Explosions increase pressure on oil prices
World oil supplies came under more pressure on Sunday as Iraqi crude exports were disrupted by pipeline explosions, and Yukos, the Russian oil group, moved closer to bankruptcy.
A pipeline feeding Iraq's Gulf terminals in the Faw Peninsula was set ablaze, disrupting the flow to the south from where the country exports about 90 per cent of its oil. A second blast hit the pipeline linking Iraq's northern and southern oilfields 80km south-west of Baghdad.
The apparent attacks were the first since the handover of power in Iraq and undermine hopes that the departure of US administrators last week would diminish the frequency of sabotage attacks on Iraq's oil infrastructure.
Richard Jeffrey, head of research at Bridgewell Securities, said the threats to supply would put pressure on prices as increased demand, particularly from China, combined with global economic recovery to test supply. "A move to $40 [a barrel] is by no means impossible," he said. "Commodity markets are very easily spooked. People were starting to get a little bit relaxed."
Stock markets in Japan, which imports all its oil, are particularly vulnerable, Mr Jeffery said. "Tokyo can often swing around quite violently to this sort of international news."
Concerns that bankruptcy at Yukos could threaten Russia's oil output also contributed to jitters over prices. Creditor banks have warned Yukos that they consider it to be in default over payment of their $1bn loan, pushing the company closer towards insolvency. The move - taken on Friday by the western banking syndicate led by Société Générale - is a necessary step before launching any court proceedings to recover their money.
It could technically lead to demands for immediate repayment of their loan, although neither this step nor bankruptcy is the inevitable result, according to people close to the talks.
Bruce Misamore, Yukos's chief financial officer, confirmed on Sunday that he had received a "notice of material adverse change" from the banks but said it did not mean the company was about to declare bankruptcy.
The banks' action was triggered by the sharp deterioration in the company's prospects in the past few days, after court rulings last week imposing a Rbs99bn ($3.4bn) bill in back taxes for 2000, and upholding a freeze on asset sales to raise the money.
The attacks on Yukos are widely seen as part of a politically motivated move against Mikhail Khodorkovsky, the group's former chief executive who has been in custody since October and is on trial for fraud and tax evasion totalling $1bn.
The row is contributing to broader concerns about global supplies before peak seasonal demand. The so-called fear factor resurfaced again last week when a bounce in oil prices from two-month lows erased any prospect of crude prices falling below $30 a barrel. On Friday the front month contract for Nymex WTI was off 35 cents at $38.39 and Brent crude fell 15 cents to $35.95.