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Possible Output Cutbacks Push Crude Near $47

Oil prices set a record of $46.75 as Russia's Yukos faces more problems in court and fighting in Iraq adds to jitters.

August 18, 2004|From Associated Press

Oil prices set another record Tuesday, approaching $47 a barrel, as concerns about Iraqi and Russian output dominated markets that had been calmed a day earlier by the results of a vote in Venezuela.

Light crude for September delivery climbed 70 cents to a new settlement high of $46.75 on the New York Mercantile Exchange. On an inflation-adjusted basis, though, oil is still about $10, or 18%, cheaper than it was just prior to the first war in Iraq.

The travails of Russian oil-giant Yukos took a turn for the worse Tuesday after a Russian court rejected the company's attempt to suspend government efforts to collect $3.4 billion in back taxes. Yukos pumps about 1.7 million barrels a day and its legal troubles have raised concerns that productivity could suffer and the company could be forced into bankruptcy protection.

And in Iraq, fighting between U.S. troops and Shiite militants intensified Tuesday, adding to the oil market's jitters.

"It's just more of the same," said Mike Fitzpatrick, a trader at Fimat USA in New York.

Before the latest round of violence in Najaf, Iraq had been exporting roughly 1.7 million barrels of oil per day, although volumes have fallen recently to about 900,000 barrels per day, according to a source within the Organization of the Petroleum Exporting Countries who spoke on condition of anonymity.

Fitzpatrick said some traders also were responding to economic data released by the government Tuesday that showed a rise in housing construction and output at the nation's factories, suggesting that energy consumption would remain strong.

With little spare output capacity around the globe, analysts worry that oil producers will have a difficult time making up for shortfalls at a time of robust demand.

Saudi Arabia said last week that it could immediately pump an additional 1.3 million barrels per day, but the comments didn't soothe markets. Experts said the well-intentioned pledge only highlighted the country's limitations.

Prices had fallen Monday after the president of Venezuela, the world's fifth-largest oil exporter, survived a recall referendum.

If the opposition had won, analysts worried there might have been a major overhaul of the state-run oil company, Petroleos de Venezuela, and that production would have suffered, at least in the short-term.

Also Tuesday, a Venezuelan representative of OPEC said the cartel should consider at its Sept. 15 meeting raising the preferred price range for its basket of crude to between $28 and $35 per barrel by the first quarter of next year.

Ivan Orellana said Venezuela favored lifting the band, which is currently set at $22 to $28 per barrel. Other OPEC members, including Saudi Arabia and Iran, have said they want to leave the price range as it stands.

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