Monday, December 30, 2002

America's energy policy is basically unsound because it relies too heavily on foreign oil. Conservation measures including reasonable mileage standards that reflect the improved technology available to the automotive industry is the best way to address the problems. Better use of renewable fuel sources could aid the United States agricultural sector and help end over reliance on foreign oil.

The recent political problems in Venezuela which resulted in an oil stoppage have focused attention on the imbalances in the fuel policy of the United States. Venezuela is a member of the international oil cartel, the Organization of Petroleum Exporting Countries.

Nearly half of U.S. oil imports come from OPEC nations, including Venezuela. A little less than half of OPEC imports come from the Persian Gulf, where the United States is nearing war with Iraq. That raises questions about the reliability of that source of oil.

It makes sense for this country to reduce its reliance on foreign oil, which accounts for more than 60 percent of what we use. The best way is to cut consumption, and the best way for that to happen is for the U.S. government to set reasonable, and better, mileage targets for vehicles driven in the United States.

The technology is available. A recent article in the MIT Technology Review magazine details minor changes in traditional gasoline engines that would nearly double the average mileage in sports utility vehicles to more than 40 miles per gallon without any reduction in engine power. The article estimates that the changes would add as much as $1,000 to the price of an average SUV - or somewhere around 5 percent of a low-cost SUV.

In addition to better technology, renewable energy sources are available. American agricultural products, such as corn and soybeans, can be made into fuel but it will take government encouragement, through subsidies or pricing strategies such as tax breaks, to get more of those products to a wider market. One thing the government could easily do is to insist that all government vehicles run on biofuel or biofuel mixtures. A few state governments have done that.

Even as technology and renewable fuel sources are developed, important research must continue into other alternative systems, including electric-gasoline hybrids and hydrogen fuel cells. Practical and affordable alternative systems that will maintain the power that Americans want may still be a few years away.

The government has to give automakers an incentive for using available technology and a penalty for not increasing overall fuel mileage. Yet instead of this, the Bush administration this year signaled that declining fuel mileage was all right by largely replacing the standards for increasing mileage that have been in place for a quarter century. That will lead to even more dependence on foreign oil and a search for more oil in previously untapped places in this country.

No matter how Venezuela's situation is resolved, it is another example of why the United States needs to make conservation and use of better technology a serious part of its energy plan.

Reuters, 12.30.02, 12:03 PM ET By Paul Richardson

LONDON, Dec 30 (Reuters) - European shares clambered to a higher finish on Monday lifted by a rise in auto stocks, such as DaimlerChrysler <DCXGn.DE>, and supported by safe-haven buying from investors positioning themselves for an uncertain year ahead.

Energy stocks, including BP <BP.L>, drew support from a rise in oil prices to fresh 15-month highs amid worries about a looming war in Iraq, and an uncertain economic and earnings outlook lured investors into defensives such as basic resources and food.

"The oil price is getting people slightly nervous about what it means for the economic recovery, but it's doing favours for oils and commodities," said Merrill Lynch European equity strategist Khuram Chaudhry.

"We're also seeing people moving into defensives partly as they look at how to position themselves going into next year," Chaudhry added.

By the 1630 GMT close, the FTSE Eurotop 300 index <.FTEU3> was up one percent at 850.92 points, as the narrower DJ Stoxx 50 index <.STOXX50E> rose 0.9 percent to 2,386.41 points.

The benchmark index is set to end 2002 down about 33 percent, having been dented by dismal company earnings, sluggish economic growth, U.S. corporate scandals and geopolitical tensions in Iraq and North Korea during the year.

On Wall Street, the Dow Jones industrial average <.DJI> was down 0.3 percent as the tech-laced Nasdaq Composite <.IXIC> slipped 1.1 percent.

Traders in Europe described volumes as paltry, with many investors already away for the New Year holiday on Wednesday when all European financial markets will be closed.

