Originally created 03/15/03

Quick war may reduce prices

LONDON - If U.S.-led forces invade Iraq, world oil prices will probably plunge from current levels and stay there - so long as the conflict ends quickly and causes little damage to production capacity in the Persian Gulf, several energy analysts said Friday.

On the other hand, a war that spills into neigh boring countries or one in which Saddam Hussein sabotages his own oil fields could panic markets and trigger a jump in prices by $15 or even $25 a barrel, some said.

The wide range of forecasts is a sign of the difficulty analysts face in trying to envision how markets will react to a war of unpredictable severity.

Fighting might be over in a few days, or it might erupt into a regional conflagration that affects crude exports from Kuwait and even Saudi Arabia. How OPEC and oil-importing countries respond to a war will also have a great influence on prices.

Perhaps the only certainty is that markets will welcome any move that keeps supplies flowing.

Crude prices fell Friday on reports that Saudi Arabia's state-run oil company Saudi Aramco had chartered supertankers to carry an exceptionally large shipment of crude - 28 million barrels - to the United States for delivery in May. April contracts of U.S. light, sweet crude tumbled by more than $2 a barrel in New York before rebounding to $34.90, down $1.11 from Thursday's close.

Analysts say fears of a wartime disruption in supply have swollen crude prices by at least $5 a barrel. This so-called war premium has increased along with tensions in the Persian Gulf because of worries that hostilities with Iraq will paralyze that country's 2 million barrels in daily oil shipments.

Although prices might rise in the last hours before any outbreak of hostilities, several analysts predicted that an attack on Iraq would knock the floor out from beneath the market - just as it did when coalition forces launched Operation Desert Storm on Jan. 16, 1991.

"History would suggest that oil prices would go down fairly rapidly, maybe $5-7 a barrel, probably within one day," said Angus McPhail, an analyst at ING Financial Markets in Edinburgh, Scotland.


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