LONDON – World oil prices plunged by 13 percent on Monday to their lowest level for 17 months in the biggest price collapse in a single day since the Gulf War over 10 years ago.
The drop was triggered by 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.
Brent crude oil futures last traded in London $3.42 a barrel lower at $22.01, their lowest since April 2000, having touched a session low of $21.70. The largest one-day Brent crude futures fall was by $10.50 when oil fell to $19.70 during the Gulf War in early 1991.
In New York, November light crude shed $3.96 to $22.00 a barrel -- its lowest since November 1999.
Brent dropped on the sixth successive day of downward trading after prices peaked at more than $31 a barrel in the immediate aftermath of the suicide plane attacks in the United States.
Dealers sold 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.''
Stock markets edged higher on Monday, but brokers said it was premature to declare oil 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.
OPEC MEETS WEDNESDAY
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 air attacks.
OPEC producers, meeting in Vienna on Wednesday, look unlikely to change their production ceiling after three cuts already this year, chasing falling demand.
The cartel appears powerless to prevent a collapse that may spell the end of an oil price boom engineered by the Organization of the Petroleum Exporting Countries over the past two years.
``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.
Kuwaiti Oil Minister Adel al-Subaih said that he would be comfortable with prices at the lower end of OPEC's $22-$28 a barrel target range.
``We understand the situation with the world economy and we will be supportive,'' he told reporters on his arrival in Vienna.
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.
``I don't think the falls are over. We may well see Brent under $20 by Christmas. The only spectacular thing is that it happened today,'' he added.
``It's an absolute blessing for the world economy.''