropped sharply yesterday, falling to less than $42 a barrel, as last week’s sell-off continued despite sabotage of Iraqi oil infrastructure that curbed exports.

“It just goes to show you that when the psychology turns, it turns,” said Tom Bentz, a trader at BNP Paribas Futures in New York.

There also were signs out of Iraq yesterday that a peace deal reached in Najaf last week could spread to other parts of the country. An aide to Sheik Muqtada al-Sadr said the rebel Shi’ite cleric called for his followers across Iraq to end fighting against U.S. and Iraqi forces and that he is planning to join the political process in the coming days.

Light sweet crude for October delivery plunged by $1.21 to $41.97 in afternoon trading on the New York Mercantile Exchange. At that level, crude futures were trading roughly 14 percent below the record settlement high of $48.70 on Aug. 19.

Oil markets have been extremely volatile this summer because traders fret there is inadequate excess supply globally in the event of a prolonged output disruption in Iraq, Russia or Venezuela.

But with the exception of sporadic drop-offs in Iraqi oil exports because of attacks on industry infrastructure, none of these fears have materialized.

Oil-price speculation by institutional investors magnified the surge in prices this summer, as well as the latest retreat, traders said.

Yesterday, senior officials at Iraq’s state-run oil company said oil exports had come to a halt after a rash of insurgent attacks on the country’s petroleum infrastructure. The officials of the South Oil Co., speaking on the condition of anonymity, said the lines were not likely to resume operations for at least a week.

Other reports, however, suggested that the damage was less severe, and traders said they were operating on the assumption that exports had fallen by a third.

Regardless of how severely the oil flow has been hindered, “two weeks ago, with that news, we would have been up more than a dollar,” Mr. Bentz said. “The tide has definitely turned.”

Also yesterday, OPEC’s president said the cartel was “doing everything it can to restore and stabilize oil prices.”

Paradoxically, that also might have contributed to higher prices earlier in the month, because many market participants think the Organization of Petroleum Exporting Countries has very little excess- production capacity with which to calm jittery markets.

Yesterday, traders just “brushed it off,” said Mario Chavez, vice president of global energy futures at ABN AMRO in New York.

Mr. Chavez said the sharp move downward also was magnified by thin trading volume.

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