By Anne D. Picker, International Economist,Econoday
Monday, August 26, 2002

Despite mixed earnings and the occasional report of a new corporate probe, investors stayed upbeat and bought equities. Friday was weak, though, as European and American investors took profits and those in Britain sold before a long holiday weekend. Members of the Saudi royal family refuted reports that investors there were pulling money out of U.S. markets. On the week, only the Hong Kong Hang Seng and the Mexican Bolsa were down (0.2 percent and 0.7 percent respectively). Others rose anywhere from 0.5 percent (Singapore Straits) to 4.5 percent (Paris CAC).

As the volume of rhetoric rises about possible U.S. military action against Iraq, so seemingly does the price of oil. West Texas crude (see graph below) rose above $30 per barrel last week. Building anticipation of possible OPEC quotas at a Sept 18 meeting also contributed to the price pressures. There is some dissention within OPEC whether quotas should be raised in the fourth quarter, a time when world demand normally reaches an annual peak. The 10 OPEC members with quotas (all except Iraq) boosted July production by 130,000 barrels a day, or 0.6 percent, to 23.3 million barrels a day. The total exceeded their overall quota by 1.6 million barrels a day.

Tensions in the Middle East have helped send oil futures up. Prices now are above where they were right after September 11th. The previous peak in oil prices this year was $29.38 in May, but by June they had declined to as low as $24.13 a barrel, in part because of slowing growth here and abroad. But repeated reports about a possible United States invasion of Iraq and new data showing that U.S. oil inventories are below levels a year ago have helped push prices higher. The main worry created by the constant talk about invading Iraq is not the loss of Iraq's oil production in an attack, rather an attack's effect on the stability of the Middle East and the possibility that Iraq would strike out against its neighbors, Kuwait and Saudi Arabia, and impede their ability to produce oil.

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