Updated from 8:53 a.m. EDT
Oil prices fell back slightly Thursday after closing at a new record high Wednesday as traders responded to the latest developments in Russia, where the country's largest oil company Yukos is involved in a high-stakes tax battle with the government.
The benchmark U.S. crude closed 15 cents, or 0.3%, lower at $42.75 a barrel. Prices yesterday jumped 2.5% to $42.90, a new record high that eclipsed the previous record of $42.33 set June 2. At one point during the regular floor trading session, prices briefly touched $43 on the New York Mercantile Exchange.
The decline Thursday came as the Russian government said Yukos can continue with business as usual, after the company Wednesday suggested it might have to stop exports from its Siberian production unit as a result of a government crackdown meant to collect disputed back taxes.
Traders have been worrying about the potential for such a drop in exports for several weeks, with speculation growing that Yukos might be forced into bankruptcy should the tax dispute escalate. Russia is the world's second largest oil exporter after Saudi Arabia and the world's largest independent producer. The country's oil sector has ramped up production in recent years after a long decline that started in the waning days of the Soviet Union.
Also driving the market Wednesday were two closely watched weekly reports on energy levels that showed contradictory results. The American Petroleum Institute said crude inventories for the week ended July 23 fell, while the Energy Department reported a small gain.
Traders have been focused on a number of short-term supply issues in recent months -- such as attacks on Iraq's oil infrastructure, strikes in Nigeria and Norway, the Yukos tax dispute, and periodic terror attacks on oil workers in Saudi Arabia -- that have caused routine price spikes. Unusually strong global demand -- partly because of the roaring Chinese economy -- has also contributed to worries about supply, despite efforts by the Organization of Petroleum Exporting Countries to calm the markets.
OPEC two weeks ago said it had decided on an increase in its daily production ceiling by a half-million barrels a day in August, and also canceled a July 21 meeting on the issue.
The measure was part of a broader agreement reached at OPEC's June 3 meeting, when it decided to increase official production by 2 million barrels a day in July. Prices touched a record high of $42.33 a barrel right before that meeting.
The August increase will put OPEC's official production ceiling at 26 million barrels a day, although its members routinely produce more than their individual quotas. A recent International Energy Agency report said the cartel produced more than 28 million barrels a day in June, when its ceiling was just 23.5 million barrels.
At one point recently, oil prices had fallen 15% from their record high, closing below $36 a barrel in June. Since then, prices have bounced back, partly because of worries about a terror attack on the U.S. in the run-up to the November presidential election.
In May, traders relentlessly bid up prices on short-term supply concerns triggered by strong global demand ahead of the peak summer driving season in the U.S. and Europe. During that period, prices eclipsed the previous high recorded in the 21 years of crude oil futures trading on the Nymex. Prior to this year, the previous closing high was set in October 1990 after Iraq had invaded Kuwait.
Gasoline prices Thursday fell almost 2 cents to $1.276 a gallon, after a 5-cent gain yesterday, but are still far from their May-June peaks.