Tuesday, December 31, 2002 Posted: 8:11 AM HKT (0011 GMT)

LONDON (Reuters) -- OPEC will raise oil output quotas in mid-January in a bid to contain a price surge that has lifted crude to a two-year high, a senior OPEC delegate said on Monday.

The oil producers' cartel will trigger at least an extra 500,000 barrels a day, or 2.0 percent, under a mechanism that stipulates supplies be raised if prices for a basket of OPEC crudes stay over $28 a barrel for 20 days, the delegate told Reuters.

"There is a clear commitment that the mechanism will be implemented immediately," said the delegate.

"The 500,000 barrels a day is for sure. More than that is subject to ministerial consultations which are already underway."

The comments undercut oil prices that had hit a fresh two-year peak in Monday trade as dealers bet on a U.S. attack against Iraq in the New Year.

Output from OPEC member Venezuela is near to a standstill because of four-week-old strike with no sign that President Hugo Chavez will be meet opposition demands for an early election.

Prices settle

U.S. crude reached $33.65 a barrel and Brent touched $31.02 before the OPEC news triggered heavy profit-taking. Brent ended down 50 cents on the day at $29.67 and U.S. crude settled Monday at $31.37.

OPEC's crude basket was last valued at more than $31 a barrel and, unless prices fall sharply, will have stayed over $28 for 20 working days by January 15.

The OPEC delegate said oil ministers would not necessarily have to hold an emergency meeting to raise output quotas by more than the minimum 500,000 bpd.

"If they want to do more than that they can agree the volume by phone," he said.

Ministers in December raised output quotas by 1.3 million barrels a day to 23 million bpd from January 1 in a bid to legitimise quota-busting that means actual output has been running at some 24.5 million bpd.

What impact higher quotas will have on prices remains to be seen.

Of the 10 countries bound by quotas, only OPEC's leading producer Saudi Arabia and its Gulf ally the United Arab Emirates have any significant spare capacity.

Monday, December 30, 2002 Posted: 6:46 PM EST (2346 GMT)

CARACAS, Venezuela (CNN) -- Several people were injured Monday in clashes between supporters and opponents of President Hugo Chavez, and police fired tear gas to disperse the crowds.

Such clashes have been a daily occurrence in Caracas and other parts of the country.

Monday's violence in the capital followed an anti-government demonstration demanding the release of Carlos Alfonso Martinez, a National Guard general.

Martinez is a controversial figure who rebelled against the government several months ago. He and other members of the military have been holding out at a plaza in Caracas, appealing to other members of the military to join the opposition to Chavez' leftist government.

Police detained Martinez suddenly Monday. It was not known what the charges against him will be.

In the ensuing clashes, the two sides threw stones and bottles at each other, and riot police followed with tear gas.

Chavez opponents have been staging demonstrations since December 2, when the opposition declared a national strike aimed at forcing him to resign or call early elections.

Workers at the state-run oil company, Petroleos de Venezuela S.A., have defied government orders to return to work.

Chavez said his government has managed to keep PDVSA open and hoped to return production to normal levels within 15 days.

Before the strike, Venezuela produced about 3 million barrels of oil a day. Since the walkout began, government officials said, production dropped to 200,000 barrels a day before climbing back up to its current rate of between 600,000 and 700,000 barrels per day.

The strike is costing Venezuela about $50 million a day in lost oil revenue.

"We think that by mid-January we will normalize the operations of PDVSA," Energy Vice Minister Bernardo Alvarez said Friday.

Government officials said the Puerto la Cruz refinery east of Caracas was running at about 70 percent of its capacity, but the refinery is one of Venezuela's smallest. And striking workers said the government lacks the manpower to resume normal production levels.

Police officer separates Chavez supporters, left, and opposition demonstrators Monday in Maracaibo in western Venezuela.

"They're trying to run the company, but they are not enough," said Alfredo Gomez, a PDVSA technical analyst who has joined the strikers. "They are not qualified or skilled enough to do that."

Chavez, a former paratrooper who led an unsuccessful coup attempt in 1992, was elected president in 1998.

His fiery populism has polarized Venezuelans. Much of the country's poor support him, but he has antagonized wide segments of the middle class and was forced from office in April in an abortive coup that lasted two days.

Cesar Gaviria, secretary-general of the Organization of American States, has been trying to mediate between the government and its opponents. Talks between the sides are continuing, but Gaviria is not scheduled to rejoin them until Thursday.

The strike, coupled with fears of a war in the Middle East, has pushed oil prices above $30 a barrel in the United States.

Three protesters have been killed this month, and government troops have used rubber bullets to break up crowds of protesters who have been blocking highways.

CNN Correspondent Lucia Newman contributed to this report.

