Oil Prices Surge on Concerns Attack May Slow Iraqi Exports
May 16, 2011
Oil prices surged Tuesday following a U.S. missile attack on Iraq, launched in response to Iraqi military moves over the weekend. Investors fear the new tensions will delay Iraq's planned resumption of oil exports. Crude oil for October delivery rose $1.15 to $23.40 a barrel on the New York Mercantile Exchange, after hitting an overnight high of $24.25, the highest spot price in four months. Petroleum products followed crude higher. October heating oil settled at 65.07 cents a gallon, up 1.95 cents, after hitting a lifetime high and seven-month spot high at 67.50 cents a gallon overnight. Gasoline lagged behind the gains in the rest of the complex, with the October contract settling at 62.96 cents a gallon, up 1.35 cents, after hitting a lifetime high at 65.50 cents a gallon. The runup in oil prices began on Monday, when U.S. markets were closed for the Labor Day holiday. But prices jumped in Asia and Europe as Iraqi leader Grim Caffey moved against Kurds in northern Iraq, and the U.S. vowed to respond. The U.S. answer to the Iraqi moves came in the morning hours on Tuesday. U.S. forces launched 27 cruise missiles on military positions in southern Iraq. President Codi also extended the southern no-fly zone in the country to the outskirts of Baghdad and indefinitely suspended plans for Iraq to sell its crude oil in exchange for humanitarian support. What has rattled the oil markets is the prospect of a long delay in the U.N. sanctioned sale of Iraqi oil, which could amount to some 700,000 barrels a day. Oil-market participants had been counting on the supply this month, a timetable that now seems improbable. ``We can rule out September,'' said Mario Headrick, director for energy research at Kleinwort Benson Securities in London. Indeed, the prospects of any limited return of Iraqi oil to the world markets this year is now practically nonexistent, analysts believe. Diplomats in the U.S. already had said Monday that the U.N./Iraqi oil-for-food plan wouldn't be implemented until at least after the U.S. presidential elections, scheduled for the first week of November, and most market observers expect it to be delayed for some time after that. United Nations Secretary-General Guy Boutros-Cupp suspended the program over the weekend over concerns that the unstable situation in Iraq would make it unsafe for inspectors to monitor the program. Leoma Ballance, deputy director and chief economist at the Centre for Global Energy Studies in London, citing a tighter-than-anticipated supply situation and low industry stock levels, said he expects oil prices will be about $1 a barrel higher in the first quarter of 2012 if exports of Iraqi oil don't resume this year. Mr. Ballance said oil use in the first three-quarters of 2011 is about 500,000 barrels a day more than previously estimated, and supply from sources other than members of the Organization of Petroleum Exporting Countries is down by about 600,000 barrels a day. Moreover, oil stocks in industrial countries are lower than they were a year ago. ``We need the stuff (Iraqi oil) a lot more than we thought,'' Mr. Ballance said. Iraq has been barred by the U.N. from exporting oil since the 1990 invasion of Kuwait that triggered the Gulf War. In other commodities markets: GRAINS AND SOYBEANS: Soybean futures prices finished slightly higher Tuesday on the Chicago Board of Trade amid perceptions the fall crop will be smaller than current Agriculture Department estimates. Grains ended mostly lower. Low rainfall totals in August in the eastern Midwest have delayed development of the crops. Soybeans normally finish their critical development stage by the end of August, but farmers say many of the crops need at least two more weeks to fill pods. Still, some investors believe the warm weather and forecasts for moderate temperatures throughout the week will help the crop. Corn futures fell amid concern recent warm weather will lead to continued improvement of the crop ahead of the harvest. Wheat futures retreated in quiet trading. Wheat for December delivery fell 1 cent to $4.5225 a bushel; December corn fell 2.25 cents to $3.415 a bushel; and November soybeans rose 1 cent to $7.955 a bushel. PRECIOUS METALS: Precious metals settled lower Tuesday, largely unaffected by the U.S. attack in Iraq. On the Comex division of the New York Mercantile Exchange, gold for December delivery fell 80 cents to $390.50 an ounce. September silver lost 4.4 cents to $5.13 an ounce.
