Rising oil prices hit ten-year high again

Tuesday, September 19th 2000, 12:00 am
By: News On 6

Fears about Saddam Hussein continued to roil oil markets Monday, sending prices to a 10-year high for the second time in as many days. Whether consumers will feel the pinch depends on whether the higher prices are here to stay, analysts said.

Crude oil for October delivery closed at $36.88 a barrel Monday on the New York Mercantile Exchange, up 2.7 percent from Friday's closing price of $35.92 a barrel. During trading on Monday, prices soared to more than $37, far above this year's low of $23.85 reached in April.

But in early Asian trading Tuesday, prices fell as much as 0.6 percent on assurances from Saudi Arabia it is ready to boost oil output again before the next OPEC meeting.

"We're going to head up to $40 a barrel," Paul Leibman, vice president and senior market analyst at Alaron Trading Corp., a futures brokerage in Chicago, said Monday. "A major factor right now is the continued depth of fear gripping the market."

Renewed tension between Iraq and Kuwait gave many traders a flashback to the Persian Gulf War at the start of the 1990s when oil prices climbed to $40.42 a barrel.

Iraq accused Kuwait on Friday of stealing oil reserves along their common border, a charge Kuwait denied.

With tight world oil supplies, the slightest interruption in supply can set markets on edge, analysts said.

"All [Mr. Hussein] has to do is turn off the spigot, and he can cause some real havoc in the world," Mr. Leibman said.

Also on Friday, President Clinton signaled that the United States won't try to bring down oil prices by tapping the nation's backup supply, known as the Strategic Petroleum Reserve.

Mr. Clinton said high oil prices wouldn't lead to a recession in the short to medium term.

"It's almost an admission that high oil prices are here to stay," Mr. Leibman said.

Just a few weeks before, Mr. Clinton had urged OPEC leaders to boost output to avoid causing damage to the world economy.

Whether this month's current run-up in price will affect consumers hinges on whether any of the price increase sticks around for a few months, said Allen Mesch, director of the Maguire Energy Institute at Southern Methodist University.

Assuming that the tensions in the Middle East cool off, he said, "We will probably see prices back under $30 in a couple of weeks."

However, if prices remain above $30 a barrel at the end of October, Mr. Mesch predicted, OPEC will raise output again, this time by a half-million barrels.

About a week ago, the Organization of the Petroleum Exporting Countries agreed to raise output by 800,000 barrels.

But many experts say that increase isn't large enough to meet surging demand and won't reach the United States and other countries until after the winter heating season has begun.

"OPEC is trying to put more oil on the market, and they are being very cautious about it," Mr. Mesch said. "But if we get some early cold snaps, we will have problems."

High oil prices have already hit consumers hard at the gasoline pump and in airline fuel surcharges.

Now, many can look forward to more financial pain in the form of steep increases in home heating bills.

Businesses also have suffered, with several consumer-product companies citing high energy costs as a reason for lower profits this year.

On Monday, the prospect of escalating oil prices gave a boost to the stocks of some local oil companies but battered airlines, an industry heavily dependent on jet fuel.

Dallas-based Pioneer Natural Resources Co. rose 8 percent, or $1.19 a share, to close at $15.81. The world's largest oil company, Exxon Mobil Corp. of Irving, saw its shares climb nearly 2 percent to reach a high this year of $89.64.

On the flip side, shares of Delta Air Lines Inc., Continental Airlines Inc. and United Airlines Inc. all lost $1 or more on Monday. Shares of Fort Worth-based AMR Corp., the parent of American Airlines Inc., fell 88 cents to $32.06, and those of Dallas-based Southwest Airlines Co. dropped 19 cents to close at $22.44.

To cope, most major airlines have added fuel surcharges up to $40 on some roundtrip fares.

Bloomberg News contributed to this report.