Futures broker Lannie Cohen is betting crude oil will tumble the day any US attack on Iraq begins, because it happened that way last time.
Cohen is a technical trader, meaning he charts past price movements to assess the likely direction of the market. He and other technicians downplay analysts and economists who say the world's oil producers can't pump enough to cover shortages should war disrupt supplies from Iraq or its neighbors in the Persian Gulf, source of a quarter of the world's oil.
Speculators' short positions in crude oil on the New York Mercantile Exchange have more than doubled in the past three months, to the highest in the 20-year history of the contract, according to Commodity Futures Trading Commission data. A short position is a bet that crude oil will fall.
"We have been moving steadily up on war fears. Once we invade, look out," said Cohen, president of Capitol Commodity Services Inc in Indianapolis. "All you have to do is look at the historicals."
New York crude oil plunged 40 percent in the first two trading sessions after a US-led coalition began bombing Iraqi forces on Jan. 17, 1991. The price touched a record US$41.15 a barrel on Oct. 11, 1990, as troops massed in the Persian Gulf.
This time, preparations for war have helped oil prices gain 54 percent from a year ago. New York oil rose as high as US$39.99 last month. The US and UK have moved nearly a quarter-million troops to the region.
"We won't have a precipitous drop like we did in 1991 because inventories are so much lower now," said Andrew Lebow, an energy broker at Man Financial Inc. in New York. "Things are way too tight."
US oil inventories are 17 percent lower than they were in January 1991, and demand is 13 percent higher, according to government and industry figures. A strike that began in December in Venezuela halted most exports from the world's fifth-largest source of petroleum, accounting for some drop in stockpiles.
Commercial supplies of crude in the US last week fell to 269.8 million barrels, matching a 28-year low, according to Energy Department figures. At the outset of Desert Storm, there were 326.8 million barrels in storage.
Most of the world's oil producers are pumping at full capacity. They have just 900,000 barrels per day of spare production capacity, less than the 2.5 million barrels of Iraqi supplies that could be knocked off world markets by a war, the International Energy Agency said in a report this week.
By the time missiles starting exploding over Baghdad in 1991, oil prices had already retreated 22 percent from the record. Saudi Arabia, the world's biggest crude producer, and other OPEC members had increased output in the months after Saddam Hussein's August 1990 invasion of Kuwait provoked a UN embargo on Iraqi oil exports.
Analysts also doubt US-led forces can repeat the quick success of the Gulf War. A full-scale invasion of Iraq might take longer than the four days it took for US-led troops to push Hussein's army out of Kuwait.
"We had a tremendous dropoff in prices when success became evident" in 1991, said Marshall Steeves, an energy analyst at Refco Group Ltd. "We won't see that again."
Steeves predicts oil at US$50 a barrel if OPEC and other producers fail to cover lost Iraqi supplies.
On the first day of the war in 1991, US and European governments tapped emergency reserves. That boosted already ample global supplies, assuaging fears that refiners might have difficulty acquiring cargoes, said Michael Fitzpatrick, an energy specialist at Fimat USA Inc.
US Energy Secretary Spencer Abraham has pledged to tap reserves again to cover any significant supply disruption. The US and 25 other countries hold 4 billion barrels of emergency supplies.
Still, traders worry Hussein may destroy wells in Iraq and neighboring countries, crippling supplies for years.
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