Oil Eases from Record Peaks

Fri Aug 6, 2004
By Barbara Lewis

LONDON (Reuters) - Oil prices pulled back from record highs on Friday at the end of a volatile week as much weaker than expected U.S. job data raised the prospect of economic slowdown and lower energy demand.

Early in the session, heightened concerns about possible disruption of supplies from Russian oil major YUKOS had pushed U.S. light crude and London's Brent crude to the highest levels since the futures contracts were launched.

But U.S. crude futures later pulled back to $44.02 a barrel, a fall of 39 cents from Thursday's settlement, and down from the historic peak seen early on Friday of $44.77.

London's Brent crude fell 38 cents to $40.74, also down from a new record of $41.50 hit earlier.

The U.S. Labor Department on Friday said U.S. payrolls had risen by a mere 32,000 in July, a number described by one analyst as "a huge disappointment."

The figure drove stock markets weaker, with the Dow Jones Industrial Average sliding by more than 100 points before rallying slightly.

Oil analysts, however, said they saw little immediate chance of oil prices collapsing, especially as concerns persist about the financial straits of YUKOS, which pumps 1.7 million bpd, or two percent of world supplies.

A financial source said on Friday that YUKOS had no money in its bank accounts after bailiffs seized a total of $900 million by Thursday to put toward payment of the firm's huge back tax bill.

"All revenues coming into our bank accounts are immediately transferred (by bailiffs) to the public excheckr. As of Thursday a total of $900 million had been written off. It is definitely a threat to our operations," a YUKOS source told Reuters.

YUKOS has repeatedly warned it needs at least $400 million on its Russian bank accounts to fund core operations such as transportation fees to ensure oil exports.

It has said it had pre-paid August transportation fees to pipeline monopoly Transneft but would need to find money by the middle of August to pay for exports in September.

PRECAUTIONARY STOCKPILING
Oil has rallied more than 30 percent this year as rapid demand growth, especially in the United States and China, leaves little leeway for any supply disruption. Consumption is accelerating at the fastest pace in more than 20 years.

Fears about the vulnerability of overstretched supplies have prompted several governments to seek to boost strategic stockpiles of oil.

The U.S. Interior Department said on Friday it expected the U.S. Strategic Petroleum Reserve to be filled to its 700 million barrel capacity by the middle of next year.

The Organization of the Petroleum Exporting Countries, which controls around half of the world's crude exports, is pumping at the highest levels since 1979 as it tries to stem oil's relentless price rise.

OPEC President Purnomo Yusgiantoro said on Friday that output was running at 30 million barrels daily and the group was ready to lift production by 1-1.5 million bpd if deemed necessary when ministers next meet.

OPEC ministers are scheduled to meet in Vienna on September 15 to review output policy, but only Saudi Arabia, the world's top exporter, has any significant spare capacity to increase supply.

OPEC lifted its official output limits by 500,000 bpd to 26 million bpd on Aug. 1. The limits exclude Iraq, which is struggling to rebuild its oil industry after the 2003 war and a spate of sabotage attacks on key pipelines earlier this year.

Iraqi exports ran at about 1.5 million bpd in July and are expected to rise to between 1.7 and 1.8 million bpd this month.

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