FEARS that an attack on Iraq is inevitable coupled with record low oil stocks in the United States have pushed crude oil prices to near 12-year highs. US sweet light crude reached US$38.34 per barrel in early trading yesterday, its highest level since the 1991 Gulf War and less than US$3 shy of the record US$41.15 price seen in October 1990, a month after Iraqs surprise invasion of Kuwait.
War jitters have also continued to affect currency and stock markets. The US dollar fell sharply against the yen yesterday to its lowest level in six months while stocks headed south throughout Asia.
The rise in crude oil prices accelerated on Wednesday after the testimony by chief UN weapons inspector Hans Blix who said that Iraq was still not fully cooperating with efforts to rid it of weapons of mass destruction and was no closer to disarming. This raised the possibility that the US and its allies could gain further support for war against the country.
The market hung on the words of Blix, a Reuters report quoted a dealer in New York as saying.
Further, a US Energy Department report last week said the country's crude oil inventories had fallen to a 28-year low, while supplies of heating oil and diesel in a colder-than-usual winter there had dropped to critical levels.
In Wednesdays trade, a jittery New York Mercantile Exchange (Nymex) saw US light crude deliveries for April hit US$38.66 per barrel before closing up 52 US cents on the day at US$38.22.
Benchmark Brent crude for April deliveries, meanwhile, rose 50 US cents to US$33.57 per barrel in London. The price of Brent crude had increased 61% over the past 12 months, although a disparity between Nymex and Brent prices had begun to widen recently leading to the possibility of arbitrage, said dealers.
In the Tokyo currency market yesterday, the yen closed at 117.10 to the US dollar, topping a six-month high of 116.90, despite a warning by Japanese authorities that they were willing to intervene to stem the dollar's fall.
The strengthening yen, which would significantly impact Japanese exports, dampened the outlook for Japanese companies, leading to a fall by the Nikkei average to a 20-year low of 8,299.91 at midday yesterday.
The market, however, rebounded slightly by the close, with the Nikkei settling at 8,359.38, little changed from Wednesday.
Elsewhere in Asia, the South Korean market faced heavy selling yesterday on news that North Korea had restarted its Yongbyon nuclear reactor that the US suspects to be capable of producing nuclear weapons. Seouls Kospi closed 1.3% down at 582 points.
In Singapore, the Straits Times Index ended the day down 1.2% to 1,271 points, while Sydneys S&P/ASX200 fell 1.09% to close at 2,796.2.
Bucking the trend, Hong Kong gained marginally, with the Hang Seng closing at 9,134 points. At home, the KLSE Composite Index also reversed early losses to close the day in positive territory at 652.44.