another crude oil thread

[rookie1]

LONDON (Reuters) - Oil prices hit their highest level in at least 21 years on Wednesday after bailiffs ordered beleaguered Russian oil giant YUKOS (YUKO) to stop sales, threatening further strain on tight international supplies.

The news intensified concerns over the lack of spare capacity in the international oil system, as the OPEC cartel pumps at its highest level for a quarter of a century to meet strong global demand growth.

U.S. light crude rose $1.21 to $43.05 a barrel -- topping peaks hit in early June and the highest price since the New York Mercantile Exchange launched the contract in 1983.

London Brent crude rose $1.14 a barrel to $39.68, its highest level since October 1990, ahead of the first Gulf War.

Prices jumped after a company source said Russian bailiffs told YUKOS ' production units, which together pump around a fifth of Russia's crude supply, to halt sales of property -- including oil.

YUKOS has said it faces imminent bankruptcy as courts seek to enforce a $3.4 billion tax debt for 2000. It was not clear whether the order might force YUKOS to halt shipments of oil or simply bar the company from signing new supply contracts. Oil brokers said Baltic and Black Sea loadings of YUKOS crude were going ahead normally.

"It could have implications for Russia's oil exports though this depends heavily on whether developments reflect government brinkmanship or something more menacing," said investment bank Merrill Lynch in a research report.

YUKOS said it had not complied with the order and was continuing to operate while it sought clarification of what chief executive Steven Theede called a "misinterpretation."

Russia is the world's second biggest oil exporter behind Saudi Arabia after five years of rapid production growth. The International Energy Agency (IEA) said it was confident the government would work to ensure reliable oil exports.

"Concerns about the export transactions are overstated," said consultancy Energy Security Analysis. "Russian companies are extraordinarily adept at redirecting cash flows through multiple accounts and using alternative payment means to keep production running."

STRETCHED TO THE LIMIT

If the YUKOS turmoil prevents Russian production from meeting forecasts for further growth, the global oil supply system will be even more pressed to meet rising demand, analysts say.

The lack of a supply cushion in the event of an attack against the Middle East oil infrastructure has encouraged heavy buying from big money speculative funds.

OPEC has already jacked up production to 30 million barrels per day -- the highest level since 1979 -- to meet breakneck consumption growth in China and the United States.

Saudi Arabia has led the supply increase, eager to stop prices rising to a level that would hurt world economic growth and stunt fuel demand.

Allowing for inflation, prices are about half those during the oil price shock that followed the 1979 Iranian revolution. Crude averaged $80 a barrel during 1980 when adjusted for inflation to 2003 prices, according to oil major BP (BP) (BP).

OPEC President Purnomo Yusgiantoro of Indonesia said that the cartel was doing its best to get prices down. "We are very sincere about pushing the price to be stable below $30 per barrel," he told Reuters.

Venezuela's oil minister said OPEC had little spare capacity to help lower prices. "Most of the countries are near their production limits," Rafael Ramirez told Reuters.

Price gains accelerated after a weekly U.S. government report showed just a small build in crude stocks and a fall in gasoline inventories last week even though crude imports rolled in at the highest weekly pace ever.

U.S. crude stocks rose just 1.2 million barrels last week to 300.5 million barrels while crude imports hit an all-time high of 11.3 million bpd, the U.S. Energy Information Administration said in a weekly report.

Refiners have struggled to turn ample crude supplies into higher refined product inventories, underpinning oil's price strength.

Gasoline stocks fell 700,000 barrels to 207.7 million even though gasoline imports rolled in at the second highest weekly level ever, the EIA said.

[Bluerauder]

So, what the heck does that mean in terms of price of a gallon of 93 Octane? I am sure that it doesn't mean cheaper 'cause it NEVER does. The price of a barrel of sweet crude from OPEC or YUKOS means nothing to me or to the typical US customer. It is all "Frigganomics" .... to make the next price hike seem justified. But, we all know better.........

[Dr Caleb]

There are many theories behind why Russia wants Yukos to go down. But in the meantime, the news gets worse. Yukos has been ordered to stop shipping oil. The largest producer from the second largest oil producing nation. Ooooooohhhhh crap.

http://www.themoscowtimes.com/storie...07/29/001.html

It will only get worse from here. I'd suggest topping the tank off every day after work.

[rookie1]

Why we might be paying $3 a gallon soon

more info from the London Economist:

LAST month Russia’s president, Vladimir Putin, said that the authorities had no interest in seeing Yukos, the country’s biggest crude-oil producer, go bankrupt. Investors, scared by the Russian authorities’ relentless pursuit of Yukos and of its imprisoned former boss, Mikhail Khodorkovsky, breathed a sigh of relief. But the past week’s news has made them wonder whether to trust the president’s words. On Tuesday of last week, a court overturned Yukos’s appeal against a $3.44 billion claim for back taxes for the year 2000. The bailiffs turned up just two days later at the company’s offices to begin enforcing it, giving Yukos until the end of Wednesday to comply. And a couple of hours after the bailiffs left, the tax ministry announced that it will go to court with a new and almost equally huge tax claim for 2001. A further raid took place at the weekend, when company officers managed to dissuade prosecutors from removing computer servers that control Yukos's oil production. And, on Tuesday July 6th, the prosecutor-general threatened to land Yukos with further tax bills.

