Sun, Jul 04, 2004 - Page 10 News List

Crude prices fall; pipeline in Iraq `cut'

TIGHT INVENTORIES The crisis at the Russian energy giant Yukos, as well as concerns about US reserve inventories, combined to push crude oil prices lower


Oil prices slipped on Friday as traders locked away profits from a two-day surge, but the market still worried about tight US inventories and a financial crisis at Russian energy giant Yukos.

New York's benchmark contract, light sweet crude for August delivery, fell US$0.35 to US$38.38 a barrel after gaining more than US$3 Wednesday and Thursday.

Brent North Sea crude for August fell US$0.15 to US$35.92.

"It is probably just some profit-taking," said AG Edwards analyst Bill O'Grady. "We had some tremendous days."

"If we get through the weekend without any major terrorist event and if Yukos does not stop production, we should be lower on Tuesday," O'Grady said.

Yukos warned it might be forced to halt production after being slapped with a new multibillion-dollar tax bill.

The company said late Thursday that all its current accounts had been frozen after tax authorities demanded an extra US$3.4 billion in tax arrears. The tax demand must now be approved by the courts.

GNI-Man Financial trader Robert Laughlin in London said crude prices were being supported by concerns about Yukos because "Russia is a very big exporter of gas oil."

Low inventories of heating oil in the US had also lured in speculative funds, said Prudential Bache broker Christopher Bellew.

"The funds have been buying heating oil because of low stocks. They are worried about supply because of the demand for air conditioning during the summer," he said

Recent comments by Saudi Arabian oil minister Ali al-Nuaimi, who said there was no need to raise or cut OPEC production and that current prices were "fair," were also still supporting prices, traders said.

OPEC announced June 3 it would raise production quotas by two million bpd on July 1, and by another 500,000 bpd on August 1.

But prices have since cooled markedly and analysts say Saudi Arabia and other OPEC producers are nervous about pumping too much oil and risking a price slump.

An oil pipeline has been "breached" in southern Iraq causing a fresh fall in exports, the British military and Iraqi oil officials said yesterday.

"I can confirm the pipeline was breached. The cause was unknown," a British military spokesman said.

An official at the terminal serving the southern oilfields said exports had fallen to 40,000 barrels per hour from 84,000 barrels per hour.

However, the military spokesman played down the breach as "not significant."

"We understand the breach is not significant and exports are continuing," Squadron Leader Spike Wilson said, adding there were no reports of a fire at the site.

"As we understood they were able to re-route the oil so the export of oil was not impeded," he added.

Another spokesman said the rupture was southeast of the Az-Zubayr oil fields at the site of one of two sabotage attacks which halted southern oil exports for almost a week last month.

"It is the site of a previous attack and therefore this could just be a rupture from the previous repair," Major Ian Clooney said.

The June shut-down of the 42-inch and 48-inch pipelines, which pump crude to the country's two terminals in the Gulf, effectively halted exports as a year-long campaign of sabotage had already crippled supplies from northern Iraq.

It also caused world oil prices to soar.

The British spokesmen said the latest pipeline break was being repaired and investigations into the breach were continuing.

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