THE WALL STREET JOURNAL/DOW JONES NEWSWIRES: Russian Supply Constraints Push Crude Futures Higher: “Monday Royal Dutch/Shell Group unit Shell Oil said it had restored full oil and natural gas production at a number of its offshore Mexico fields and was ramping up output at others.” (ShellNews.net)

By KAREN MATUSIC

DOW JONES NEWSWIRES

Posted September 21, 2004

NEW YORK -- Crude-oil futures gained momentum late Monday, on news that Russian oil giant OAO Yukos partially suspended oil exports to China and later to Lithuanian refiner Mazeikiu Nafta.

Oil prices fell sharply in morning trade, but quickly recovered before hitting a key support level at $45.37. "After an initial pullback, the market held the technical breakout and the Yukos disruptions lent support," said analyst Tom Bentz of BNP Paribas. Mr. Bentz said traders were also anticipating another big drop in U.S. crude inventories because of precautionary shutdowns ahead of Hurricane Ivan. He said since most of the bullish news has affected crude, refined products weren't being pushed higher.

Benchmark light, sweet crude futures for October settled 76 cents higher at $46.30 a barrel on the New York Mercantile Exchange. Earlier, the contract hit an intraday high of $46.40, pushing above $46 for the first time in four weeks. In London, October Brent closed at $42.65 a barrel, up 20 cents, on the International Petroleum Exchange.

Refined products rebounded late in the session. Nymex heating oil futures for October closed just 0.01 cent lower at $1.26 a gallon, while October unleaded gasoline added 0.42 cent to $1.27 a gallon. November natural gas rose 4.1 cents to $5.756 per million British thermal units.

News Sunday that Yukos has suspended 400,000 metric tons a month, or nearly 98,000 barrels a day, of rail-borne crude exports to China National Petroleum Co. -- cutting off 60% of its crude supply to China -- pushed prices higher, although, analysts remain divided about the longer term impact.

Yukos, Russia's largest oil producer, is overdue on a $3.4 billion payment for back taxes from 2000 and faces a similar claim from 2001. So far, it has paid $700 million of its bill.

Oil markets have been fretting that Yukos's 1.7 million barrels a day of crude production, including about 1 million barrels a day in exports, could dry up quickly if the company goes bankrupt.

News that U.S. Gulf Coast operations were returning to normal after weekend work produced some early downward pressure on products. The U.S. Minerals Management Service said Friday Hurricane Ivan resulted in the precautionary shut-in of a cumulative 5.15 million barrels of crude oil production and about 23 billion cubic feet of natural gas output.

Monday Royal Dutch/Shell Group unit Shell Oil said it had restored full oil and natural gas production at a number of its offshore Mexico fields and was ramping up output at others. Most Gulf refineries had returned or were returning to normal but Chevron refused to comment on operations at its 325,000-barrel-a-day Pascagoula, Miss. refinery other than to say it had reopened a truck terminal. But brokers also fear Tropical Storm Jeanne could delay imports into the U.S., where crude stockpiles are currently hovering around six-month lows.

In other commodity markets:

METALS: Comex December gold futures fell 60 cents to $407 an ounce, extending the recent sideways march above the $404 level for the fifth consecutive day. Dealers said conditions were fairly thin as the continued strength in oil prices offered support, while the robust tone of the U.S. dollar muted follow-through buying interest. December silver slipped 0.08 cent to $6.28, October platinum lost $1.20 to $841.90, and December palladium shed 60 cents to $208.25.

CORN: Chicago Board of Trade corn futures for December ground out new contract lows for the seventh consecutive day Monday on bearish fundamentals. December corn was down 2.5 cents at $2.1275 a bushel. Warm, dry weekend weather provided excellent opportunities for early harvest progress and good finishing conditions for late developing crops.

Write to Karen Matusic at karen.matusic@dowjones.com