WSJ - Oil Prices Surge to $43 a Barrel On Worries Over Yukos Supply

[Klaus]

Oil Prices Surge to $43 a Barrel
On Worries Over Yukos Supply

By MASOOD FARIVAR and LEAH MCGRATH GOODMAN
DOW JONES NEWSWIRES
July 28, 2004 3:23 p.m.

NEW YORK -- Oil prices hit a record $43 a barrel Wednesday over concerns about the loss of production from Russian oil company OAO Yukos. A deadly bombing in Iraq and tepid data on U.S. energy reserves added to the concerns.

Yukos warned that Justice Ministry bailiffs told its core operating subsidiaries to cease all sales of company property, including oil. In a written response to the court order, Yukos management said this could lead to a halt in production within days. (See article1.)

Russia is the world's No. 2 oil producer and exporter. Yukos produces about 1.7 million barrels a day -- as much oil as Iraq pumped last month. The Russian government is trying to collect billions of dollars in back taxes from Yukos, a move the financially troubled company says could force it into bankruptcy.

Traders weren't sure whether Yukos's statement was valid or just a ploy meant to pressure Russia's government. Regardless, the prospect of losing nearly two million barrels a day comes at a critical time for the oil market. With the Organization of Petroleum Exporting Countries pumping close to capacity, the "market cannot afford any hiccups in supply," said Tom Bentz, an analyst at brokerage BNP Paribas Futures in New York.

On the New York Mercantile Exchange, crude-oil futures for September delivery settled $1.06 higher at $42.90 a barrel. At one point, prices touched $43.05 a barrel before quickly pulling back. The previous record was $42.45, set June 2 after terrorist attacks on a Saudi Arabian oil company.

Nymex heating oil for August gained 2.18 cents to $1.14 a gallon and August unleaded gasoline rose 5.7 cents to $1.30 a gallon. August natural gasoline added 6.1 cents to $6.05 per million British thermal units.

In an effort to rein in surging prices, OPEC agreed June 3 to increase its output ceiling by 2.5 million barrels a day -- two million barrels beginning July 1 and the additional 500,000 barrels effective Aug. 1. The increase has cut into OPEC's spare capacity. The U.S. Department of Energy estimates the group's unused capacity at one million barrels a day, most of it held by Saudi Arabia.

"I'm concerned that the world oil markets, as tight as they are with maybe one million barrels a day of spare capacity, would not be able to deal with this any more," said DOE analyst Lowell Feld. "Any disruption from Russia would be very problematic right now. Really the last thing the oil market needs is problems coming from Russia."

The news was followed by a sluggish weekly inventory report from the Energy Information Administration, the DOE's statistics branch.

Crude stocks rose for the first time in three weeks, climbing 1.2 million barrels to 300.5 million barrels. The gain left inventories near the middle of their average range, the EIA said. But the slight increase came even as imports grew by 1.4 million to a record 11.3 million barrels a day. The data also showed only a marginal build in distillates and a decline, or draw, in gasoline inventories.

DeCarlo Larry, an analyst for Barclays Capital in New York, called the data "very bullish," meaning prices could run-up even more. "We've never seen imports like this before and refinery runs were up and we still drew in gasoline," he said.

Meanwhile, a suicide car bombing killed 68 Iraqis at a police recruiting center in Baqouba, in the deadliest attack since the transfer of sovereignty to an interim government. The bombing stoked already-heightened fears that Iraq won't be able to get into a regular rhythm of producing oil.