Oil prices hit their highest level in at least 21 years Wednesday with U.S. crude topping $43 a barrel after bailiffs ordered beleaguered giant Russian oil company Yukos to stop sales, threatening further strain on tight international supplies.
The news intensified concerns over the lack of spare capacity in the international oil system, as the OPEC cartel pumps at its highest level for a quarter of a century to meet strong global demand growth.
U.S. light crude settled up $1.06 at $42.90 a barrel after hitting a high of $43.05 a barrel — topping peaks hit in early June and the highest price since the New York Mercantile Exchange launched the contract in 1983.
London Brent crude settled up 99 cents to $39.53 a barrel after hitting $39.68, its highest level since October 1990, ahead of the first Gulf War.
Prices jumped after a company source said Russian bailiffs told Yukos’ production units, which together pump around a fifth of Russia’s crude supply, to halt sales of property — including oil.
Yukos has said it faces imminent bankruptcy as courts seek to enforce a $3.4 billion tax debt for 2000. It was not clear whether the order might force YUKOS to halt shipments of oil or simply bar the company from signing new supply contracts. Oil brokers said Baltic and Black Sea loadings of Yukos crude were going ahead normally.
“It could have implications for Russia’s oil exports, though this depends heavily on whether developments reflect government brinkmanship or something more menacing,” said investment bank Merrill Lynch in a research report.
Yukos said it had not complied with the order and was continuing to operate while it sought clarification of what chief executive Steven Theede called a “misinterpretation.”
Russia is the world’s second biggest oil exporter behind Saudi Arabia after five years of rapid production growth. The International Energy Agency (IEA) said it was confident the government would work to ensure reliable oil exports.
“Concerns about the export transactions are overstated,” said consultancy Energy Security Analysis. “Russian companies are extraordinarily adept at redirecting cash flows through multiple accounts and using alternative payment means to keep production running.”
Stretched to the limit
If the Yukos turmoil prevented Russian production from meeting forecasts for further growth, the global oil supply system would be even more pressed to meet rising demand, analysts say.
The lack of a supply cushion in the event of an attack against the Middle East oil infrastructure has encouraged heavy buying from big-money speculative funds.
OPEC has already jacked up production to 30 million barrels per day — the highest level since 1979 — to meet breakneck consumption growth in China and the United States.
Saudi Arabia has led the supply increase, eager to stop prices from rising to a level that would hurt world economic growth and stunt fuel demand.
Allowing for inflation, prices are about half those during the oil price shock that followed the 1979 Iranian revolution. Crude averaged $80 a barrel during 1980 when adjusted for inflation to 2003 prices, according to oil major BP Plc.
OPEC President Purnomo Yusgiantoro of Indonesia said that the cartel was doing its best to get prices down. “We are very sincere about pushing the price to be stable below $30 per barrel,” he told Reuters.
Venezuela’s oil minister said OPEC had little spare capacity to help lower prices. “Most of the countries are near their production limits,” Rafael Ramirez told Reuters.
Price gains accelerated after a weekly U.S. government report showed just a small build in crude stocks and a fall in gasoline inventories last week, even though crude imports rolled in at the highest weekly pace ever.
U.S. crude stocks rose just 1.2 million barrels last week to 300.5 million barrels, while crude imports hit an all-time high of 11.3 million barrels per day, the U.S. Energy Information Administration said in a weekly report.
Refiners have struggled to turn ample crude supplies into higher refined product inventories, underpinning oil’s price strength.
Gasoline stocks fell 700,000 barrels to 207.7 million even though gasoline imports rolled in at the second highest weekly level ever, the EIA said.
