NEW YORK, March 15: World oil prices slumped on Friday as investment hedge funds bailed out of crude markets in anticipation that a US war against Iraq could start soon and finish quickly.

US light crude fell 63 cents to $35.38 a barrel, a 6.5 per cent fall in two days as a series of automatic sell stops were triggered on New York Mercantile Exchange futures. London Brent fell $1.05 to $31.38 a barrel, after hitting an eight- week low.

Last time in the 1991 Gulf War, there was a big collapse when the shooting started and perhaps this time traders are getting in ahead of the game, said Christopher Bellew of brokers Prudential-Bache International.

Dealers said market perception seemed to be shifting towards the view a war on Iraq would be contained and not hit flows from the Middle East as a whole, supplier of 40 percent of world crude oil exports.

Analysts said hot fund money was shifting out of oil and fixed income and back into undervalued equities markets, hit hard this year by political and economic uncertainty.

There’s been an about turn on the fixed income markets triggering a reversal in crude prices, while at the same time equity markets rallied, said Steve Kwan, head of technical analysis at MMS International.

People are selling bonds, currencies, oil and gold and buying stocks, the dollar and a big part of the reason is they are reexamining their handicapping on what is to happen next, said Bill O’Grady, at A.G. Edwards in St. Louis.

The bookings made by Vela International Marine, state oil company Saudi Aramco’s chartering arm, indicate that its own huge fleet is already fully employed.

Oil traders said the chartering spree shows Riyadh will keep supplies running high into May on top of sharp increases in recent months to allay supply fears ahead of a possible war.

It seems the funds are liquidating, with the news that the Saudis are chartering tankers to bring more oil to the US, said Marshall Steeves, energy market analyst at Refco LLC.

Saudi already has raised output by more than a million barrels per day since the start of the year and market monitors see it moving towards 9.5 million bpd in March, of its 10.5 million bpd capacity.

Petroleum importing nations, represented by the Paris-based International Energy Agency, have said they will give Opec the first chance to compensate for any shortage in the event or war.

I’m confident that OPEC in general and Saudi Arabia in particular will deliver, Saudi Oil Minister Ali al-Naimi told Reuters on Thursday.

IEA Executive Director Claude Mandil said the agency, coordinator for emergency inventories for 26 industrialized nations, would make a decision on whether or not to release reserves within hours of any supply disruption.

We will not have to wait, we will discuss with producers in the very first hours and see how we can work together in the coming hours, he told Reuters.

He said he had been assured by the Japanese government that it was not considering a unilateral release of oil stocks in the event of war.

I was told by the Japanese government that it will stay under the umbrella of the International Energy Agency as they did always, said Mandil.

Japanese newspaper Nihon Keizai Shimbun reported on Friday that Tokyo was considering selling about 300,000 barrels a day of crude from state reserves should war start.

Mandil said he also expected the United States to consult with the IEA under a coordinated release.

IEA members must hold stocks worth 90 days of net imports but have the right to make unilateral drawdowns from excess inventories. Both Japan and the United States, among others, have large volumes above the mandatory 90-day minimum.—Reuters