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Oil Prices Fall As YUKOS Threat Recedes

Thursday, July 29, 2004 07:07 EDT

By Barbara Lewis

LONDON (Reuters) - Oil prices fell on Thursday from record peaks after Russia's justice ministry said it was not seeking to halt production from oil giant YUKOS.

U.S. light crude lost 40 cents to $42.50 a barrel in early trading after climbing to a peak of $43.05 on Wednesday, the highest in the contract's 21-year history.

In London, Brent crude oil fell 33 cents to $39.20 after scaling a 14-year high of $39.68 the day before.

Wednesday's price peaks were driven by concerns about possible supply disruption from YUKOS, which pumps a fifth of Russia's oil, and faces bankruptcy as courts try to enforce a $3.4 billion tax debt.

But on Thursday a justice ministry spokesman said bailiffs, who had served writs barring property sales by the company's operating units, were not seeking to halt oil production.

YUKOS troubles are still far from over.

YUKOS CEO Steven Theede has said a freeze on bank accounts could soon affect rail shipments of oil, which account for up to a quarter of the company's total sales.

Analysts generally predict any disruption will be minimal.

"Although YUKOS management has warned that intensifying pressure may have a negative impact on production due to its inability to finance exports, this appears to be a plea for sympathy rather than a real concern," consultancy Energy Security Analysis said in a note.

Traders argued, however, that the market would stay well supported by concerns that world supplies are already dangerously stretched by strong global demand growth.

Producers' cartel the Organization of the Petroleum Exporting Countries is pumping at more than 95 percent of capacity, the highest for a quarter of a century.

U.S. government data on Wednesday showed record demand for crude oil as refineries pumped at 97 percent of capacity, absorbing almost all of a record influx of imported crude.

"People seem to want to have bullish news. Any bullish straws in the wind are grasped pretty firmly," said Christopher Bellew of Prudential Bache brokerage. "Any fundamental news there is suggesting supplies are adequate tends to be ignored."

(With additional reporting by Ramthan Hussain in Singapore)

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