Oil Prices Hit New Highs on Supply Fears
Fri Jul 30, 2004
NEW YORK (Reuters) - Oil prices vaulted to new highs on Friday on worries that financial turmoil at Russia's largest oil company could cut into exports from the No. 2 supplier nation, with oil cartel OPEC already struggling vainly to cool the red hot market.
Oil futures in New York settled up $1.05 cents to $43.80 a barrel, after hitting $43.85 at midday, the highest level since the futures contract began trading in 1983. In London, Brent crude oil rose 78 cents to $40.03 a barrel.
The gains come amid heightened concern over production from Russian oil giant YUKOS, embattled by a huge tax bill. Oil prices were already on the rise due to fears of terror attacks on Middle East oil infrastructure, sparking worries over inflation in energy consumer nations.
"There's a sense with YUKOS of postponing the inevitable. YUKOS's financial problems will get worse in the coming weeks and the market is very nervous that we will see some of its 1.7 million barrels a day shut in for some period," said Steve Turner, an oil analyst at Commerzbank Securities.
YUKOS has said the company could collapse by mid-August because of a freeze on its bank accounts and assets, adding that its rail shipments of oil, which make up a quarter of its total sales, could be affected soon. YUKOS, whose former CEO Mikhail Khodorkovsky is on trial for tax evasion and fraud, pumps a fifth of Russia's oil.
Oil dealers have said any disruption to exports from Russia would stretch already tight global stockpiles and leave producer group OPEC with little or no power to counter a supply squeeze.
OPEC, which has been trying to bring prices down for months, is pumping at more than 95 percent of capacity, the highest for a quarter of a century, giving it little room for maneuvere in an emergency.
Democratic presidential nominee John Kerry said on Thursday America, the world's largest oil consumer, should rely on "its own ingenuity and innovation -- not the Saudi royal family" for its energy needs.
The Democratic party's platform adopted by the convention this week calls for the United States to develop crude supplies from non-OPEC countries like Russia, Canada and nations in Africa. It also repeated Democratic attacks that President Bush is beholden to oil companies.
Oil staged its first assault on historic highs on Wednesday after news YUKOS might face a ban on oil sales while courts try to enforce their multi-billion-dollar tax debt, but retreated a shade after Thursday's reprieve by the justice ministry allowed the company to keep pumping.
Russian bailiffs on Friday gave YUKOS a month to pay its tax debt.
IRAQ VIOLENCE FEAR
Traders also remain wary over accelerating Iraqi oil flows after repeated export disruptions this summer.
"Problems could always occur in Iraq. It's difficult to see someone turning a switch and the situation changing there," Turner added.
The Iraqi oil minister said on Thursday the country's oil exports would average between 1.7 million and 1.8 million barrels per day (bpd) next month, from 1.5 million in July.
Baghdad has consistently missed higher targets due to a spate of pipeline sabotage attacks in the south.
Even short-term outages this summer in major producers Norway and Nigeria have bolstered price strength, as traders fear OPEC may be unable to compensate for even minor hiccups as oil demand grows at its fastest in more than two decades.
The head of the International Monetary Fund said on Thursday that the spurt in demand showed no signs of impeding the global economic recovery.
Rodrigo Rato said the recovery had gathered enough momentum to weather the effects of rising oil prices, which he said was caused by both economic and political factors.
Rato said he agreed with the Paris-based International Energy Agency that oil prices would stay higher than was expected "only a few months ago."
The IMF and economists have forecast global growth in excess of 4.5 percent this year even as oil prices rise and more increases in U.S. interest rates loom.
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