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Oil Prices Surge, but Traders Downplay Effect of Kuwait Fires

January 23, 1991|MICHAEL PARRISH and VICTOR F. ZONANA | TIMES STAFF WRITERS

Oil markets settled in for the long haul Tuesday as prices rallied and traders generally took in stride the first possible damage to Middle East oil facilities.

As many had predicted, oil prices continued to rise after last week's record drop. The U.S. benchmark West Texas Intermediate crude, for delivery in March, settled at $21.88 a barrel, up $1.56 from Monday on the New York Mercantile Exchange. In its final day of trading, crude for delivery in February gained $2.88 to close at $24.18.

Stock and bond prices fell in response to the Middle East news, with the Dow Jones industrial average ending the session at 2,603.22, down 25.99. Gold prices were slightly higher.

The rise in oil prices was attributed by some to a continued upward correction of the market; by others, to the psychological shock of possible damage to Kuwaiti facilities.

"Any reaction now is really a reaction to political-military events and not the real market for people who are buying oil," said Albert J. Anton, Jr., head of research at Carl H. Pforzheimer & Co., a New York brokerage. "There really is a lot of oil around."

Others saw the Kuwaiti oil fires, whatever was actually burning, more ominously.

"The market was under the cloud of great concern of what could come in terms of oil production in the Middle East," said George J. Gaspar, a petroleum analyst with Robert W. Baird & Co., a Milwaukee-based brokerage.

The trading day was clocked by war developments, beginning when fires erupted at the Kuwaiti oil facilities--reportedly the first to be damaged--and ending with a Scud missile attack on Tel Aviv.

"We had a surge here this afternoon with the attack on Tel Aviv," said Robert Ascher, an oil trader at Merrill Lynch. Ascher and others said prices didn't jump so much in the morning on the reports of Kuwaiti facilities on fire because Kuwait isn't producing oil for export anyway.

And Tuesday, after the close of the New York Mercantile Exchange, it was still unclear exactly what had happened in the Kuwaiti oil fields.

A Saudi Arabian military spokesman told United Press International that aerial photos showed that the Iraqis had torched wells and storage tanks at three locations, including Wafra, an oil field in the Neutral Zone shared by Kuwait and Saudi Arabia.

Bush Administration spokesman Marlin Fitzwater said Tuesday afternoon that the White House had only heard that a single oil-filled trench had been set afire.

Texaco Inc., which has a 50% concession in the Wafra field, said aerial photos to attempt to assess the damage could not be reviewed until today. Still, many oil analysts were skeptical that any serious damage had been done to the facilities.

"As far as the Iraqis are concerned," said Peter C. Beutel of Pegasus Econometric Group, a Hoboken, N.J., commodities consulting firm, "it wouldn't make any sense to blow up an asset they aren't sure they're going to lose."

"We will stand corrected by any intelligence that comes through," Anton of Pforzheimer & Co., said Tuesday, "but from what we understand, they were trying to create smoke for one of two reasons--either to obscure U.S. intelligence and aircraft targeting, or to test the use of burning oil in ditches as an instrument of ground warfare."

Only the prospect of major damage to Saudi Arabian oil facilities concerned oil analysts Tuesday.

"We're perfectly fine without any oil from Kuwait and Iraq for the rest of the year," said William L. Randol, senior petroleum analyst at First Boston.

Contrary to some expectations, Saudi Arabia has been able to increase production. Michael Parrish reported from Los Angeles and Victor F. Zonana from New York.

WORLD OIL SUPPLIES Although Iraq and Kuwait together hold 21% of the world's oil reserves, the shutdown in exports from both during the past six months has not endangered world oil supplies. In fact, the current glut of oil has encouraged Saudi Arabia, which increased production after Kuwait was invaded, to slow production in recent weeks.

Los Angeles Times

Top 10 Crude Oil Producers Soviet Union: 11.43 United States: 7.39 Saudi Arabia: 5.60 Iran: 3.00 Iraq*: 3.00 China: 2.75 Mexico: 2.61 United Arab Emirates: 2.00 Venezuela: 2.00 Kuwait*: 2.00 millions barrels per day Top 10 Crude Oil Reserves *No exports from Iraq and Kuwait since August embargo. Up Again Price per 42-gallon barrel, February contract, West Texas Intermediate crude oil. Tuesday close: $24.18, up $2.88

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