Oil prices rallied Friday as traders speculated President Bush might scrap diplomatic meetings with Iraq, then crude fell back sharply when Bush's news conference rhetoric was not so harsh. Light sweet crude oil settled at $26.55 per barrel, up 13 cents, at the New York Mercantile Exchange on contracts for delivery in January. Crude for delivery in most later months closed lower. In early trading, crude had jumped up by $1.68 per barrel amid continued quarreling between the United States and Iraq over a date for Secretary of State James A. Baker III to visit Baghdad. Two senators said in Washington that Bush might be ready to abandon the idea of the talks, adding to oil's rally. After Bush said in the afternoon that he was discouraged but still hoped the talks could be held, crude plunged more than $1 per barrel in about a half hour. ``It was probably a little over-bought on the whole situation,'' said Ann-Louise Hittle, a senior oil analyst with Shearson Lehman Brothers Inc. ``Once he came out and didn't do anything, it was easy to sell off, probably a little bit of buy-the-rumor, sell-the-fact.'' Oil traders often run up prices by buying crude futures contracts when rumors hit the market, because they don't want to run the risk of getting left out of a rally. They are more likely to sell off their oil contracts on the basis of facts that indicate adequate supplies or sluggish demand. During the week, crude hit its lowest prices since Aug. 3, the day after Iraq invaded Kuwait. But after the close of $25.35 per barrel on Wednesday, it began moving higher. Oil had been steadily dropping since Nov. 30, when Bush first proposed the talks with Iraq and traders began believing a peaceful solution to the crisis could be at hand. Once the diplomats showed they could not even agree on dates to meet, the war fears began resurfacing. ``The last few days, it seemed like the peace talk has diminished,'' said Ed Kevelson, a trader with Dean Witter Reynolds Inc. For the week, crude finished 3 cents higher on January delivery contracts. Refined petroleum products moved in tandem with crude on Friday, rising in early trading then dropping to show little change at the close. Home heating oil was up .67 cent at 75.24 cents a gallon for January delivery. Unleaded gasoline was up .61 cent at 66.18 cents a gallon for January delivery. Heating oil has shown the most weakness of late, with supplies adequate and demand sluggish amid unseasonably warm fall weather. ``It won't get cold,'' said Thomas P. Blakeslee, an energy analyst with Pegasus Econometric Group Inc., in Hoboken, N.J. ``It's a little chilly out there today, but there's no forecast for any types of freezing temperatures.'' For the week, heating oil fell 3.93 cents for next-month delivery, while gasoline fell .29 cent. Natural gas for January delivery closed Friday at $2.262 per 1,000 cubic feet, up 4.2 cents for the day but down 8.8 cents for the week.
