Oil surges up again on fresh disruption

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The Independent Online

Oil prices hit new highs yesterday after shipments were halted in southern Iraq and the Russian authorities again seized the key asset of the country's Yukos energy company.

As US light crude rose by almost a dollar to $44.80 a barrel, analysts at Deutsche Bank warned that oil prices could surge as high as $100 if accidents, natural disasters or sabotage in two major producers cut supplies. In London, a barrel of Brent crude jumped 93 cents to $41.56.

Markets were reacting to Iraq halting operations in the southern oil production centre of Basra because of threats from the militia of the Shia cleric Muqtada Sadr. "Pumping from the southern oilfields to storage tanks at Basra was stopped today after threats made by Sadr," an Iraqi oil official said. "It will remain stopped until the threat is over."

Attacks against the southern pipelines, which deliver all of the country's 1.9 million barrels per day of exports, have stopped loadings several times this year. The latest shutdown was the first since the handover of power to Iraq's interim government on 28 June. Exports from northern Iraq have already been forced to cease after attacks on the main northern export pipeline from Kirkuk.

The Iraqi oil official said militiamen from Sadr's Mehdi Army had threatened to sabotage production by the state-owned Southern Oil Company, based in Basra. He said storage at the Gulf Basra terminal was sufficient to keep exports running for about two days.

Oil has rallied more than 30 per cent this year as rapid demand growth, especially in the United States and China, has left little leeway for any supply disruptions. Consumption is accelerating at its fastest pace in more than 20 years.

In Russia, Yukos continues to battle bankruptcy due to a multibillion-dollar tax debt case, which threatens to bring its day-to-day operations to a halt, including oil exports.

Russia's biggest oil-exporting company pumps 1.7 million barrels per day of crude - 2 per cent of global supply. Bailiffs yesterday froze the assets of Yukos' production unit, Yuganskneftegaz, days after a court ruled that such action was illegal. The Justice Ministry said that the bailiffs had made the move because Yukos did not have cash to pay its tax bill.

There are also worries that supplies from Venezuela, the world's No 5 exporter, may be disrupted during a referendum on 15 August on the rule of President Hugo Chavez.

The possibility that supplies from two producers could be disrupted at the same time prompted Deutsche to warn of the possibility of $100 a barrel oil yesterday. But its analysts predicted oil-consuming countries would release reserves to prevent prices soaring that high.

Opec is already pumping oil at its highest levels since 1979 as it tries to stem oil's relentless price rise, with production now at 30 million barrels a day, well above the cartel's official 26 million barrels a day limit.