Oil prices fell heavily today on news of the start of a long-awaited war in Iraq that traders worry could open the floodgates to cheap oil from the Gulf if US-led forces are successful.
But prices later recouped much of the early losses in European trading as markets remained extremely nervous about the possibility of damage to oil facilities in Iraq and neighbouring oil producers.
The price of benchmark Brent North Sea crude oil for May delivery was down 29 cents per barrel at $26.46 in choppy early trading on the London exchange. Brent prices had fallen to as low as $25.50 in out-of-hours electronic dealing in the initial aftermath of the first US strike on Baghdad.
The price of New York reference light sweet crude April-dated futures lost another 79 cents to €28.53 in out-of-hours deals, off earlier lows.
Analysts said that although some or all Iraqi production was set to be lost because of the Gulf conflict, this should easily be covered by other producing nations or global reserves. But equally, they added, a prolonged war in Iraq or damage to oil facilities in the region such as the torching of oil wells could sent prices skyrocketing again.
Traders took some comfort from a pledge by OPEC president Abdullah bin Hamad al-Attiyah reiterating that the oil-producing organisation was ready to make good any shortage of oil to the market.
The OPEC president said in a statement that he was repeating OPEC's commitment 'to make up for any supply shortfall' caused by events in Iraq. 'To this end, OPEC member countries have pledged to use, in the interim, their available excess capacities to ensure continued supply,' he said.
The International Energy Agency also said leading oil producing countries had promised that adequate supplies of oil would reach world markets despite the beginning of military operations against Iraq. 'Producers are confident they can keep the market adequately supplied and we've been assured that they will make every effort to do so,' IEA executive director Claude Mandil said.
Oil production in Saudi Arabia and Kuwait was running smoothly directly after the military strike began, officials in the countries said. Independent analysts estimate output in Saudi Arabia, the world's biggest oil exporter, at over nine million bpd.
* Ireland has well in excess of the recommended emergency stocks of oil, according to the Minister for Communications, Marine and Natural Resources yesterday. He said that Ireland has 111 days supply, compared to the International Energy Agency recomendation of a minimum of 90 days.
This supply is estimated to be enough to last for three years if international supplies are interrupted, as only once, during the Suez Crisis, has the world supply of oil been reduced by over 10%.
