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Oil Prices Decline on Word Yukos Can Continue Operations - 2004-07-29


Oil prices eased back from record high levels on Thursday after Russia's justice ministry said the embattled oil giant Yukos can continue oil production and sales.

After reaching 21-year highs of $43 a barrel on Wednesday, oil prices on world markets have since dropped back on word that Russia's besieged Yukos oil company can continue production and sales.

Wednesday's highs were triggered by a Yukos statement that a dispute between the company and Russia's justice ministry could lead to a halt in its production, which accounts for two percent of the world's oil supply.

On Thursday, the justice ministry denied any intent to disrupt Yukos operations, leading investors and oil analysts to breathe a sigh of relief. Prices on Russia's Micex stock index, as well as other exchanges across Europe, recorded quick rises.

"I think most people are rapidly coming to the conclusion that Yukos production has not been impacted as of this moment and, unless the situation massively deteriorates from here, it should not actually [affect] production," said Paul Collison, an oil and gas analyst for Brunswick UBS brokerage in Moscow.

But not everyone is so confident. Speaking in Asia Thursday, the president of the Organization of Petroleum Exporting Countries said the cartel was extremely concerned about the problems facing Russia's largest oil producer.

OPEC's president said the Yukos crisis has already had a negative psychological impact on world markets and is a continued cause for concern as it threatens global supply and demand.

Paul Collison in Moscow says Brunswick USB believes there are ways to address those concerns.

"Even if the worse case happens with the Yukos oil company, we think there are a number of ways the authorities can shape the situation to ensure that there is very little disruption to the entities that currently comprise Yukos," he said. "And even in that case, if there is a moderate disruption, other Russian oil companies could step in and meet the shortcoming. Because in Russia, unlike most of the rest of the world, the easy part so to speak is producing the oil."

But Mr. Collison concedes that things do not look likely to improve for the Yukos oil company or its executives in the coming days and weeks.

The former chief executive officer of Yukos, Mikhail Khodorkovsky, and his top associate, Platon Lebedev, remain in jail on multiple tax evasion and fraud charges. The company, meanwhile, is struggling to meet government claims that it owes $3.4 billion in back taxes, while its assets remain frozen.

The Russian government denies any wrongdoing in its aggressive pursuit against Yukos, saying all people from pensioners to oil producers are equal before the law. Critics of the government say the case against Yukos is retaliation by the Kremlin for Mr. Khodorkovsky's financing of opposition political parties.