Published Monday, December 30, 2002 The Associated Press

PORT-OF-SPAIN, Trinidad - Trinidad's state-owned oil company will ship some 300,000 barrels of gasoline on New Year's Day to Venezuela, officials said Monday.

The arrangement is part of a commercial arrangement between both countries to trade crude oil for refined products, said Oliver Flaks, spokesman for Trinidad's state-owned oil company Petrotrin. The shipment is not related to an ongoing general strike in Venezuela, Flaks said.

The 4-week-old strike aimed at toppling President Hugo Chavez has shut down key sectors of the economy and created gasoline and food shortages throughout Venezuela, the world's No. 5 exporter. Oil production has plunged from 3 million barrels a day to 260,000 barrels a day.

The gasoline will be a payment for 500,000 barrels of crude oil worth $15 million, which Petroleos de Venezuela, S.A. already delivered to Trinidad, he said.

At current market prices, the $15 million will amount to 300,000 barrels, but the precise amount to be shipped will depend on the price of gasoline on Jan. 1, Flaks said.

Petrotrin "will continue to ensure that the supply of refined products to its trading partners is maintained," the company said.

Flaks said he did not know the name of the ship that will transport the gas or where it will dock.

The Venezuelan oil company will supply the ship and make the landing, so Petrotrin is not involved in the shipping of the gasoline, he said.

By Ian Campbell UPI Chief Economics Correspondent From the Business & Economics Desk Published 12/30/2002 6:21 PM

QUERETARO, Mexico, Dec. 30 (UPI) -- The U.S. stock market is again wobbling as 2002 concludes. The Dow closed Monday 600 points or 7 percent down on its Nov. 27 close of 8,932. The threat of war and a rising oil price is the most cited reason for the weakness. But there is another one: the signs that the consumer is spending less readily and economic growth will disappoint.

For a number of months war with Iraq has been a possibility that has troubled financial markets. But in recent weeks the possibility has become probability. The United States and U.N. weapons inspectors have responded critically to the Iraqi weapons declaration. U.S. troops are gathering close to Iraq. It seems more and more likely that in January or February diplomatic channels will be abandoned and an invasion of Iraq will take place.

The oil market is observing these developments nervously. On the New York Mercantile Exchange, crude for February delivery traded over $33 per barrel Monday, its highest level for two years. A war in the Gulf would mean that oil supplies from the Middle East may be threatened. And supplies to the U.S. market are already being disrupted by unrest in Venezuela.

Venezuelan President Hugo Chavez is immensely unpopular with the bulk of the Venezuelan population and seems certain not to last out his presidential term. His opponents are seeking to force him to call a referendum on his rule, resign, or bring forward the end 2006 elections so that a constitutional means may be established of bringing the Chavez era to a close. A strike, now five weeks old, affecting Venezuela's oil production and exports is their main lever.

The United States imported about 1.6 million barrels per day in crude and petroleum products in October from Venezuela, about 18 percent of the 9 million barrels per day it normally imports from around the globe, according to Jim Williams, an oil market consultant and head of WTRG energy economics. Now the Venezuelan supply has been reduced virtually to nothing.

For Venezuela the loss of oil exports is crippling. But Chavez knows that to accede to his opponent's demands would be likely to end his career as president. He is therefore resolute. His handling of the strike that may eventually bring him down therefore mirrors his whole term: Chavez in power has been disastrous for the economy. The loss of Venezuelan supply could therefore persist for some time.

It is this lack of supply and the rise in U.S. oil prices to well over $30 per barrel that has led to some calls for the U.S. government to tap its strategic petroleum reserve. Dec. 23, Rep. Billy Tauzin, a Louisiana Republican and the head of the Energy and Commerce committee in the House of Representatives, asked the Bush administration to release crude oil from the SPR in order to bring down oil prices and help prevent harm to U.S. economic growth.

Meanwhile, since its mid-December meeting in Vienna the Organization of Petroleum Exporting Countries has sought to curb members' cheating on quotas and rein in crude supply. With this year's winter in the United States colder so far than the previous year and total inventories of petroleum (SPR and commercial) down, Williams thinks that from the market perspective "it's a bad time to fight a war in the Middle East." He sees no respite for oil prices unless some solution is found in Venezuela, while an attack on Iraq is certain to send the oil price up still higher, damaging growth in the United States and the West generally.

As spring is the time of year in which oil demand is weakest, it is possible that weak oil demand will cause an oil price collapse before the middle of 2003. But that depends on the outcome of any conflict. A protracted war or sabotage of oil production capacity in Saudi Arabia by supporters of al Qaida or other anti-U.S. elements could keep the oil price up high for a long time and help to condemn the United States to recession.

