Monday, July 05, 2004

Oil prices are back in the news off a triple-whammy: sabotage of pipelines in Iraq; the bankruptcy of Russian oil giant YUKOS; and Iranian suggestions that OPEC delay its August oil production quota hike agreed to last month.
Crude futures rose sharply on Monday as a result of more sabotage attacks on Iraq's pipeline infrastructure and over concerns about the outlook for Yukos, one of Russia's largest oil producers.

IPE Brent for August delivery gained 58 cents to $36.50 a barrel in early morning trade. The New York Mercantile Exchange was closed for the Independence Day holiday.

Oil prices were also buoyed by comments from Bijan Namdar Zanganeh, the Iranian oil minister, who said over the weekend that current oil prices were "good" and that Opec could consider delaying a scheduled production quota increase when it meets later this month.
Recall that in early June, OPEC agreed to increase oil production quotas by 2 million bpd starting July 1 and another 500,000 bpd starting August 1. OPEC moves combined with token increases from Mexico and a few other non-OPEC producers brought Brent crude prices down from $39/barrel to the $35-36/barrel range, and for a brief time they plunged all the way down to $33 and change. But now Brent prices are up over $36 again, and NYMEX prices will surely be flirting with $40 again soon.

Why? Because
Russian oil major YUKOS will slash some of its 400,000 barrels per day of oil and products exported by rail and river in July as it struggles to find cash for core operations with its bank accounts frozen, YUKOS sources said on Monday.

They said YUKOS's pipeline exports to destinations such as Poland, Slovakia or Hungary, many of which are committed under long-term deals, could also come under threat as soon as August, forcing the firm to declare force majeure. . . .

YUKOS produces 1.7 million barrels per day and exports more than 70 percent of output in the form of crude oil and refined products. This represents more than a fifth of Russia's total production and exports.
For the short-term, analysts think other Russian oil firms can pick up the slack from YUKOS. But according to YUKOS, short-term means through the end of July. Eastern Europe would be hit especially hard if YUKOS exports dry up, and then the uncertain knock-on effects begin.

Finally, the news out of OPEC just gets more and more interesting.
Norris said that hints by the world's largest oil producer, Saudi Arabia, that it might not increase output in August as earlier agreed, had also injected uncertainty into international markets and supported prices. Saudi Arabia's oil minister Ali al-Naimi said last Wednesday that the kingdom was happy with current prices.

But as ample supplies have pushed spot values to fall below futures prices, into what traders call a contango, Naimi's remarks could see the OPEC kingpin ditch plans to raise formal output limits, analysts said.

"Contango's persistence despite the oil market's recent rally inclines us to believe that Saudi Arabia will soon need to stop its program to increase production and may even cut July production," said Societe Generale economist, Frederic Lassere.
OPEC seems to like NYMEX prices around $38, the point around which they've fluctuated ever since the oil cartel intervened strongly last month. A little Iraqi/YUKOS froth and we're back above the magic $40 threshhold.


Post a Comment

<< Home