Crude oil prices yesterday surged to almost $40 (€37) a barrel, a high not seen since just after Iraq invaded Kuwait in 1990. The $2 jump was fuelled by concerns over a lack of US oil supplies before an increasingly inevitable war with Iraq.
The jump affected the US benchmark crude far more than its London counterpart and proved short-lived, with prices retreating to the $37 range by the early-afternoon.
US benchmark crude for April delivery, jumped to $39.65 per barrel in New York, its highest level since October 1990 when prices jumped to $41.15.
Brent gained just 21 US cents to $33.28 per barrel for April delivery with almost 29,000 contracts traded.
The sharp rise was not followed up by similar gains for deliveries in the subsequent months, which suggested that traders the underlying oil price to fall steeply on the expectation of a swift military settlement in Iraq, and as the US winter turns to spring and increased supply from Opec members.
"I have been trading this market for 15 years and this is the tightest I have seen it," said one oil trader.
"It's also the widest spread I have seen between the US (Nymex) and Brent."
Dealers said worries over whether Iraq would respond in time to UN demands for the destruction of prohibited al-Samoud missiles, starting on Saturday, underpinned price rises.
"It's all down to a shortage of heating oil and natural gas in the United States, backed up by the prospect of war," Mr Christopher Bellew, of brokers Prudential Bache in London, said of the day's highs.
US government data on Wednesday showed winter demand for distillates, including heating oil, have been running 20 per cent higher than in 2002, leaving stocks down 33 per cent on the year.
The inventory fall has been driven by an extended cold blast in the US Northeast, the world's biggest heating oil market, that is expected to continue into next week. Imports from Venezuelan refineries have been hit by an 11-week-old strike.
OPEC is hoping to prevent the need for any release of emergency consumer country reserves, controlled by the Paris-based International Energy Agency, by opening its taps to full capacity.
OPEC Secretary-General Mr Alvaro Silva said yesterday that producers could cover any stoppage of Iraqi oil without the need for a release of emergency reserves.
- (Financial Times Service/Reuters)
