Oil prices on the decline

0 Comments | Oakland Tribune, Aug 5, 2004 | by Brad Foss, Associated Press

WASHINGTON -- Oil prices made a sharp retreat Wednesday as concerns about an immediate loss of supply from Russia abated and gasoline supplies in the United States increased.

Still, traders said geopolitical instability and strong demand would keep global crude markets tense.

Light crude for September delivery fell $1.32 to $42.83 on the New York Mercantile Exchange, while Brent crude futures dipped 94 cents to $39.70 on London's International Petroleum Exchange.

Russian oil giant Yukos said Wednesday that the government will allow it to use its bank accounts to "continue financing production activities" -- a move that could help the beleaguered company stay afloat for now despite the $3.5 billion in back taxes it owes.

"This is really good news and it comes at a time when the market needed really good news," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

Yukos pumps some 1.7 million barrels per day of oil, or roughly 2 percent of total production.

Flynn said the other news that helped push oil prices lower was that "we saw gasoline supplies rise substantially."

In its weekly report, the Energy Department said the supply of commercially available gasoline rose by 2.4 million barrels last week, reaching a historically comfortable level for this time of year. Motor fuel supplies are now 4 percent higher than last year at 210.1 million barrels.

"Concerns of immediate (gasoline) supply shortages have been calmed," Flynn said. However, he added that a disruption in crude output from any number of petroleum-producing countries remains a possibility and that would send oil prices right back up.

On Tuesday, Nymex crude futures settled at $44.15, the highest close since such trading started on the Nymex in 1983, while IPE- traded Brent crude settled at a new high of $40.64.

Oil prices have risen in recent weeks due to the uncertainty surrounding Yukos as well as on concerns about the reliability of crude supplies from Iraq, where saboteurs have attacked pipelines and disrupted exports, and on fears of terrorist attacks in the United States. U.S. authorities warned Sunday that al-Qaida was planning attacks on five key financial institutions in New York, New Jersey and Washington.

There is also concern about oil production in Nigeria, where labor unrest is perennial, and in Venezuela, where there will be a presidential recall ballot in less than two weeks.

Late in the trading day Wednesday, the Organization of Petroleum Exporting Countries tried to reassure the global market that it was doing all it could to help lower prices, saying it could boost output immediately. But analysts said those comments were largely discounted, since they had already been factored into the market.

Some analysts have forecast that the oil price could rise to $50 a barrel and that OPEC will not be able to meet demand in the fourth quarter.

Oil analyst Richard Griffiths, at brokerage Williams de Broe, said such a rise was feasible, but only if there was a major disruption to oil supplies coupled with evidence of renewed strength in demand.

As for the apparent limits on global oil-production capacity, Griffiths said, "I doubt there is a quick fix." He said OPEC countries would need more investment and time to reach higher production levels.

Although prices are high, if inflation is taken into account, they would have to climb to about $57 per barrel to exceed the value of oil leading up to the first Gulf War and above $80 to be comparable to the levels reached during the oil crisis of the early 1980s.

In other Nymex trading on Wednesday, September gasoline futures fell by 8.32 cents to $1.2034 per gallon, while September heating oil futures dropped by 2.59 cents to $1.1556 per gallon. Natural gas for September delivery slid 15.5 cents to $5.661 per 1,000 cubic feet.