Oil hits fresh record as Iraq unrest stops output
(Agencies)
Updated: 2004-08-10 08:53

Oil prices hit fresh record highs on Monday after a Shi'ite Muslim uprising forced Iraq to shut down its southern oil production, reinforcing concern over tight international supplies.

U.S. light crude hit $44.98 a barrel in late New York trading, the highest price since the New York Mercantile Exchange launched oil futures in 1983 and the seventh straight trading session in which crude posted a new high. September WTI closed 89 cents higher at $44.84 a barrel.

A worker walks up the stairs of an oil storage tank at Germany's Esso fuel and oil storage facility in Ingolstadt, August 9, 2004. U.S. oil prices slipped for the second straight session on Monday, but remained not far off $44 a barrel on lingering worries that there was little spare production capacity in the world to cover any supply hiccup. [Reuters]

Prices reacted to OPEC producer Iraq halting operations in the southern oil production center of Basra because of threats from the Mehdi Army militia of Shi'ite cleric Moqtada al-Sadr.

"Pumping from the southern oilfields to storage tanks at Basra was stopped today after threats made by Al-Sadr," the official told Reuters. "It will remain stopped until the threat is over," he said.

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 official said al-Sadr's Mehdi Army had threatened to sabotage output by the state Southern Oil Co., 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 percent 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.

Prices rose even though an official at Russia's state railways said it expected no disruptions in YUKOS' oil and refined oil products exports by rail after Aug. 10, when the firm's deadline to pay transport fees expires.

YUKOS continues to battle bankruptcy due to a multi-billion-dollar tax debt case which threatens to bring its day-to-day operations, including oil exports, to a halt. YUKOS, Russia's biggest oil-exporting firm, pumps 1.7 million bpd of crude, or 2 percent of global supply.

There are also worries that supplies from Venezuela, the world's number five exporter, may be disrupted during a referendum on Aug. 15 on the rule of President Hugo Chavez.

A two-month strike by opponents of leftist Chavez late in 2002 temporarily halted the OPEC producer's overseas sales and caused oil prices to spike.

The International Energy Agency, adviser to 26 industrialized nations on energy policy, said it was stepping up consultation with member countries on the issue of a possible release of strategic oil stocks.

"We are intensifying our communication," said Kenji Kobayashi, director of the office of oil markets and emergency preparedness.

"IEA countries have the ability to respond through the coordinated release of strategic stocks. We are carefully assessing the situation," he said.

U.S. stock and currency traders said they were closely monitoring oil prices.

The dollar has gained against major currencies on expectations the U.S. Federal Reserve will raise interest rates after its meeting on Tuesday. But some economists worry that high oil prices -- especially gasoline -- will dampen U.S. consumer spending, forcing the Fed to slow the pace of any rate hikes.

"Higher oil prices, particularly record higher oil prices, have typically been associated with economic weakness -- I mean a shock to economic growth," said Michael Woolfolk, senior currency strategist at Bank of New York.

U.S. stocks ended slightly higher on Monday, but dealers said stubbornly high oil prices were weighing on the market.

David Hegarty, head of equity trading for Commerzbank Securities, said: "We continue to march onward and upward in crude, it seems like there's no end in sight."