OILS, AUTOS LEAD Strategists said investors had favoured safe haven sectors on the day and would continue do so until there was some resolution on Iraq, and until there was some visibility on corporate earnings and the economic outlook in 2003.

Energy stocks were among the main beneficiaries, buoyed by a rise in oil prices, as traders bet on a U.S. attack on Iraq early next year and as supplies from OPEC nation Venezuela remained cut off by a strike.

Heavyweight BP added 2.2 percent, Italy's ENI <ENI.MI> rose 1.7 percent and TotalFinaElf <TOTF.PA> added 1.9 percent. Near-dated Brent futures were trading up 1.7 percent at $30.70.

The traditionally defensive food/beverage sector, basic resources and utilities also gained, with food leader Nestle <NESZn.VX> up 2.1 percent and UK drinks giant Diageo adding 2.8 percent.

Among basic resources stocks, German steel and engineering group Thyssenkrupp added 6.2 percent on reports that the Chinese government was close to deciding on a second Transrapid high speed railway, which it would help build. In utilities, Spain's Iberdrola <IBE.MC> added 2.8 percent, Germany's E.ON <EONG.DE> rose 0.8 percent and Britain's Scottish & Southern Energy <SSE.L> climbed 3.2 percent. Elsewhere, the auto sector was lifted by a 3.3 percent rise in sector leader DaimlerChrysler. The U.S.-German carmaking giant was bolstered by news over the weekend that its Mercedes unit expects 2002 sales to have at least matched those of the previous year. Volkswagen <VOWG.DE> and BMW <BMWG.DE> drew comfort from the report and rose 2.9 percent and 3.4 percent respectively. Gert Jan Geels, a fund manager at Amsterdam-based Eureffect, said that while investors were worrying about factors such as Iraq and high oil prices, stocks could be poised to rally if investors' worst fears did not materialise. "If you take a look at Iraq, North Korea, oil and the dollar's move, it looks like the worst is priced in," he said. "In my view, if any of these or all of these factors are not as bleak as people think they might be, we might see a relief rally of something like 15 to 20 percent," Geels added. Copyright 2002, Reuters News Service

But prices later retreat after OPEC hints at output increase to stem shortage from Venezuela. December 30, 2002: 4:28 PM EST

NEW YORK (CNN/Money) - Crude oil prices jumped to their highest level in two years Monday but later retreated after OPEC signaled it may raise output to plug any shortfalls in world supply stemming from the protracted strike in Venezuela.

U.S. light crude for delivery in February fell $1.35 to $31.37 after jumping to $33.63, the highest since Dec. 1, 2000. In London, Brent crude futures slipped 50 cents to $29.66 a barrel, also paring earlier gains.

The Organization of the Petroleum Exporting Countries (OPEC), which controls two-thirds of world crude exports, was set to raise output by at least 500,000 barrels a day unless oil prices drop heavily in the next two weeks, according to Reuters.

An informal OPEC agreement stipulates that output be raised if prices for a basket of cartel crude oil stay over $28 a barrel for 20 working days. The basket was priced at $31.06 Friday, its ninth day over the $28 level. Unless prices fall sharply, it will have stayed over $28 for 20 working days by Jan. 15.

But some analysts questioned whether OPEC's move was anything but a short-term relief strategy until the crisis in Venezuela is resolved.

Paul Cheng, an oil analyst with Lehman Brothers, said that Venezuela and Iraq together contribute more than 3 million barrels a day of global oil output, compared with OPEC's idle oil capacity of 3 million barrels a day.

"If the strike in Venezuela continues, and if the U.S. goes into Iraq and disrupts the oil exports, then OPEC's idle capacity is not enough to fill the shortfall," Cheng said. "I think oil prices will continue to rise until at least Venezuela is resolved."

