The price of oil tumbled yesterday as traders speculated that a short war could leave the market with plenty of supply if the US decided to release some of its strategic oil reserves.
The US benchmark crude oil yesterday hit a low of $31.50, a 21 per cent drop from its high of $39.99 last month, while Brent Crude, Europe's benchmark, retreated to the mid-$27 range after hitting a three-month low of $26.40.
Mr Claude Mandil, head of the International Energy Agency (IEA), revealed in an interview last week that the IEA, which co-ordinates the international stock release, would help offset any supply shortage in case of war.
His comments helped turn the market sentiment around, traders said.
Ironically, they added that the IEA might already have achieved its aim and might not need to tap the reserves.
"The fact that the price has come down mitigates the need to release strategic reserves," one trader said.
Prices could well fall further, although any sign that a war in Iraq could halt more production within Iraq and some from Kuwait's northern field might push oil prices back towards, or even in excess of, $40 a barrel.
One trader said the oil price could slide almost another $10 a barrel before it stabilises, although he could not rule out a further spike in the oil price if armed forces loyal to Iraq's President Saddam Hussein inflicted damage on Iraqi or Kuwaiti oilfields.
"For the last three years the oil price has tended to trade in the $22 to $28 [per barrel] range preferred by Opec. I think we are likely to fall to the low end of that range," the London-based oil trader said.
- (Financial Times Service)
