Oil prices fall back from highs

Russia's Yukos has put oil prices back on the boil

Oil prices have fallen back after reaching historic highs on Wednesday.

In afternoon trade in London, September Brent crude was down 83 cents at $38.70 a barrel, while in New York light sweet crude was 80 cents lower at $42.10.

The decline began overnight in Asia, partly reversing the previous day's sharp rise triggered by fears of a disruption in exports from Russia.

But analysts say that an uncertain global supply situation means the respite is likely to prove temporary.

Supply and demand

Tom James of Global Change Associates told the BBC that with oil importing countries about to start stocking up for the winter, prices are highly sensitive to any sign of reduced availability.

September light sweet crude rose to $43.05, its highest level since the light sweet crude contract was introduced in 1983 Why are oil prices so high?

"Any disruption in oil supplies produces an immediate shock in the market," he said.

Reports that the Russian government had ordered oil giant Yukos to suspend exports as part of an effort to claw back billions of dollars in back taxes provided the catalyst for Wednesday's surge in prices.

At one point, September light sweet crude rose to $43.05, its highest level since the light sweet crude contract was introduced in 1983.

The Russian government on Thursday stressed that Yukos, which accounts for over 2% of daily consumption, was free to continue pumping oil.

But the international oil market remains under pressure, with producers struggling to keep pace soaring demand from a resurgent US economy and fast-growing China.

Full throttle

Conflict in Iraq, which owns the world's second biggest proven oil reserves, and political instability in Saudi Arabia, the world's single biggest exporter, have also exacerbated fears of an imminent supply crunch.

Oil consuming nations, led by the US, are expected to put pressure on producers' cartel Opec to increase production in order to lower prices.

But earlier this week, Venezuelan oil minister Rafael Ramirez said the organisation had little spare capacity.

Opec's output is currently running at 30 million barrels a day, its highest level since 1979.

New York light sweet crude prices hit an earlier all-time high of $42.38 a barrel in early June following a high-profile attack by Islamic militants in Saudi Arabia.

However, economists point out that oil remains far cheaper when adjusted for inflation than it was during the oil price shock of the late 1970s.