Crude Oil Futures Little Changed
Oil prices were little changed Monday despite continued fears of a disruption to Russian supplies and fresh warnings of possible terrorist attacks in the United States.
Lght crude for September delivery closed up 2 cents at $43.82 per barrel - the highest level since trading began in New York 21 years ago - on the New York Mercantile Exchange. Prices rose as high as $43.94 early in the day.
Brent crude for September delivery closed down 6 cents at $39.97 a barrel on London's International Petroleum Exchange.
Analysts attributed the early rally to fears of a terrorist strike. U.S. authorities on Sunday warned that al-Qaida was planning attacks on five key financial institutions in New York, New Jersey and Washington.
The government said potential targets for the terror attacks included the Citigroup Inc. headquarters and the New York Stock Exchange in New York, the Prudential Financial Inc. building in Newark, N.J., and the International Monetary Fund and World Bank buildings in Washington.
Attacks involving chemical or biological weapons were seen as less likely, but U.S. officials said they would not rule anything out in beefing up security around the buildings.
Although oil prices neared the $44 mark in early trading, taking into account inflation, oil prices would have to climb to about $57 per barrel to exceed the value of oil leading up to the Persian Gulf War. On Oct. 11, 1990, oil was priced at $40.42 per barrel, which in today's dollars would be equivalent to approximately $57.
In afternoon trading, investors pulled back.
"The market took pause," said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York. "Traders took pause, took a step back to absorb all the news, specifically all the terrorist threat news."
Where oil prices move next will largely depend on how long the U.S. government continues the terrorist alert.
"If (the terror level) drops back to yellow ... speculators would drive right back in the market," Silliere said. "God forbid we actually see an attack, we'd see oil prices plunge."
Some traders said the day's early terror fear was overplayed.
Analyst Phil Flynn of Alaron Trading Corp. in Chicago said the weekend warnings may actually have helped reassure some market participants by showing that U.S. authorities are getting better intelligence to counter threats.
Analysts also said reports that Russian oil giant Yukos might get more time to pay a tax bill and simple profit-taking were behind falls in London and New York trading.
Crude prices were sent to record highs last week on news that bailiffs' orders against Yukos, Russia's biggest oil producer, could force the company to shut down production within a few days.
The standoff between Yukos, which produces 2 percent of the world's oil, and Russian authorities that threaten to shut down production remains a concern.
The struggling oil company has now been given a full month to pay off its crippling $3.4 billion back-tax bill for 2000 but was hit with a fresh blow Monday as tax authorities said they would begin a probe of its 2002 activities.
Most analysts expect a rise in prices over the coming weeks because of the unfolding Yukos situation, OPEC's decision to keep prices in a higher bracket and concerns about the growing cost of tapping ever more inaccessible fields.
"The geopolitical situation is not going to get better any time soon," said Investec oil expert Bruce Evers, noting that crude prices are nearly 35 percent higher than they were a year ago. "The world is going to have to get used to the changed situation."
In other Nymex trading, September gasoline fell 1.87 cent to $1.2862 per gallon; September heating oil fell 0.51 cent to $1.1642 per gallon; and September natural gas fell 29.9 cents to $5.813 per 1,000 cubic feet.
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