Meanwhile, there are already signs of renewed weakness in the U.S. economy. Manufacturing growth remains barely positive. Holiday season sales have been weak. Wal-Mart, the world's biggest retailer, had to scale back its forecast for December sales growth to 3 percent from 3 percent to 5 percent. As some analysts had argued that competitively priced Wal-Mart tends to hold up well even in a weak economy, its disappointing sales performance is one of the clearest indications yet that consumption in the United States is starting, at last, to slow.

The dollar is taking that threat badly, falling against the euro in particular. The record trade deficit shows, however, that U.S. demand needs to weaken and that the dollar needs to fall. But for stock market investors these signs of slowdown are another negative.

And so we come back to the U.S. stock market. After the fast rally in October and November, stock prices have eroded. With the threat of war, high oil prices and signs of renewed economic weakness, it would seem folly to buy. Some heavy falls would seem likely in coming weeks. The 8,000 level on the Dow again seems likely to be broken. The dollar seems set to fall further and a euro worth $1.10 seems probable within the next two months.

Tuesday, December 31, 2002 Posted: 1:29 AM HKT (1729 GMT)

LONDON, England (CNN) -- European markets ended higher on Monday, led by auto and oil stocks, although many investors kept to the sidelines ahead of the New Year break, amid mounting military tension around the world.

London's FTSE 100 was up 1.86 percent to 3,900.2, while the CAC 40 blue chip index in Paris gained 0.4 percent to 3,025.14. Frankfurt's electronically traded Xetra Dax, which closed at 1300 GMT for the New Year holiday, finished up 1.8 percent at 2,892.63.

The pan-European FTSE Eurotop 300, a broader index of the region's largest stocks, was up 1 percent.

Oil stocks were moved higher as crude hit new two-year highs on Monday as concern grew over a possible U.S.-led attack on Iraq, and a strike in Venezuela, the world's fifth-largest oil exporter, dragged on. (Full story)

"Oil and politics are a volatile combination and we have two separate issues confronting the oil market at the moment," Peter Gignoux, head of the London energy desk at Schroder Salomon Smith Barney, told Reuters.

Brent crude oil for February delivery, the London benchmark, was up 50 cents to $30.66 at closing.

The UK's BP (BP) was up 2.2 percent to 424 pence, while Shell Transport & Trading (SHEL), which owns 40 percent of Royal Dutch/Shell Group, was up 0.6 percent to 403.75 pence in London and Royal Dutch, which owns the remainder, was also up 1.5 percent to 42.52 euros in Amsterdam.

Italy's ENI, Europe's fourth-largest oil producer, rose 1.7 percent to 15.15 euros and France's TotalFinaElf (PFP) added 1.9 percent to 135.50 euros.

But British defence firm BAE Systems (BA-) dropped 3.5 percent to 122 pence after news on Friday that it had lost out on a Polish defence contract to United States rival Lockheed Martin. Uncertainty about contracts with the UK government has also dogged BAE shares in recent weeks.

U.S.-German carmaker DaimlerChrysler (FDCX) gained 3.3 percent to 29.35 euros after the head of its luxury Mercedes unit was quoted as saying he expected to have at least matched last year's 1.2 million sales of Mercedes and Smart brand cars in 2002. (Full story)

The German markets also received a lift from the electronics and engineering giant Siemens (FSE). Its shares were up 1.5 percent to 40.60 euros after Chief Executive Enrich Avon Pierre told Reuters he was satisfied with the company's mobile phone business in its first quarter, and said he was confident of more deals to build Trans rapid trains in China. (Full story)

Meanwhile, UK pharmaceutical group GlaxoSmithKline (GSK) rose 1.3 percent to 11.35 pence after it said that a U.S. judge had ruled one patent related to its top-selling anti-depressant Pail was invalid, but supported another. (Full story)

The beverage sector was also up with UK drinks giant Diageo (DGE), the world's biggest spirits group, gaining 3.1 percent.

German steel and engineering group Thyssenkrupp (FTKA) was among Europe's top gainers, adding 6.2 percent to 10.65 euros on reports the Chinese government was close to deciding on a second Transrapid high speed railway, which it would help build.

The AEX index in Amsterdam was up 0.8 percent, Milan's MIB30 index rose 0.4 percent and the SMI in Zurich gained 1.2 percent.

In the U.S. on Monday, stocks climbed in and out of the negative column in early trading as investors warily digested several gloomy economic reports coupled with more news of bleak holiday sales for retailers.

The Dow Jones industrial average was up 9.12 points to 8312.9, while the Nasdaq composite lost 1.80 points to 1346.51 and the Standard & Poor's 500 index climbed 1.19 points to 876.59.