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Daily Telegraph: Oil price flares as Yukos woes worsen

Daily Telegraph: Oil price flares as Yukos woes worsen

By Malcolm Moore, Economics Correspondent (Filed: 06/08/2004)

A renewed threat to Russian oil company Yukos, which supplies 2pc of the world’s oil, sent prices to record highs in London and New York yesterday.

The price of a barrel of Brent crude for September delivery rose $1.42 to $41.12 in London, while the price gained $1.57 on the New York Mercantile Exchange to $44.40.

On Tuesday, the Russian Justice Ministry told Yukos that while its bank accounts remained frozen in light of a $3.4 billion tax bill, the oil giant could use any new earnings to pay for day-to-day operations.

Yesterday, reports in Russia suggested that the Russian government had changed its mind and wished to divert the company’s earnings into paying off its tax liabilities. A spokesman for Yukos said executives were “trying to understand” the situation.

If Yukos is unable to use its bank accounts, it will face the prospect of being unable to pay its wage bills, tariffs and transport costs from next Tuesday. Yukos’ woes are just part of the political instability that could drive the price of oil over $50 a barrel, according to some analysts.

“All those with a vested interest in disrupting oil supply can see that they are playing for bigger stakes,” said one oil insider. “If I was a Venezuelan union worker or a Nigerian activist and I saw the tightness of the supply margin, that would give me an added incentive for causing trouble,” he said.

Meanwhile, some oil companies in the North Sea are delaying their non-essential summer maintenance work in order to benefit from the high price of oil, according to the Government.

North Sea oil is in high demand because its low sulphur content makes it ideal for refining into petrol that meets the current strict environmental regulations. A barrel of light sweet crude, which has a sulphur content of 0.5pc or less, is commanding a premium of $4 a barrel over the price of the heavier Brent crude in London, according to analysts.

The Department of Trade and Industry said that data taken from annual field reports suggested that some maintenance work planned for June had been deferred. A spokesman added that no work related to health and safety could be postponed.

Roy Franklin, chief executive of Paladin, said that his company had completed its shut-downs in April, and was currently pumping at all-time highs. “I would be surprised [if firms were delaying work] because you do not undertake these summer shut-downs without a lot of pre-planning,” he said.

North Sea oil companies, such as Paladin, Venture Productions, BG Group and Tullow have seen their share prices rise by between 30pc and 40pc since May. Spokesmen for Shell and Apache said that they had not changed their schedules and were currently in the middle of maintenance. The success of North Sea oil is one highlight of the Index of Production, released yesterday by the Office of National Statistics.

The ONS said that Britain’s manufacturing industries saw output fall by 0.7pc between May and June, the biggest drop since October 2002. But statisticians said that monthly statistics are volatile, and that in the second quarter of 2004, output had risen by 0.9pc from the first three months. That represents the biggest increase in nearly five years.

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