The company's domestic troubles triggered alarm among its foreign creditors and shareholders. Last Friday, a group of western banks told Yukos that they consider it to be technically in default on a $1 billion loan. The banks have to do this before launching any court action to recover the sum owed. However, they are understood not to be trying to force Yukos to repay the loan immediately, as that could force the group into insolvency, thus jeopardising the loan. Also on Friday, Roxwell Holdings, a Bahamas-based investment company, launched a lawsuit against Yukos, its main shareholders (including Mr Khodorkovsky) and auditors, in New York, alleging that the defendants had misled investors by understating the taxes owed. Yukos shares enjoyed a brief reprieve on Tuesday, when Russia's deputy finance minister said that Yukos might get more time to pay, though this appeared to contradict company statements that the government had been completely unco-operative.

The shares rose again on Wednesday morning, after the Financial Times reported that Mr Khodorkovsky was willing to give up part or all of his 44% stake in Yukos in order to stave off bankruptcy. However, the terms of such an offer remain unclear. Mr Khodorkovsky is thought to be seeking payment for his stake over the next three to five years.

The forced annihilation of one of Russia’s biggest and most successful companies would be seen as a damaging sign of how far the Kremlin is willing to bend the law to its own ends: whatever Mr Khodorkovsky’s guilt or innocence, it is widely believed that his troubles mainly result from his having used his economic and political clout to obstruct the government's economic plans. The confusion about what is really going on, and what are the authorities’ ultimate objectives, is only adding to the stockmarket’s panic. Even if, contrary to Mr Putin’s assurances, the plan is indeed to wipe out Yukos, it seems unlikely to happen quickly—despite warnings on Friday by Viktor Gerashchenko, the former central-bank chief who recently became the firm's chairman, that it might have to cut production within days.

To make the company pay its taxes, bailiffs can order its banks to empty Yukos’s accounts (though the oil giant says it has only about $1 billion in cash). The bailiffs can also seize and sell company assets. In the case of Yukos, which is a holding company, the main assets are shares in the subsidiaries which own oil licences, drilling equipment and so on. But even if the tax ministry hits Yukos with the full $8.9 billion in tax claims that Renaissance Capital, an investment bank, estimates it could dig up for the years 2000 to 2003, that would still be much less than the $15 billion that even a much-battered Yukos is currently worth. Bailiffs would have to sell its assets at a fraction of their market prices to destroy the company altogether—perhaps normal behaviour for 1990s Russia, but extreme nowadays. The only other way to bankrupt the firm would be for creditors to call in loans, which Yukos cannot repay because its assets have been frozen by a court. But this would not be in the banks' interest.

The question is: what is the pursuit of Yukos meant to achieve? Both the company and Mr Khodorkovsky insist, with some justification, that the crimes for which they are being prosecuted were, at the time, standard and even legal business practice among their peers.

For a while now, this attack has had the look of a concerted plan to leave the company’s main shareholder, Group Menatep (which holds more than 60% of Yukos and which is in turn controlled by Mr Khodorkovsky), with less than a 25% blocking stake, if any at all. However, selling off even $8.9 billion-worth of Yukos assets to clear all the possible tax demands would merely leave Menatep with the same stake in a smaller but still meaty company. And if, alternatively, Menatep were to step in as a guarantor for Yukos’s debts, says Adam Landes at Renaissance, the government would only be able to grab Menatep’s shares in Yukos if the oil company did go bankrupt.

Menatep might also sell some shares in Yukos, so it can repay the firm’s debts. Mr Khodorkovsky, and some of his partners, may also need cash to pay fines if personally found guilty of embezzlement and tax-fraud charges, in a trial that started last month. Nevertheless, any likely penalties may not be enough to make much of a dent in Menatep’s shareholding in Yukos unless the value of this were to fall a lot further. As a last resort, Menatep might prefer to let Yukos go bankrupt by defaulting on its foreign loans—which would drag the case into international courts and give the government a royal headache—rather than caving in to the Kremlin’s strong-arm tactics. Menatep could easily pull the trigger by calling in its own loan to Yukos.

Perhaps the Kremlin will not be satisfied until Menatep has divested itself of everything it owns. And perhaps the only way to force Menatep to do that is by threatening to render everything it owns worthless. But it is a dangerous game of brinkmanship, and not only because it is scaring investors away from Russia. A severely weakened Yukos would invest less in its oilfields, pump less oil and pay less tax, thus doing more short-term damage to the economy. Which is why Mr Putin was probably being sincere when he said he does not want to see Yukos go bust.