PAUL SOLMAN: Monday morning this week, Colin Powell was about to hold a press conference, Pres. Bush would address the nation at 8:00 P.M. The price of oil, highly volatile in this environment, began the day at about $35.50, a barrel. It closed in on $36 immediately, within sight of its all-time high. ABN AMRO, the huge Dutch bank, trades in the oil market for clients like oil companies and big investors. Our first question to oil analyst Jan Stuart: Mightn't this be like the last gulf war, with prices running up in anticipation of it, only to plunge once it was resolved?
JAN STUART: Back then, we had huge inventories. Prices right before the invasion of Kuwait were $16, $17. Prices before the start of this last crisis starting were already in the high $20s, low $30s. And then you started going into a war scenario.
PAUL SOLMAN: Jan Stuart is a fundamentalist in the economic, not religious, sense. That is, he predicts prices using the fundamental determinants of supply and demand -- like the fact that producers and refiners, who've been running low oil inventories for years in order to save money, have even less oil on hand right now.
JAN STUART: The single largest reason why those inventories are now so low is the political crisis in Venezuela, where in early December the national oil companies sided with the opposition to Pres. Hugo Chavez and paralyzed the Venezuelan oil industry.
PAUL SOLMAN: With far-reaching effects up here in the north as well. The U.S. Imports almost 12 million barrels of the roughly 20 million barrels we consume every day, mainly to make gasoline for transportation. Venezuela provided 15 percent of our imports, up near two million barrels a day, as much as Iraq's total daily output.
SANDY WHITLOCK: Which is why we've seen the rise in gasoline prices and also the rise in heating oil...
PAUL SOLMAN: Broker Sandy Whitlock.
SANDY WHITLOCK: ...Influenced, of course, by weather. So we had what we call the perfect storm happening and throw the war tensions in on top of that and we've had a very volatile, very pricey market.
PAUL SOLMAN: What was striking to us was just how many opinions were moving the price of oil from brokers at this desk alone.
SPOKESMAN: Hey, what's going on?
PAUL SOLMAN: That was Richard Schaffer, head of the oil desk.
SPOKESMAN: We're trading $35.95 right now. $33.60 is the current low. And you got shorts are kind of battling this SPR release headline, you know, concerns that basically saying bush can give the order any time to release from the SPR.
PAUL SOLMAN: The SPR, or "Strategic Petroleum Reserve," created in 1975 in the wake of the first Arab oil embargo. 599 million barrels of oil stockpiled by the U.S. in salt domes off the Gulf Coast, several months worth of imports. The question: If and when it might be pumped, which would dampen any price spike.
PAUL SOLMAN: The broker explains it:
AL ZAPULLA: The major problem with SPR is that it's kind of a one-shot deal, so the government has to be concerned that it's releasing it at the ideal time, because if they release it, people were saying as we approached $40, they were going to release it to kind of help bolster the economy, save the economy.
PAUL SOLMAN: Because that would drive prices down if you suddenly flooded the market with oil.
AL ZAPULA: Exactly. But now they have to worry if we're going to go in and take over Iraq, there's going to be a short-term disruption of Iraqi oil, which there already is, so people are saying you've got to keep it... I actually really have to make this call, we just came up on a dollar, I'm sorry, do you mind?
PAUL SOLMAN: No, go right ahead.
PAUL SOLMAN: Our interview may have cost the man money.
AL ZAPULA: He is the (bleep) worst.
PAUL SOLMAN: Because oil for near term delivery which had risen at the start of trades was down to now $34 a barrel, a loss of almost 6 percent within minutes -- the equivalent of a 500 or so point in the Dow.
MIKE HILEY: It's collapsing, it started up here.
PAUL SOLMAN: Which prompted another interpretation. Broker Mike HIley.
MIKE HILEY: We came in this morning thinking that the 17th was the day. At 12/:01 there would Tomahawk Cruise missiles in the air. People are continuing to take the war premium out of oil prices now.
PAUL SOLMAN: How many of a premium are buyers paying because war fears? Estimates here range from $2 to $10. Subtract $10 and you get some $25 a barrel that would be 25 cent less at the pump which is the price of oil futures.
MIKE HILEY: Here we are the current price is $34. This was Friday's price. Again it flattens out around $25.
PAUL SOLMAN: I see. So once you get out past around what year is this?
MIKE HILEY: That is 05.
PAUL SOLMAN: 2005. Basically the prediction is that the oil price is going to stay a little below $25 out into the future.
PAUL SOLMAN: Now this long-term trend fits well with the plans of yet another country heard fro:. Saudi Arabia with 12 percent of world oil production, a quarter of more of the world's reserves and the world's easiest oil to get at.
DAVID NISSEN: The best bet in the forecast in the price of oil is when you think the Saudis want the price of oil to be.
PAUL SOLMAN: Columbia University Prof. David Nissen spent decades in the oil business.
DAVID NISSEN: The Saudis aim to bring the oil market into compliance with what people typically have accepted it to be. Current policy for OPEC is 22 to $27 a barrel and bad things happen what it gets out of the range.
PAUL SOLMAN: Nissen means that the Saudis in it for the long run want to keep prices reasonable because if prices rise too high the world might spiral into recession and cut back drastically on buying oil, might drill for oil otherwise the Middle East, might even switch to alternative energy. The prices crude had swung up to $35 for which we heard almost as many reasons as there were traders on the desk.
JAN STUART: To call it an imperfect science is being way too nice. There are trend lines, directions - there are turning points, that's about as good as you are going to get.
PAUL SOLMAN: AT the end of the day, though, oil had dipped below 30 for the first time this year -- a 17 percent drop since Monday morning. It's the collective best guess of those willing to bet on the eve of war and despite fears like torched oil wells in Iraq the market seems less worried than it has been in quite a while.