Oil prices explode after attack

  • ADAM GELLER / Associated Press
  • Thursday, October 12, 2000 9:00pm
  • Local News

By ADAM GELLER

Associated Press

NEW YORK — Oil prices soared Thursday after an apparent terrorist attack on a U.S. Navy destroyer in Yemen ignited worries that the conflict in the Middle East could widen.

The news triggered frantic trading in petroleum markets, with crude oil futures closing in on 10-year-highs at one point.

"What we saw here is fear, pure and simple," said Phil Flynn, vice president and senior energy analyst at Alaron Trading Corp. in Chicago. "The market just realized how dangerous the situation in the Middle East is."

The oil price frenzy, combined with Home Depot’s warning that its earnings would be lower than expected, sent shudders through Wall Street. Although the 379.21 drop was the fifth largest point drop in Dow history, the 3.6 percent decline didn’t rank among the top 25 worst losses.

The attack and escalating violence between Palestinians and Israeli troops alarmed traders because a widening of the Middle East conflict could interfere with production and delivery of oil by Arab nations or make them reluctant to lower prices at a time when world supplies are already very low, analysts said.

"It is becoming clear that it will be more politically difficult for some states to openly try to intervene and bring down prices," said George Beranek, oil analyst for the Petroleum Finance Co. in Washington, D.C. "There is concern that some exporters might even try to use crude oil as a weapon."

Those worries drove the price for crude oil futures as high as $37 a barrel Thursday, near its 10-year-high of $37.80 reached in September. Later, crude oil closed at $36.06 a barrel, up $2.81.

Heating oil futures for delivery in November also jumped Thursday, trading as high as $1.11 a gallon. They later fell to $1.0773 a gallon, still up 5.95 cents. That topped the previous record closing price of $1.0615 set in 1990, although it fell short of an intraday high of $1.15 in 1979.

In other futures, unleaded gas for delivery in November rose 7.42 cents to 99.82 cents per gallon, and natural gas for November delivery was up 12.2 cents to $5.63 per 1,000 cubic feet.

The volatility in the oil markets is likely not over and traders will be watching closely over the next few days to see what happens, analysts said. They pointed to Thursday’s briefing by Secretary of State Madeleine Albright regarding the attack on the USS Cole as an indicator that the situation remains volatile.

"We will hold those who committed it accountable and take appropriate steps," Albright said.

Thursday’s events make it even more difficult to predict what will happen in already uncertain oil markets.

Oil prices have risen steeply this year, as OPEC curtailed production and U.S. stocks shrank. That has sparked concern that as winter draws near, the price American consumers pay for heating oil could skyrocket.

Crude oil prices have moderated in recent weeks, after President Clinton ordered the release of oil from the Strategic Petroleum Reserve and some OPEC leaders said they were prepared to increase output. But Thursday’s events erased the optimism of those developments, analysts said.

Copyright ©2000 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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