Crude oil prices jumped to record levels yesterday as already jittery international oil markets reacted to turmoil at Russian's largest petroleum producer.
Tight supplies and fears of global terrorism have kept the cost of crude and gasoline hovering near all-time highs for months, and some analysts said prices at the pump may soon rise further because of yesterday's spike.
The price of benchmark crude oil for September delivery rose $1.06, to $42.90 a barrel, the highest recorded level on the New York Mercantile Exchange since the exchange began offering the contracts in 1983.
Traders were acting on reports that Yukos Oil Co. might have to shut down production within several days as part of the Russian government's effort to seize company assets. A top Yukos official said that while the company's production subsidiaries had received a notice forbidding the sale of company property, he did not believe it would affect crude oil sales. [See story, Page A18.]
Yukos produces about 1.7 million barrels oil a day, or about 2 percent of the world's crude oil.
Oil traders said that prices were also pressured yesterday by new Department of Energy statistics showing that domestic gasoline and heating oil inventories were lower than had been hoped. "There was nothing pointing downward in price and almost everything pointing upward," said Eric Bolling, an independent energy trader on the New York Mercantile Exchange.
Yesterday's price fluttered above $43 before settling below that level by the close of trading in New York.
Prices at the gas pump tend to lag behind changes in crude prices. Gas prices have fluctuated in recent weeks but are down slightly from a month ago, averaging $1.92 for regular grade in the Washington area yesterday, according to a survey conducted for AAA, formerly the American Automobile Association.
The combination of unrest in Iraq and concerns about stability in other oil-producing countries has tacked on what traders and analysts described as a premium of $7 to $10 a barrel in oil prices. A year ago crude traded at just over $30 a barrel. "The geopolitical risks are much greater than they were a year ago -- whether it be the Yukos affair or Iraq or Saudi Arabia or Venezuela," said Gary Ross, chief executive officer of New York-based PIRA Energy Group, an international consulting firm. "Yukos is just one of many factors but obviously it's a factor which has immediate importance and which would lead to a loss of supply in a relatively tight market."
Bolling said that prices were unlikely to decline significantly unless Iraq and the rest of the Middle East stabilize and the world economy slows, causing demand to slacken. Demand is strong primarily because of increased consumption in China and in the United States, analysts said. Members of the Organization of Petroleum Exporting Countries have increased production and world oil production is close to capacity, analysts said.
Oil inventories are higher now than a year ago, which would normally drive down prices, but the market remains especially nervous about supply disruptions, said Tim Evans, senior energy analyst for IFR Markets in New York. He said yesterday's developments in the Yukos case added to the jitters over supplies, causing prices to climb.
Evans said prices are up significantly compared with last year because of fears of terrorism. In such an environment, higher inventories become all the more important as a cushion against a supply disruption, he said. "We're afraid that there will be some kind of ongoing terrorist activity," Evans said. "It's all in our heads. We are in effect terrorizing ourselves through our fear that somehow we're either running out of oil or we're at greater risk."
Several analysts said that increased prices are driving profits higher for oil companies.
ConocoPhillips Co. reported yesterday its second-quarter income increased to $2.1 billion ($2.97 per share) from $1.2 billion ($1.73) in the corresponding quarter a year earlier. Marathon Oil Corp. reported Tuesday its second-quarter earnings rose to $352 million ($1.02) from $248 million (80 cents) a year ago. Revenue was $12.6 billion, up from $9.7 billion.