Oil Prices Plummet as Iraq Crisis Fades Away

Strategic Insights -

After rumors of military action against Iraq led to a brief increase in oil prices on the New York Mercantile Exchange (Nymex), the market reversed course and prices fell as President Clinton failed to issue an ultimatum or make any mention of the crisis. This led to a loss of 55 cents/bbl for the December contract over the week, with crude oil prices closing at $13.87/bbl and North Sea Brent crude falling 15 cents to $12.35/bbl. Meanwhile, gasoline prices continued to drop, losing 0.70 cents to 42.10 cents/gallon, as bearish inventory numbers and the lack of action on Iraq weighed on the market.

Key Takeaways:

  • December light, sweet crude lost 10 cents/bbl on the Nymex, closing at $13.87/bbl.
  • Prices rose in the morning after rumors of President Clinton issuing an ultimatum or announcing a military strike against Iraq, but the market reversed course when Clinton made no mention of the crisis.
  • The lack of action on Iraq coupled with bearish inventory numbers led to a 55 cents/bbl loss for the December contract over the week.
  • Traders are now watching for delays in renewing Iraq's U.N. oil-for-food program, which expires Nov. 25, as a potential bullish factor.
  • If Baghdad can't reach a deal straight away or dithers about selling its crude, a stoppage could help take a serious dent out of the U.S. year-on-year stock surplus.
  • The market is also waiting for the OPEC meeting in Vienna on Nov. 25, which could provide some support for prices.

Statistics:

  • December light, sweet crude lost 10 cents/bbl on the Nymex, closing at $13.87/bbl.
  • North Sea Brent crude fell 15 cents Friday to $12.35/bbl.
  • The International Petroleum Exchange benchmark lost 87 cents/bbl over the week.
  • Nymex gasoline lost 0.70 cents Friday to 42.10 cents/gallon.
  • Gasoline prices have lost 1.61 cents since Tuesday and 3.07 cents on the week.
  • Heating oil fell 0.59 cents Friday to 38.51 cents/gallon.
  • December Nymex Henry Hub gas contract closed unchanged at $2.553/MMBtu.
  • 830,000 b/d of crude output was shut in by Mexican state Petroleos Mexicanos as a precaution against Hurricane Mitch.

Sources:

  • By Alexander Brideau, Traders showed their impatience at the situation between Iraq and the United Nations on Friday (Date not specified)
  • TOD, 11-6-98, p.2 (Source for Iraq's quick denunciation of a U.N. resolution condemning its actions)
  • Tim Evans, senior analyst at Pegasus Econometric Group (Quotes and analysis)