The price of oil slumped to a four-month low on Tuesday amid growing confidence that Iraq could soon resume exports, leaving the market with copious supplies of crude.
A barrel of Brent crude fell below $29 for the first time since August 8. It settled in late trading at $28.56 -- meaning that oil prices have slipped more than 10 percent in three trading days.
In New York, light sweet crude tumbled to $30.27 , down 95 cents on the day in early deals.
Analysts partly ascribed the steep decline in prices to the likelihood that Iraq would soon end its five-day oil export freeze, which was imposed amid a spat with the United Nations over pricing and payment.
But they also said there was a more general market feeling that the recent surge in prices to 10-year highs had been overdone, and that there would be enough crude to go round this winter, obviating the need for panic buying.
Iraq is a major exporter, with some 2.4 million barrels of crude leaving the country every day, and its threat to shut off the taps sent prices higher in the last days of November.
But few expected the embargo to last, and Iraqi Oil Minister Amer Rasheed suggested Tuesday that the market would not have long to wait.
"Rasheed confirmed to the OPEC secretary general that Iraq was engaged in urgent negotiations with the UN with a view to resolving the issue, a resolution which Iraq hoped would be achieved in the next day or two," said the Organisation of Petroleum Exporting Countries (OPEC) in a statement.
Analysts said the expectation of a resumption of exports bore down on prices. "The basic rationale is that oil prices were up a bit on worries about Iraq," said ABN Amro oil sector watcher Peter Nicol. "Now that has been taken away the prices has weakened."
But they also suggested that there was a more deep-seated conviction in the market now that the autumn of spiking prices, 10-year high points and severe concerns about a stocks shortage and supply shortfall had been overdone.
"Crude stocks are gradually creeping upwards and people are asking themselves, 'Are these price levels really justified?'" said Peter Young, an oil market analyst with the Royal Bank of Scotland.
He added that the real problem involved not so much crude but refined products. Tanker rates were currently sky high while refineries were working flat out to produce gasoline and heating oil from crude. The market problem was downstream not upstream.
"The market wasn't surprised by Iraq -- it thought we have enough crude and it's about refined products anyway," he added. "People are now looking ahead and thinking what if Iraq does start pumping again, then maybe we have too much oil."
Even if Iraq does persist with its protest, market players now firmly expect any crude shortfall to be filled from other sources, notably Saudi Arabia and the US strategic petroleum reserve (SPR).
"There is a growing confidence that either the Iraqi situation is going to be very short-lived or you're going to get oil release from the SPR very swiftly," said Lawrence Eagles, an expert with the GNI brokerage.
"Once that confidence has come into the market a lot of speculators, who have been banking on an Iraqi disruption causing another surge in oil prices, ... have just been bailing out of their positions," he told AFP.—AFP.
©--Agence France Presse.
© 2000 Mena Report (www.menareport.com)