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Last Updated:  Friday, 21 March, 2003, 23:44 GMT
Oil prices drop sharply
Satellite image taken from 520 miles in space by the National Oceanic and Atmospheric Administration, NOAA.
Satellite pictures show smoke clouds from burning oil wells
World oil prices fell steeply on Friday as traders absorbed news of the US-led sweep across Iraq.

The slide in prices reflects the view on the trading floor that the war will end quickly and the US will win.

"The more we attack, the closer we get to Baghdad, the more crude falls," said Bill O'Grady, research director at AG Edwards.

New York's benchmark light sweet crude dropped $1.21 to $26.91 a barrel, marking a slump from last month's peak of $39.99 to its lowest level this year.

In London the price of Brent crude oil fell $1.15 to $24.35 a barrel.

Prices have now lost more than $10 since their high of $34.55 on 10 March.

Extra supplies

Traders were encouraged by reports that only a handful of oil wells had been set on fire in Iraq.

US Marines near an oil pumping station in Southern Iraq
In the first Gulf war Iraq blew up hundreds of Kuwaiti wellheads

The US Defence Secretary Donald Rumsfeld told reporters that "only about 10 wells that we know of, out of possibly 1,000 in that area," had been damaged.

He said several were on fire or gushing oil, but firefighters and repair crews would be sent soon.

But Iraq denied setting fire to oil wells, saying instead that it had set oil-filled trenches ablaze in an effort to prevent US and British warplanes from finding their targets.

Experts said that the main reason for the sharp drop in prices was that Saudi Arabia was pumping more oil into the marketplace in order to make up for the shortfall from Iraq.

"It is the weight of oil, rather than the force of bombs, which is pushing markets lower," said Leo Drollas from the Centre for Global Energy Studies.

"Opec is now producing more oil than has been lost."

Opec - the oil producers' cartel which accounts for about 40% of the world's oil exports - has vowed to ensure continued supply during the conflict.

Destroying oilfields

Reports that US and British forces had taken control of important oil producing areas in southern Iraq also strengthened investors' confidence that global oil supplies would not be heavily disrupted.

But the burning of oilfields in Iraq remains a serious concern for the industry.

The structure of Iraq's oilfields means that if they are set alight they are likely to be permanently destroyed.

Southern Iraq is home to the country's second largest oilfield and its most valuable undeveloped reserves.

The amount of oil Opec decides to produce is also of continuing concern.

If the oil price continues on its sharp decline, the cartel may eventually rein in its exports once again.

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