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Oil retreats from record highs

Times Online: Oil retreats from record highs

“Oil prices fell today after hitting record high levels this morning before a series of explosions was reported across London.”: “By Separately, Shell, the Anglo-Dutch oil giant, has signed an asset-swap agreement with Gazprom, the state-owned Russian energy company.”

Thursday 7 July 2005

Oil prices fell today after hitting record high levels this morning before a series of explosions was reported across London.

August-dated Brent futures contracts were down $2.21 at $57.64, off this morning’s earlier record of $60.70 a barrel set just after 9am.

In early afternoon trade, US benchmark August-dated contracts were down $2.18 at $59.20 of an earlier record high of $62.10 a barrel.

“The spike was an irrational knee-jerk reaction to a series of explosions, which all point towards a terrorist attack,” said Bruce Evers, an analyst at Investec.

The oil market was also nervous as tropical storm Dennis, now upgraded to hurricane status, moved towards the United States. Weather reports said that the hurricane could become even stronger.

Dennis is expected to arrive in the main American oil-producing region, the Gulf of Mexico, over the weekend.

Separately, tropical storm Cindy came inland over the central Louisiana coast overnight and has already forced the shutdown of around 3 per cent of US Gulf production capacity.

Last year’s devastation caused by hurricane Ivan has remained clear in people’s minds. Oil production did not fully recover in the region for several months, Informa Global Markets analyst Peter Luxton said.

Disruption to Gulf output and concern that the storms will affect refinery output has stoked market concerns over a supply chain that is already regarded as over-stretched.

Separately, US weekly inventory data will be released at 3.30pm.

“If the distillate result is short of the 1.5 million barrel increase prediction then prices could go higher still,” Mr Luxton said.

There has been no reaction to the record highs from Opec.

Mr Luxton said: “They did say last week that if prices remain high then they will put on extra production, but nothing has emerged so far.”

Separately, Shell, the Anglo-Dutch oil giant, has signed an asset-swap agreement with Gazprom, the state-owned Russian energy company.

Shell said Gazprom will acquire up to 25 per cent plus one share in Sakhalin-2, the world’s largest liquified natural gas project, while Shell will obtain a 50 per cent stake in the Zapolyarnoye Neocomian field.

The difference in value will be compensated for through a package of cash and other assets. The deal is scheduled to be finalised in 2006.

It has been reported that Shell could look at entering a deal with Gazprom as part of a wider strategy that could lead to it taking a stake in Sibneft, the Russian oil company controlled by Roman Abramovitch, who also owns Chelsea, the football club.

“We welcome Gazprom as a great Russian partner in the Sakhalin II project and are confident Gazprom will make significant contributions towards maximizing the long term value of the project,” Shell’s chief executive, Jeroen van der Veer said.

“Joint development of the Zapolyarnoye-Neocomian field will build on our position in Western Siberia, where we already have our successful Salym project. Today strengthens the good relationship between Shell and Gazprom and is a basis for further cooperation on integrated gas projects both in Russia and internationally.”

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