Oil-general reading

11/12/02: The Oil Industry Reacts To Iraq's Resolution Rejection

SUSIE GHARIB: A lot of action in the oil markets today. Prices bounced around after Iraq's parliament rejected an important U.N. resolution about weapons inspections. On the New York Mercantile Exchange, oil prices slipped $0.04 to $25.90 a barrel. Here's Suzanne Pratt with an outlook for oil prices.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Every day now, war with Iraq grows increasingly more likely. And while President Bush tries to rally the nation, investors are keeping a watchful eye on oil prices. Not surprisingly, oil trading has been frenetic. Just last month when war looked especially imminent, December light sweet crude topped $30 a barrel. Today, it closed just shy of $26 a barrel.

SCOTT HESS, OIL TRADER, G&H COMMODITIES: The tone is nervous anticipation, knowing that something in the next few months is certainly going to happen in the Middle East, something with our armed forces. And traders at this point just don't want to be caught short.

PRATT: The fear in world oil markets is that once military conflict begins, oil could spike to $35 or $40 a barrel. Experts say that could happen if the war with Saddam Hussein spreads beyond Iraq and into other Middle Eastern countries such as Saudi Arabia. As it turns out, Iraq supplies only 2 percent of world oil production, while the Saudis produce about 10 percent.

PETER ROSENTHAL, EDITOR, ARGUS MEDIA: Saudi Arabia certainly is the world's largest producer and is the largest member of OPEC, and they hold sway over a lot of the oil in the region.

PRATT: Still, even if oil surges as high as $40 a barrel, experts say it's unlikely to stay there very long. That's because OPEC producers are expected to bridge any gap in supplies. In addition, a plan calls for President Bush to release oil from strategic U.S. reserves, something he's likely to do a lot quicker than his father did during the Gulf War.

ROSENTHAL: He was seen as too slow to react and let oil prices hover too long, which may have prolonged the recession in the early 1990s. So, that's going to be fairly quickly, especially if oil prices hover say above $30 or $35 because of the conflict for more than a week or so.

PRATT: If war with Iraq is short and victory for the U.S. is easy, experts say oil prices will probably fall fast. They say oil market fundamentals simply don't support prices above $25 a barrel. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
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