Iraqi shutdown raises oil prices to new highs

By Brad Foss
Associated Press

Buying also was fueled by the renewed threat of a supply disruption in Russia, analysts said, as the embattled oil giant Yukos was dealt more bad news.

Light crude for September delivery rose by 89 cents to $44.84 per barrel on the New York Mercantile Exchange. On London's International Petroleum Exchange, Brent crude futures gained 93 cents to $41.56 per barrel.

"I think to a large extent the market has factored in the fact that Iraqi production is going to go in and out," said Peter Beutel, president of the energy consulting firm Cameron Hanover Inc. in New Canaan, Conn. "But supplies are so tight, and demand keeps growing."

The recovering U.S. economy and increasing appetite for oil worldwide, particularly in China, has contributed to sharply higher prices for refined products.

For example, the average retail price of gasoline nationwide was $1.88 last week, 31 cents higher than a year ago, according to Energy Department data.

Analysts also are increasingly concerned about the high price of heating oil, which is 40 percent more expensive than a year ago on futures markets. Based on current prices, the average homeowner who uses heating oil would spend about $340 more next winter, according to Beutel. Home-heating costs are hard to predict, though, as fuel prices are highly dependent on the weather.

The Organization of Petroleum Exporting Countries has had difficulty soothing markets lately, as traders remain skeptical of the cartel's ability to boost output quickly.

A senior official with Iraq's oil company, who spoke on condition of anonymity, said the southern oil fields stopped pumping oil yesterday after militants loyal to Shiite cleric Muqtada al-Sadr threatened to target the oil infrastructure in Basra, a southern port. However, oil in storage was still being loaded onto tankers.

Iraqi Oil Ministry spokesman Assem Jihad said he could not confirm the shutdown. Neither could the British military, which patrols Basra.

About 1.8 million barrels per day, or 90 percent of Iraq's exports, move through Basra.

If production is shut down, Iraq has enough oil in storage tanks to maintain exports at today's levels for about three more days, according to John Kingston, director of oil at Platts, a division of McGraw-Hill Cos.

Global oil demand is roughly 82 million barrels a day, about 4 percent higher than a year ago, according to PFC Energy, a Washington-based consulting group.

Last week, concern about Russian supplies was the dominant factor in oil markets.

The Russian government is in a battle with oil giant Yukos over billions of dollars in back taxes, and company officials have said its production of 1.7 million barrels per day could suffer.

Yesterday the embattled oil company suffered a double blow as bailiffs renewed their seizure of key assets of Yukos' production unit, and a court rejected the company's appeal against the seizure of another subsidiary.

Yukos has warned it could face bankruptcy as early as this month if the state does not give it access to frozen bank accounts and sells off the Yuganskneftegaz subsidiary, its main cash earner.

In addition to the threat of a supply disruption, analysts said speculative buying by large institutional investors and hedge funds also has been pushing prices higher.

Some analysts have forecast the price of oil could rise to $50 a barrel by the end of the year if demand remains robust and there is no significant surge in global production.

Yesterday's record prices surpassed levels set last Thursday of $44.41 per barrel in New York and $41.12 in London.

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