Oil prices jumped this week after Russia's biggest exporter, YUKOS, said it was cutting supplies to China by 1 million tons in the remaining months of 2004 due to a lack of funds to pay export fees.

Russian authorities have frozen YUKOS' bank accounts in an effort to get more than $7 billion in unpaid back taxes.

The stoppage comes as oil companies and refiners in the U.S. Gulf mop up damage from Hurricane Ivan last week and slowly restart production and plants.

"YUKOS is another interruption to supply, the impact of which is magnified when the industry is running near full capacity," said David Thurtell, commodities strategist at the Commonwealth Bank of Australia.

About 700,000 barrels of daily crude production in the Gulf of Mexico, home to 25 percent of U.S. oil and gas output, stayed shut this week and the Minerals Management Service estimated 8 million barrels of production had been disrupted by the storm.

Industry analysts expect fuel stockpiles in the United States to decline when the government Energy Information Administration (EIA) releases its weekly supply report on Wednesday.

BULLISH OUTLOOK STAYS

A Reuters survey of eight analysts forecast U.S. crude inventories to fall by 5.3 million barrels in the week to Sept. 17 as Hurricane Ivan delayed shipments into the world's biggest oil consumer.

If the forecast holds, it will be the eighth week in a row that inventories have declined, widening a deficit compared with last year.

The survey predicted that distillate stocks, including heating oil, would drop by 1.2 million barrels and that gasoline inventories would fall by 2 million barrels.

With only a thin cushion of stocks and global production running almost flat out, traders worry that any hiccup in the supply chain could lead to a major disruption. "The outlook for oil prices remains in the balance. With capacity tight... there is a real risk that oil prices will spike upwards again, especially if the weather is cold or the global economy remains strong," said a monthly report by the London-based Center for Global Energy Studies.

Algerian Energy Minister Chakib Khelil forecast this week that oil prices would stay at current levels beyond the end of the year.

"During the next six months prices will be held steady due to global economic growth," Khelil told a news conference.

Only the world's top exporter, Saudi Arabia, has any significant spare capacity to add to supplies in the near term. The kingdom is pumping about 9.5 million barrels per day (bpd) and has about 1 million bpd of additional production that could be brought on stream.

The International Energy Agency said yesterday that oil demand would grow at a slower pace next year at about 1.8 million bpd compared with 2.5 million bpd in 2004.

"It is a combination of factors. The beginning of price effects and partly the slowdown in the pace of economic growth, both in China and in the U.S. and globally," Antoine Halff, principal IEA analyst, said at a conference in Singapore.