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Oil Prices Continue to Fall - 2003-03-19

Financial markets were again mostly higher Tuesday and oil prices fell very sharply for the second straight day. Traders are anticipating a short and successful U.S. military campaign against Iraq.

Crude oil prices in New York fell by nearly 10 percent Tuesday to a two-month low of $31.40 a barrel. In London prices were down 7.5 percent as traders bet on an easy U.S.-led victory over Iraq, currently the world's seventh-largest oil exporter.

Crude oil prices are still much higher than they were a year ago and higher gasoline prices at the pump are putting a crimp on consumers in dozens of countries. However oil is down eight dollars a barrel from its February peak of just below $40, the highest level since the Gulf War in 1991.

Equity prices were also higher in New York but the strong rally of Monday and last Thursday was not repeated. Markets were largely unaffected by the U.S. central bank decision to hold short-term interest rates steady at a 41-year low of 1.25 percent. Susan Green of Bear Stearns in New York was asked if a war victory premium is already priced into the market.

"I don't think so. I think basically everybody is waiting," she said. "It's going to be a waiting game. And nobody expects they really have the answer [as to how the war will end up]. What they're doing going forward is exhibiting patience, waiting to see how much information comes out and gets digested."

Ms. Green believes a quick allied victory would send equity markets sharply higher.