Meanwhile, gold prices fell after rising sharply the past two weeks as investors flocked to this "safe haven" amid global uncertainty. Gold for February delivery fell $5.70 to $344.00 in New York. Gold has gained about $27 in December, with many analysts pointing out that the price hike could portend rising inflation. Standoff in Venezuela

Venezuelan opposition leaders extended the ongoing strike into its 29th day Monday, aimed at forcing the resignation of President Hugo Chavez and triggering early elections.

The strike has largely closed down oil production and refineries in the world's fifth-largest exporter and choked off overseas sales to 20 percent of normal levels. Last week, the nation took the unusual step of importing oil from Brazil.

A tough-talking Chavez said Sunday he had no plans to step down, and he vowed to break the strike, which has slashed crude production to about 200,000 barrels per day from more than 3 million barrels per day in November.

The Venezuela strike and speculation about war with Iraq has added more than $5 to a barrel of crude in December and prices are now $10-to-$13 above levels at the beginning of the year, raising concerns that high energy bills may stymie global economic recovery.

"Remember that oil disruption is a genuine bullish indicator for the commodity," said Peter Gignoux, oil analyst with Salomon Smith Barney in London. The Venezuelan strike is going on longer than we would have thought and President Chavez is playing his cards badly."

But Gignoux said OPEC's involvement may give relief to rising U.S. oil prices, although not immediately.

"For the U.S., Venezuela is a short-hold crude. That means that it takes about 5 to 6 days for the shipment to reach the United States. But oil shipment from Saudi Arabia, for example, would take about 45 days. I think the price hike in reaction to Venezuela is a short-term phenomenon. That situation will have to resolve itself soon. The bigger issue is Iraq."

In recent developments, Washington ordered more U.S. troops, aircraft and ships to head to the Gulf starting next month in preparation for a possible war against Baghdad as U.N. arms inspectors continued to search for evidence that Iraq has stockpiled biological, chemical or nuclear weapons.

U.S. Secretary of State Colin Powell said Washington had not yet decided whether to attack Iraq to force it to disarm weapons of mass destruction, but was taking "prudent action" to be ready to do whatever might be required.

U.S. defense officials also confirmed that Saudi Arabia had agreed to let the United States use its air bases and an important operations center at Prince Sultan air base outside Riyadh for defensive purposes in any possible war with Iraq.

"The last time the U.S. was engaged militarily in Iraq, oil prices shot up to about $42 a barrel," Gignoux added.

Shares of oil stocks ChevronTexaco (CVX: up $0.75 to $66.65, Research, Estimates), ExxonMobil (XOM: up $0.11 to $34.75, Research, Estimates), Unocal (UCL: up $0.41 to $30.53, Research, Estimates) moved higher Monday.  

Posted on Mon, Dec. 30, 2002 NEDRA PICKLER Associated Press

WASHINGTON - About a quarter of the world's countries struggled with armed conflict this year, mostly low-intensity battles against terrorists or guerrillas, the kind of conflict that poses the greatest threat to global stability, according to a report released Monday.

It says the U.S. military is ill-equipped for such warfare.

The report, issued by the conservative National Defense Council Foundation, found 53 countries struggled with conflict during 2002, six fewer than last year. But F. Andy Messing Jr., the author, said an even deadlier threat is posed by potential foes of the United States secretly developing chemical, nuclear and biological weapons.

"Right now the Pentagon is fighting wars that have morphed over the past few years," said Messing, executive director of the Alexandria, Va., think tank and a former Army Special Forces officer. "But they still have a predominance of conventional warfare thinking, and that's just not satisfactory."

The foundation annually surveys 193 nations.

Its report suggests the United States should enhance intelligence activities with pre-emptive special operations, thoroughly vetted assassinations and psychological and anti-guerrilla operations. Messing said the goal should be to use the lowest amount of force to put an end to a conflict.

"The reason this is important is the proliferation of nuclear weapons; you don't want to trip the nuclear trip wire," he said.

