The confrontation between the United States and Libya had littleeffect on oil and financial markets yesterday.
Analysts said the impact was offset by other factors, includinganother drop in U.S. industrial production and the meeting of theOrganization of Petroleum Exporting Countries in Geneva.
Oil analysts said traders quickly discounted the possibilitythat Libya would succeed in pursuading OPEC's 13 members to impose anembargo on oil shipments to the United States in retaliation for U.S.air raids on Libya Monday night. The OPEC oil ministers concludedtheir first day of talks in Geneva without considering the question,OPEC President Arturo Hernandez Grisanti said.
On the New York Mercantile Exchange, contracts for May deliveryof West Texas Intermediate, the benchmark U.S. grade of crude oil,closed at $12.70 a 42-gallon barrel, down 27 cents from Monday's$12.97.
He said many speculators bought into the market a few days ago,anticipating higher prices after a military confrontation that mightshut down Libya's production of 900,000 to 1 million barrels a day.
The speculators were betting that prices would rise with thesubsequent cut in the world's oil surplus, estimated at somewherebetween 1.5 million to 2.5 million barrels daily - not counting the900,000 barrels of Norwegian North Sea oil now off the market becauseof a strike.
The United States, however, said it did not attack Libya's oilfacilities.
On the bond market, traders initially ignored the Libyasituation and sent prices higher after the Federal Reserve Boardreported that U.S. industrial production fell 0.5 percent in March.But then the market grew nervous as traders struggled to interpretthe day's events involving Libya, and what they might do to interestrates.
Analysts suggested a protracted military involvement could stira demand for dollar securities by foreign investors seeking a safehaven, pushing interest rates up.
At the same time, other potentially mitigating factors -including the OPEC talks and the results of a government evaluationof the U.S. economy due later this week - sent many participants tothe sidelines, analysts said.
A growing number of analysts think the economy's sluggishperformance will persuade the Fed to nudge interest rates down.Yesterday's industrial production report encouraged this expectation.
It also fueled the positive side of a mild rise on Wall Street,offsetting the uncertainty over the U.S.-Libya confrontation,analysts said. In the end, the Dow Jones average of 30 industrialstocks closed up 4.34 points at 1,809.65.
On world currency markets, the dollar was mixed in an atmosphereof nervous uncertainty.
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