International Oil Prices Show Signs of Fluctuation

International Oil Prices Show Signs of Fluctuation. July. 05, 2004 22:18. by Jin Lee leej@donga.com.

Another terrorist attack aimed at oil pipelines took place in Iraq on July 4. It is the first time an oil pipeline has been hit since Iraq regained its sovereignty on June 28.

On the same day, the Russian police raided the headquarters of Yukos, the largest oil company in Russia. The police seized the company’s computer server, and Yukos’ oil production is at risk of being completely interrupted.

There are concerns that such a series of unforeseen incidents might shake international oil prices that are barely stabilizing.

Threatening the Economic Lifeblood—

Two terrorist attacks on pipelines took place in Iraq on July 4. The targets of the attack were the pipeline near the Persian Gulf oil export facility and the Musayyib pipeline, located some 80km southwest of Baghdad. It is an incident that insinuates the sabotage of pipelines will continue despite the hand-over of sovereignty.

Sixty-five attacks occurred against Iraqi pipelines and other oil-related facilities after former President Sadam Hussein was ousted. Excluding a few cases of simple looting, it is presumed that most attacks are the work of Sunni factions, who follow Hussein and want to destabilize Iraq.

Most of the sabotage is aimed mainly at refinery facilities and pipelines headed toward exportation. That is the reason for the frequent occurrence of attacks in northern Kirkuk and southern Basrah. Some indicated the necessity for walls and surveillance equipment in major points in order to properly protect the 6,437km long pipelines.

U.K.’s Sunday Herald pointed out that “due to this attack, Iraq’s oil exports fell to half.” The construction of basic facilities, such as schools and hospitals which depend on oil exports, will inevitably be delayed.

Other Unfavorable Conditions—

The police raids on the Yukos headquarters, which had its former president, Mikhail Khodorkovsky, arrested for financial contributions to the opposition party, will also have a great impact on the global oil market.

The daily oil production of Yukos in Siberia surpasses the production of Libya, which is at about 1.6 million barrels. Yukos staff declared that “the controlling device has been seized by the police and is unable to oversee oil production.”

It is possible that Yukos’ suspension of oil production might become a long-term issue. The Russian court demanded that Yukos pay its unpaid taxes of $3.4 billion (about four trillion won) until July 7. In addition, the court froze the assets of Yukos, hence preventing it from acquiring the means to pay the taxes. In other words, the court plans to wither Yukos to bankruptcy.

Furthermore, it warned foreign loan banks such as the Societe General, which lent Yukos $1 billion (about one trillion 150 billion won), that it would consider default. It is understood that the default declaration is a prior measure to bring the issue of loan collection to court.

Unsteady Movement of Oil Prices—

There is the possibility of oil prices, which were becoming stabilized with OPEC (Organization of Petroleum Exporting Countries) members’ agreement to increase daily production by two million barrels in early June, to fluctuate wildly.

WTI (West Texas Intermediate) prices rocketed to $42 a barrel on June 1, and have fallen to $35 in late June, but it has been climbing again.

Professor Paul Stevens of Dundee University in the U.K. predicted that “during this week international crude oil prices will continue in high altitude.”