Christopher Hellman, a senior analyst at the Center for Defense Information, a more liberal research group that has issued reports skeptical of increased military spending, agrees that the United States is not equipped to deal with low-intensity conflict. He said, however, that pre-emptive action, especially the assassination of political figures would set dangerous precedents.

"We have studiously avoided assassinations for a very simple reason: by and large, our political leadership is way more vulnerable to that type of activity than the Saddam Husseins of the world," he said.

The report said sub-Saharan Africa and the Middle East remain the most war-prone areas. War in Afghanistan spilled over into other South-Central Asian countries "like a cancer in the region" to create growing unrest there.

Iraq is considered the site of the most dangerous conflict because development of nuclear, biological and chemical weapons "is almost a foregone conclusion," the report said.

The foundation's report added 10 countries this year to its list of conflict zones, including Jordan, Kuwait, North Korea and Venezuela. It removed 16 nations from the list, including the United States, Malaysia, Macedonia, Sierra Leone and Yugoslavia.

Its criteria for conflict include political, economic and social unrest as well as military.

The report said the "stupidest conflict" occurred in Nigeria, where a newspaper reporter wrote that Islam's founding prophet Mohammed would have approved of staging the Miss World pageant in that African nation and might have wanted to marry a contestant. The story sparked Muslim rioting and Christian retaliation in which more than 200 people were killed. The pageant was relocated to London.

On the Net: National Defense Council Foundation: www.ndcf.org

Oil prices push higher by worries over Venezuela, Iraq, leaving global economy with new year hangover.

By Daniel Rook - LONDON Oil prices hit new highs above 30 dollars a barrel Monday on the back of a strike in Venezuela and the prospect of war in Iraq, putting a global economic recovery in early 2003 in jeopardy, analysts warned.

Oil prices marched up to new 15-month highs here in early trading as a strike in Venezuela that has paralysed crude shipments entered a fifth week and a US military build-up continued in the Gulf.

The price of benchmark Brent North Sea crude oil for February delivery rose to 30.68 dollars a barrel from 30.16 at the close of the previous session.

The last time prices were so high was in the immediate aftermath of the September 11, 2001 terrorist attacks in the United States.

In New York, the reference light sweet crude February contract scaled a two-year peak above 32 dollars a barrel on Friday.

"The continued, protracted situation in Venezuela and increased troop movements in the Gulf provided the support for the market," said Commerzbank analyst David Thomas.

"There are ever-increasing concerns about military action in Iraq," he added.

The price rally is good news for oil producers that rely heavily on oil revenues to keep their economies and public finances in good shape.

But it has set alarm bells ringing in oil-consuming nations.

Motorists are already facing higher prices at the pumps, while companies from manufacturers to airlines are seeing costs pick up.

"It is a concern because higher oil prices essentially act as a tax on consumption," said Commerzbank economist Nick Parsons.

"In a world which is teetering on recession, all that happens is that it eats into firms' profit margins."

Parsons said companies find it hard to raise prices to cover increased costs in times of recession, while consumers are likely to spend less on other goods if gasoline prices rise.

"So I think that's going to dampen world economic growth and that's why we're not looking for any interest rate rises anywhere in 2003," he added.

There was little sign of any respite for oil consumers Monday, as prices pushed higher amid concerns that the strike in Venezuela might not be resolved before any war in Iraq begins.

The loss of Venezuelan and Iraqi exports would deprive the oil market of about five million barrels of oil per day, analysts estimate.

Although members of the Organisation of Petroleum Exporting Countries (OPEC) have pledged to make up any shortfall caused by the loss of Iraqi exports, experts say they would be hard pressed to replace Venezuelan supplies as well if the strike drags on.

Moreover, even if OPEC does agreed to pump more oil, the extra supplies are unlikely to arrive on world markets for several weeks yet given the time needed for members to reach a decision and to ship the oil from the Middle East to the United States.

"Hopes that OPEC will provide more oil will have to wait a while," warned Lawrence Eagles, analyst at brokers GNI.