Worry over Iraq sends crude price to a 12-year low 8.2% drop comes amid speculation that U.N. may lift sanctions

Former No. 4 producer

Oil

June 16, 1998|By BLOOMBERG NEWS

NEW YORK -- Oil prices tumbled to their lowest level in 12 years yesterday on growing worries about oversupply and speculation that Iraq could start exporting again soon.

Crude for July delivery fell $1.03, or 8.2 percent, to $11.56 a barrel on the New York Mercantile Exchange, the lowest settlement for a contract closest to expiration since Aug. 1, 1986, and the biggest one-day drop since the January 1991 Persian Gulf war. Prices are half what they were in October.

Richard Butler, the chief U.N. weapons inspector, said in Baghdad yesterday that he hoped a work schedule he negotiated with Iraq over the weekend could clear up any disarmament issues by August. That would open the way for the end of sanctions imposed after Iraq invaded Kuwait in 1990. Before then, Iraq was the world's fourth largest oil producer.

"There could be a huge amount of extra oil on the market, and that's a big problem," said David Nesbitt, a broker with Prudential-Bache (Futures) Ltd. in London. "Unless someone takes serious action to cut production, we could start to see crude oil at single-figure prices."

In London, the July crude contract fell 24 cents to $12.17 a barrel on the International Petroleum Exchange.

A round of production and export cutbacks among 17 nations that began in April failed to lift prices as planned. Although some nations will embark on a second round of cuts next month, many traders said they will not be enough.

The Organization of Petroleum Exporting Countries is to discuss plummeting oil prices at its meeting June 24.

Crude is down 49 percent since early October, when military tensions in the Middle East were temporarily high. Oil slumped as demand from weak Asian economies slowed and heating oil demand in the U.S. was tempered by a mild winter.

Price declines were exacerbated by OPEC's decision in November to raise 1998 production quotas 10 percent.

July heating oil on the Nymex fell 1.42 cents, or 3.7 percent, to 36.70 cents a gallon, the lowest for a contract closest to expiration since July 31, 1986. July gasoline fell 1.36 cents, or 2.9 percent, to 44.94 cents a gallon, a three-month low.

Last month, Iraq exported about 1.6 million barrels a day under a United Nations program that permits up to $4.5 billion of oil sales each six months for humanitarian supplies, its highest rate since exports were banned in 1990 because of Baghdad's invasion of Kuwait.

Before the 1990 Persian Gulf war, Iraq was producing about 3 million barrels a day.

Pub Date: 6/16/98

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