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Posted on 09/24/2001 9:48:23 AM PDT by Dane

Oil Plunges 12 Percent

By Sam Arnold Forster

LONDON (Reuters) - World oil prices plummeted by over 12 percent on Monday to their lowest level for almost 18 months on growing confidence that the U.S.-led war on terrorism will not crimp precious Middle Eastern oil exports to the West.

Fears of a faltering global economy also helped tip prices decisively lower while oil producing cartel OPEC (news - web sites) was left flummoxed in the wake of fast moving oil markets.

Brent crude oil futures dropped over 12 percent or $3.14 a barrel to $22.30 a barrel in early London trading -- the lowest level for 17 months -- and stood at $22.75 by 11:24 a.m. EDT.

In New York, November light crude stood $2.59 lower at $23.38 a barrel after falling to a fresh 22-month low in overnight electronic trading.

Brent dropped on the sixth successive day of downward trading after prices peaked at over $31 a barrel in the immediate aftermath of the suicide plane attacks in the United States.

Dealers said financial funds and oil companies were selling aggressively on Monday after buying last week on the belief that military action in the Middle East might spread and severely disrupt supplies.

``People took a war position'' believing that oil exporters might get sucked into a wider conflict, said Bob Finch, head of trading at Vitol SA in London.

``But it now looks much more like a more specialist military operation,'' he added.

Stock markets edged higher on Monday but brokers said it was premature to declare markets were finding a bottom, especially as the global economic bill for the carnage was still being drawn up.

``The oil market is telling us that there isn't any growth,'' said Peter Gignoux of Schroder Salomon Smith Barney in London.

The oil market has wrestled with a growing amount of news in recent days as the twin threats of a global recession and a protracted U.S.-led war on terrorism have competed to dominate market psychology.

The prospects for global oil demand growth next year are being steadily revised lower as economists calculate the after-effects of the suicide air attacks on the United States.

OPEC is meeting this week in Vienna having recently cut oil output for the third time this year in a bid to offset faltering demand and underpin prices.

Officials from the cartel have made clear that with prices near the middle of their $22 to $28 a barrel target range for a basket of OPEC crudes they see no need to further change output.

But this latest slump makes that decision much harder now.

``It's a very delicate time at the moment but we're all working to maintain price stability,'' OPEC Secretary General Ali Rodriguez told Reuters from OPEC headquarters in Vienna.

Kuwaiti Oil Minister Adel al-Subaih said on Monday that OPEC would be comfortable with prices at the lower end of OPEC's $22-$28 a barrel target range.

``Kuwait's stand is that Kuwait would be a comfortable with a price in the lower half of the price band -- lower half is $22-$25,'' he told reporters.

``We understand the situation with the world economy and we will be supportive,'' he told reporters on his arrival for Wednesday's OPEC meeting.

Saudi Arabia's oil minister declined to speculate on what decisions would be made at Wednesday's OPEC meeting, but said his country could potentially boost oil output if necessary.

``It depends what conclusions we come to at this meeting (on Wednesday),'' said Ali al-Naimi when asked by reporters what would happen to oil supplies after the talks, to be held by the cartel in Vienna.

He also declined to say whether oil output levels should remain the same. However, he said Saudi Arabia could boost output if need be.

``Potentially we can produce 10.5 million barrels a day while today's daily output stands at around 7.5 million barrels per day. This (higher) level may be reached at any time within a month or two,'' he said.

OPEC has made repeated assurances that it will maintain steady supplies to the West over this period of market uncertainty and that it will act if there is a disruption in supplies.

But despite calming words from OPEC, many oil dealers expect a volatile market as prices react to rapidly changing events and rising tensions in the Middle East.

Investment bankers are drawing a parallel to the period around the 1990-1991 Gulf crisis, when U.S. military conflict in the Middle East combined with an economic slowdown.

Even as demand weakened, instability in the oil-rich Gulf region drove prices up to $40 per barrel in October 1990.

But any knee-jerk price spike is likely to be met with ``a line of sellers,'' said Nigel Saperia of independent oil trading house Glencore in London.

So far, the lack of any oil supply disruption has kept prices well below that level and worries that Iraq, Iran or Libya could be drawn into the conflict have been unfounded.

The United States on Monday tried to surround Islamic militant Osama bin Laden (news - web sites) with a far-flung political and military net, sending a team to Pakistan, positioning troops on land and sea, and promising a written indictment against the man who tops its wanted list for the attacks on New York and Washington.

Bin Laden, the wealthy Saudi-born Muslim dissident believed to be hiding in Afghanistan (news - web sites), remained the top target of U.S. efforts.

Secretary of State Colin Powell (news - web sites) said on Sunday that Washington would release evidence linking him to the attacks, in a bid to build support for the coalition President Bush (news - web sites) is trying to assemble for his global ``war on terrorism.''

Afghanistan's ruling Taliban, which has sheltered bin Laden, has said it will not turn him over unless it is given proof of his involvement in the attacks.

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