Oil price swings on developments in Gulf

TENSIONS in the Gulf sent the spot oil price higher for the second trading day, but futures later sank to 10-day lows after Iraq said it would pull its troops back from its border with Kuwait, writes Diane Coyle.

Traders said Iraq's actions posed little threat of short-term disruptions to oil supplies, but had almost certainly delayed the lifting of sanctions on its oil exports. At a time of strong demand growth, this would lead to a higher oil price throughout 1995.

Until the new threat of Iraqi military action, analysts had expected United Nations sanctions on Baghdad's oil exports, imposed in August 1990 after Iraq invaded Kuwait, to be lifted some time next year.

Geoff Pyne, oil analyst at UBS, said: 'Most oil producers are running at full capacity. If it is confirmed that Iraqi exports will not be resumed next year, the oil price will rise.'

The international benchmark North Sea Brent spot price closed 7.5 cents higher at dollars 16.93 in London last night, after gains of more than 30 cents during the day. But in later trading November Brent fell from a high of dollars 17.25 to dollars 16.64, down 29 cents from Friday's close.

Andrew Slaughter, oil analyst for DRI, the forecasting group, said there could be a few days of volatility but this would soon settle down. He predicted a longer-term rise of only about 30 cents a barrel even if Kuwaiti production fell.

World demand for oil has been growing, thanks to the strength of the US economy. Economic recovery in Europe and Japan is expected to lead to higher demand for oil during the next 12 months.

The Brent spot price hit a peak of dollars 41.10 a barrel soon after the Gulf war began.