- The Washington Times - Wednesday, August 11, 2004


Jitters over potential supply disruptions dominated oil markets yesterday, undermining Saudi Arabia’s effort to soothe those concerns by saying it could boost daily output immediately by 1.3 million barrels.

The Saudi comments briefly drove crude futures sharply lower, although prices later reversed course and ended 4 cents below their all-time high as the controversy surrounding Russian oil giant Yukos weighed on traders’ minds.

Concerns about supply were reinforced by a report showing U.S. inventories of crude shrank last week and announcements from oil companies that they were evacuating facilities in the Gulf of Mexico because of a tropical storm.

Light crude for September delivery settled at $44.80, up 28 cents on the New York Mercantile Exchange. On London’s International Petroleum Exchange, Brent crude futures closed at $41.57, up 29 cents.

Saudi Oil Minister Ali Naimi said the world’s largest producer was “prepared to meet all the requirements of the international oil companies if they need additional volumes, relying on the surplus production capacity of more than 1.3 million barrels daily, which could be used immediately if required.”

He also expressed worries that today’s high energy prices could harm the global economy and dampen demand for oil.

Although Mr. Naimi’s comments gave traders some clarification about Saudi Arabia’s production capabilities, they did not allay fears about the market’s tenuous supply-demand balance and its vulnerability to geopolitical and meteorological factors.

“If they were hoping to break the back of the rally with just that, it’s not going to come to fruition,” said John Kilduff, senior vice president of the energy risk management group at Fimat USA Inc. “There are just too many uncertainties regarding supply.”

World oil prices have been soaring because of strong demand, fears of terrorist attacks, disruptions to Iraqi crude exports and financial troubles at Russia’s largest oil producer, Yukos, which is in a battle with the government over billions of dollars in back taxes.

Yesterday, Russian energy officials said Yukos should be given access to its frozen bank accounts to prevent a break in oil production, while the company received a default notice on a $1.6 billion loan that pushes it closer toward bankruptcy.

Yukos produces about 1.7 million barrels per day, or about 2 percent of total global output.

Ed Silliere, vice president of risk management at Energy Merchant LLC in New York, said Mr. Naimi’s comments would have had more impact but for the ongoing brouhaha surrounding Yukos.

“That is the key factor in the market right now,” he said.

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