War fears bolster high oil prices

28 February 2003
Concerns that a war in Iraq would further reduce world supplies already thinned by the strike in Venezuela, combined with strong US demand for winter heating, continued to sustain high oil prices in late February, though prices softened slightly from the two-year high reached earlier in the month.

Brent crude futures stood at $32.32 on 25 February, a slight drop from $32.99 a week earlier. The marginal fall came after Washington officials indicated that it would quickly release strategic oil reserves in the event of any disruption of crude supplies resulting from a war in Iraq. However, analysts predicted a market rally after indications that US data to be released on 27 February would indicate a marked decline in heating fuel stocks due to unusually cold weather in the northern hemisphere.

The oil market was receiving mixed signals from producers towards the end of the month. A meeting of leaders of the Non-Aligned Movement of Islamic Countries in Kuala Lumpur concluded with a statement by Malaysian Prime Minister Mahathir Mohammed that members were considering using their oil supplies to bring pressure to bear on the US and other advocates of a war in Iraq.

However, traders say the recent decision by Saudi Arabia to buy four new tankers, capable of carrying an additional 8.5 million barrels of crude, indicates the kingdom is committed to its policy of meeting any supply shortfall with its own reserves. The tanker order is the second such acquisition made by Riyadh in a month.

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