Thursday, August 05, 2004

Putin is playing hardball with YUKOS, and there is no reason to believe he will fail to drive the corporation not only into bankruptcy but into liquidation.
Oil reached another record high at midday Thursday as traders priced in potential supply disruptions on news Russian oil giant Yukos can't use its bank accounts to keep production flowing.

U.S. light crude was trading erratically on the New York Mercantile Exchange, hitting $44.50 a barrel before easing back a bit to $44.35, still a gain of $1.52. Brent crude trading in London also hit a record high of $41.15, a rise of $1.45.

The record prices came after Russia's Justice Ministry revoked permission for troubled oil company Yukos to use its bank accounts to finance daily operations and pay transport fees to ensure oil exports.

Russia's Justice Ministry said on Thursday that permission granted by one bailiff, sent to Yukos only on Wednesday and made public by the oil firm, was illegal and therefore withdrawn. The company has been battling bankruptcy, with tax debts of $3.4 billion.

"All financial means entering the company's accounts, now and in future, will be seized by the bailiffs' service and transferred to the budget to pay the tax debt," the ministry said in a statement.
Ultimately, nationalization of YUKOS is probably on the menu. To get there, the company's entire production and transportation apparatus will have to be shut down. Last month the Washington Post reported the following death-rattle scenario for YUKOS:
. . . the first impact would be felt at the end of next week [i.e. August 7], when Yukos will no longer be able to pay for rail shipments of oil to China. With no rail service available, the company will be able to continue pumping here for a maximum of three days, until its storage facilities are full. That would effectively shut down about half of the production by the company's Tomskneft subsidiary here in the western Siberian region of Tomsk and about 25 percent of the company's overall production of 1.7 million barrels a day.

By the end of the second week in August [i.e. August 14], the company would no longer have money to pay for pipeline shipments, either, Theede said. At that point, the rest of production would begin shutting down.
The first step has already taken place; the Russian government has forbidden YUKOS from financing rail shipments out of its bank accounts.

Recall that YUKOS alone produces 2% of global crude oil. Is $50/barrel now imaginable??

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