Crude oil prices settled below the important $30-a-barrel level yesterday for the first time in four weeks, as traders bet that war would not break out while President Bush visits Saudi Arabia.
Light, sweet crude for December delivery closed down $1.34 at $29.78 a barrel in trading on the New York Mercantile Exchange. Later-month contracts were also down.
The sell-off, spurred in part by technical factors, was a sign that the "war premium" that drove prices higher than $41 a barrel a month ago has diminished dramatically as the Middle East crisis has dragged on. (The premium is the extra price that traders pay out of fear that a war will cause supply disruptions.)
Fears of shortages have diminished as demand has fallen and world production has hit levels higher than before Iraq invaded Ku
wait Aug. 2.
"We're having a real breakdown here," said Thomas Blakeslee, an energy analyst with Pegasus Econometric Group Inc. in Hoboken, N.J. "We have broken down below the $30 level, and that is significant psychologically."
Oil prices have lost about 27 percent of their value since peaking at $41.15 a barrel Oct. 10, an all-time high.
In the last week, prices have dropped about $4 a barrel. Before Iraq invaded Kuwait, oil was trading at about $20 a barrel.
Mr. Blakeslee said the war premium has fallen from a high of $20 a barrel to $7 to $9 a barrel. He sees crude prices stalling at $29 a barrel for now. They were as low as $29.25 yesterday before edging up.
Traders attributed the falling crude prices to the slim chance of war breaking out in the next week.
"The near-term outlook for hostilities is not good -- certainly not before Thanksgiving, and maybe not even before the first of the year," said Ed Kevelson, a trader with Dean Witter energy futures in New York.
Andrew Lebow, a trader with E.D.& F. Man International Futures Inc. in New York, said the "spin is that with Bush on the road for the next eight days . . . it's unlikely hostilities will erupt."
The president left yesterday for Europe and the Middle East. The trip is scheduled to include a Thanksgiving Day visit with troops in Saudi Arabia.
Technical factors contributed to yesterday's fall, as traders rushed to sell December crude contracts before they expire early next week.
Traders also cited conciliatory statements by Iraqi President Saddam Hussein on Thursday, and unseasonably warm weather in the Northeast, which could reduce demand for heating oil.
Yesterday, the price of home heating oil for December delivery closed down 2.25 cents a gallon to 84.42 cents. Unleaded gasoline for December delivery also was down, 2.53 cents a gallon to 77.63 cents.