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Financial markets

Crude Oil Prices Surge Amid Iraqi Military Move Towards Kuwait

Strategic Insights

— 2 min read

Crude oil prices spiked to almost two-month highs as traders anticipated an invasion of Kuwait, but quickly fell back as President Clinton reassured Saddam Hussein that the US remained committed to protecting its interests in the region. The price surge caught analysts off guard, with many citing the knee-jerk reaction of traders who associate the word "Iraq" with rising oil prices. Despite concerns about potential supply disruptions, oil analysts remain skeptical that any major impact on global oil markets is likely.

Key Takeaways:

  • Crude oil prices surged to $18.70 a barrel on the New York Mercantile Exchange, the highest price since August 12, before settling at $18.26 a barrel.
  • The price increase was driven by expectations of an Iraqi invasion of Kuwait, but quickly receded after President Clinton's statement on Saddam Hussein's intentions.
  • Kuwait is the fifth-largest producer in the Organization of Petroleum Exporting Countries (OPEC), pumping 1.8 million barrels of oil per day, accounting for about 4% of the US's imported crude.
  • Analysts predict that even if Kuwait shuts down some wells temporarily as a precaution, supply disruptions will be minimal.
  • Coffee prices plummeted 12.85 cents on the Coffee, Sugar and Cocoa Exchange in New York to $1.929 a pound, the lowest price since August 26, after rain brought relief to Brazil's coffee-growing regions.
  • The wet weather may mark the beginning of the rainy season in the region, which could alleviate dry conditions threatening coffee crops.

Statistics:

  • 20 miles: The distance Iraqi forces moved to the Kuwaiti border.
  • $18.70: The highest crude oil price reached on the New York Mercantile Exchange.
  • $18.26: The final settlement price for November crude oil futures.
  • $41.15: The highest price crude passed in August 1990 after Iraq's invasion of Kuwait.
  • $1.929: The lowest coffee price reached on the Coffee, Sugar and Cocoa Exchange in New York.
  • 1.8 million barrels: The daily oil production of Kuwait.
  • 4%: The share of crude imported to the US coming from Kuwait.
  • 229.17: The Commodity Research Bureau's index, 1.09 points lower than the previous day.
  • May: The last significant rainfall in Brazil's coffee-growing regions.

Sources:

  • An oil industry analyst at Chase Manhattan Bank: "People hear the word 'Iraq' and prices jump."
  • Bill O'Grady, analyst with A. G. Edwards: "The biggest fear you have is you're going to get some supply disruption in Kuwait."
  • Stephen Smith, coffee broker with Lamborn Futures: "The weather pattern could be changing."

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