Posted on: Friday, April 11, 2003
Successes in war may result in glut of oil
By William Neikirk
Chicago Tribune
WASHINGTON — U.S. military successes in Iraq have dashed the worst fears about soaring oil and gasoline prices and have even created the potential for a glut in petroleum supplies.
Although there is still fighting in some parts of Iraq, the "war premium" that pushed oil prices to nearly $40 a barrel earlier this year has largely disappeared. Gasoline prices in the United States have been dropping since the outset of the war.
In Hawai'i yesterday, regular unleaded remained above $2 a gallon at $2.059 on average, although down from the record $2.061 set on April 4, according to AAA auto club's fuel gauge report.
Concerned about a possible glut, the Organization of Petroleum Exporting Countries announced it will convene a special meeting in the next few weeks in Doha, Qatar, to discuss production cutbacks and avoid what some members fear might be a sharp plunge in prices.
Oil prices fell again yesterday when Kurdish guerrillas took control of Kirkuk, in the center of Iraq's northern oil fields. U.S. and British forces secured the country's southern oil fields early in the war.
The price of U.S. light crude closed down nearly 5 percent to $27.46 a barrel in New York while London Brent crude fell 75 cents to $24.50 a barrel.
The oil market's brightening removes a major hurdle to U.S. growth and lessens the chance that the country and the rest of the world will slide into a recession.
But precisely where prices will settle in the postwar period is not clear because the supply-and-demand picture is cloudy. Some analysts believe prices will fall below $20 a barrel, some see them in the low $20s and others see them in the high $20s.
According to one rule of thumb, each $1 cut in the price of oil reduces gasoline prices by 2.4 cents, after a lag of several weeks.
In advance of the war, OPEC increased production to offset the loss of Iraqi oil from the market. But the cartel may have overdone it, said George Beranek, managing director of markets for Petroleum Finance Co. of Washington.
