MARKET WATCHNYMEX oil futures prices touch 21-year high upon concerns about Yukos

Crude oil futures prices for September delivery spiraled above a record $43/bbl on the New York Mercantile Exchange Wednesday upon concerns of a possible shut-down of production by Russia's largest oil company, legally beleaguered OAO Yukos. But the concerns were lifted by action from the Kremlin.

July 29, 2004

3 min read

Paula Dittrick
Senior Staff Writer
HOUSTON, July 29 --Crude oil futures prices for September delivery spiraled above a record $43/bbl on the New York Mercantile Exchange Wednesday upon concerns of a possible shut-down of production by Russia's largest oil company, legally beleaguered OAO Yukos. But the concerns were lifted by action from the Kremlin.

Russian bailiffs Wednesday ordered Yukos to stop sales from certain production units as part of a court-ordered assets freeze. On Thursday, Yukos said the Ministry of Justice recalled the ban it had imposed on its Yuganskneftegas, Tomskneft, and Samaraneftegas units.

Yukos produces 1.7 million b/d of oil. Government officials said they had no intention to disrupt Yukos's production.

The Kremlin's stepdown pulled oil prices back, with NYMEX September crude closing at $42.90/bbl Wednesday, up $1.06 on the day before. The $42.90 closing price marked the highest close in the market's history, analysts said. The contract earlier in the day had touched $43.05/bbl, the highest since the contract was launched in 1983.

The possibility of a curtailment in Yukos's production and exports quickly prompted market concerns about international oil supplies. The business units involved are being readied for sale to help pay $3.4 billion in back taxes from 2000 (OGJ, July 26, p. 28).

Analyst comments
"As the [Wednesday trading] session came to a close, there were unsubstantiated reports that the court's directive may have been 'mistranslated' by wire services and that the actual order was for the company not to sell oil properties. . .," said Michael Rothman, senior energy market specialist with Merrill Lynch Global Securities Research & Economics Group in New York.

"Regardless, while the next couple days hopefully shed light on the Russian government's true intent regarding the company, we intuitively expect that Moscow has little interest in taking steps that actually produce a disruptive affect on the country's oil operations and exports, which could, in turn, generate negative repercussions for the world financial markets and global economic economy," Rothman said.

He said that it's premature for key oil consuming nations to tap into emergency oil stockpiles, adding that Merrill Lynch believes global strategic inventories total nearly 1.4 billion bbl.

Energy prices
The October contract for benchmark US light, sweet crude was up by $1.02 to $42.28/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., also increased by $1.06 to $42.90/bbl.

Heating oil for August delivery gained 2.18¢ to $1.1442/gal Wednesday on NYMEX, while gasoline for the same month jumped by 5.11¢ to $1.2954/gal.

The August natural gas contract gained 5.9¢ to $6.048/Mcf, "as it rebounded off support marked by the 10-day moving average crossing at $6.021," said analysts Thursday at Enerfax Daily.

In London, the September contract for North Sea Brent crude gained 99¢ to $39.68/bbl on the International Petroleum Exchange. Gas oil for August delivery was up by $6.75 to $367.75/tonne. The August natural gas contract gained 3¢ to the equivalent of $3.90/Mcf on IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes gained 68¢ to $37.95/bbl Wednesday.
Contact Paula Dittrick at [email protected]