The price of oil jumped at least $3 a barrel yesterday to about $35 and stocks fell sharply in Tokyo following reports from Baghdad that war had begun.
In Tokyo, the key 225-share Nikkei stock average fell 315.29 points, or 1.4 percent, to 22,127.41 shortly after the opening of trading this morning. The dollar also opened higher in Tokyo, climbing to 137.95 yen from 136.80 at the New York close. It gained against the West German mark, hitting 1.5525 from 1.5450 at the New York close.
"At the moment, I can't tell how far the dollar will go," said one currency trader in Tokyo.
The jump in oil prices followed an increase of nearly $2 earlier yesterday to $32 a barrel in nervous trading that lurched up or down with every piece of news or rumor about the war in the Persian Gulf.
The formal oil "futures" trading market near Wall Street had been closed for several hours by the time White House press secretary Marlin Fitzwater announced just after 7 p.m. that the war had started. Although the futures market was closed, prices continued to be quoted in the informal "cash" market, used primarily by the oil industry to buy and sell crude oil supplies.
"We're hearing $3 already," said Thomas P. Blakeslee, an energy analyst with Pegasus Econometric Group Inc. "Trades are going on behind doors here, to say $3, it could be $4 as we're speaking. This thing is going to shoot up like crazy. ... This thing could easily be at $40 by the morning."
Before Fitzwater's announcement, traders said they couldn't remember when the oil market was so jittery, and some said the atmosphere on the crowded trading floor of the New York Mercantile Exchange, the world's main oil bazaar, was even more tense and jostled than usual. One floor trader said she was punched in the eye in the frenzy, but she quickly added, "not deliberately."
Nervousness about what war in the Persian Gulf might do to oil supplies was not limited to the oil market. Industry and government officials moved yesterday to quell possible hoarding by emphasizing that oil supplies are plentiful and would continue to be so even if war breaks out in the Persian Gulf.
"Americans should not panic about their ability to obtain gasoline or other oil products," American Petroleum Institute President Charles J. DiBona said in a prepared statement. "They instead should feel assured about the adequacy of supplies."
Energy Secretary James D. Watkins also said supplies were adequate and moved to head off what some observers have called "self-inflicted" shortages caused by hoarding or regulation.
Watkins wrote to the governors of all 50 states yesterday warning them not to interfere with the free oil market if war breaks out. More than 30 states have laws allowing their governors to institute rationing or allocations plans such as odd-even day sales in the event of an emergency.
"There are significant economic risks associated with intervening in any way to attempt price or allocation controls in the event of potential market disruptions," Watkins said. "As the nation learned in the 1970s, allocation schemes, no matter how well-intentioned, lead almost invariably to shortages."
Still, most major oil companies have announced that they are limiting sales to wholesale customers because of indications that bulk buyers of petroleum had begun hoarding in case of war. Another oil giant, Chevron Corp., announced similar restrictions yesterday. However, the American Automobile Association said none of its offices around the nation has reported any lines at gas stations, which would indicate hoarding on the consumer level.
Despite the assurances of ample supplies, oil traders concerned about shortfalls continued to bid the price of crude oil and petroleum products higher in the formal market. Trading in oil futures contracts for February delivery on the Nymex opened more than $1 a barrel higher and continued up for most of the day.
At the end of the session, a benchmark barrel of high-quality crude for February delivery was at $32, up $1.93.
The day was marked by several sharp price movements ignited by news and rumors.
One dramatic market move came about 12:40 p.m., when a headline moved on the Reuter news service, which many traders watch, that the State Department had announced it would listen to new peace overtures from Iraq.
Within minutes, the Nymex price of crude had dropped nearly $1 a barrel. "That gave us the quick little sell-off," one oil futures broker said, watching the decline on a computer screen on his desk in lower Manhattan.
But a moment later, he had a new assessment. "It doesn't look like anything new," the broker said of the report. He advised his clients to buy, and the market agreed, bidding the price right back up. "Just a sell-off on the news, then back to reality," he said.
Traders said the market's sensitivity reflects the feeling among participants that war or peace could come at any minute, sending the price of oil skyrocketing or tumbling. Either move could scorch traders who bet wrong.
Nonetheless, many traders said the general upward tone of the market indicated that most participants had decided that the passing of the Jan. 15 deadline for Iraq to withdraw from Kuwait meant that there will be a supply-threatening war in the Persian Gulf, and that they didn't want to be left out of any jump in prices.
Staff writer Kara Swisher contributed to this story. Potts and Swisher reported from New York;
Lippman reported from Washington.