Tuesday, January 7, 2003

(01-07) 15:57 PST (AP) -- Dow Jones News Service

NEW YORK (Dow Jones/AP) -- Crude oil futures tumbled again Tuesday as global oil producers moved toward increasing production to offset the loss of Venezuelan oil.

On the New York Mercantile Exchange, February crude oil futures hit a low of $30.51 a barrel, before closing at $31.08 a barrel, down $1.02.

February heating oil futures shed 3.91 cents to close at 84.88 cents a gallon, while February gasoline lost 4.02 cents to settle at 84.18 cents a gallon

On London's International Petroleum Exchange, February Brent dropped 87 cents to settle at $29.33 a barrel.

Natural gas for February delivery gained 19.2 cents to settle at $5.127 per 1,000 cubic feet.

The sell-off followed a flurry of news reports that the Organization of Petroleum Exporting Countries is planning a large supply increase to reverse the upsurge in prices caused by the six-week long strike in Venezuela.

Saudi Arabia, OPEC's most influential member, has proposed that the group raise output by 1.5 million barrels a day.

OPEC officials expressed hope that pledges for higher output from some non-OPEC producers such as Russia could lead to total output hike of 2 million barrels a day.

But non-OPEC Norway and Mexico, which have previously coordinated their output policies with OPEC, have said they can't increase this time around.

OPEC ministers plans to convene an emergency meeting Sunday in Vienna, Austria to discuss an output hike.

The increase would come as the price of OPEC's reference basket of crudes topped the $28 a barrel mark Monday, the 14th consecutive trading day above that level.

Under OPEC's price band mechanism, OPEC members are to increase output by 500,000 barrels a day if the price of the group's reference basket of crudes stays above $28 a barrel for 20 consecutive days. OPEC members have said they rely on the price band mechanism as a rough guide for adjusting output to keep prices within a range of $22 a barrel to $28 a barrel.

Indications that oil producers are already rushing extra barrels to the U.S. market also added to the bearish sentiment in the market, analysts said.

Preliminary figures from Lloyd's Marine Intelligence Unit indicated that about 25 very large crude carriers carrying a total of 7.3 million metric tons of oil are expected to discharge in the U.S. Gulf and the Caribbean in January.

At least another four very large crude carriers are expected to discharge in the same region in January which puts it at close to 9 million barrels, according to Andrew Lorimer of Lloyd's.

"The amount of oil being discharged in the U.S./Caribbean area in January is much higher compared with December," Lorimer said.

While the market greeted news of a possible OPEC output increase with a bout of selling, some analysts expressed skepticism over OPEC's ability to pull off a large output increase.

"Personally, I"m not sure they can produce an extra 2 million barrels a day," said Tom Bentz, an analyst at BNP Paribas. "Most members are producing at capacity."

Phil Flynn, an analyst at Alaron Trading Corp. in Chicago, agreed.

"If the market wants to believe that OPEC is going to snap its finger and solve all its problems, it is wrong," Flynn said. "I don't think OPEC has the excess capacity to take for the loss of Venezuelan oil."

REUTERS[ WEDNESDAY, JANUARY 08, 2003 02:28:50 AM ]

NEW YORK: US banks with multinational operations could take small writedowns in Venezuela, where striking opponents of President Hugo Chavez have crippled the nation's all-important oil industry. But, any possible losses would barely scratch banks' profits, analysts said.

Government figures show US banks held about $1.93 billion in cross-border claims in Venezuela as of Sept. 30 -- not enough to damage banks with massive balance sheets, such as J.P. Morgan Chase & Co. Inc. or Bank of America Corp.

In addition, the instability in Venezuela began nearly a year ago, giving banks time to reduce exposure, analysts said.

"It's not a terribly large number," said bank analyst Ray Soifer, who runs his own financialconsulting firm. "Exposure to Venezuela was never particularly large compared to Mexico, Brazil, and Argentina. And credit problems in Venezuela are not new problems."

Another mitigating factor may be that most of the banks' loans are likely to be linked to state oil company, Petroleos de Venezuela SA (PDVSA), which is currently enveloped in a crisis created by the strike, but is generally considered a relatively modest risk for lenders.

New York-based Citigroup Inc. was not immediately available to comment on their exposure. J.P. Morgan had $300 million at the end of the second quarter last year, but its exposure was too small to break out in the third quarter.

Bank of America, headquartered in Charlotte, North Carolina, said its total binding exposure at the end of September was $242 million.

Reuters, 01.07.03, 6:16 PM ET

WASHINGTON (Reuters) - The United States threatened to look for other oil suppliers unless Venezuela's government and foes of President Hugo Chavez found a way to end quickly a 37-day protest strike that has crippled the nation's oil exports, a senior State Department official said Tuesday.

"We were consuming (from Venezuela) about 1.5 million barrels of petroleum a day, which we're not getting now," the official, who declined to be identified, told reporters. "Which means we would have to get it from someplace else."

The threat, the bluntest so far by the administration, comes as both the opposition and the government remain deadlocked on talks aimed at calling for what the United States says is "an electoral solution."

The opposition, a mix of business groups, political parties and union leaders, started the strike on Dec. 2 to force Chavez into resigning or calling early elections. Chavez has said that the constitution calls for a referendum in August and that he would not move the date forward.

The official said Venezuela and the United States enjoyed a "strategic and historic energy relationship" that could be jeopardized by the strike.

Tankers take just four or five days to cross the Gulf of Mexico, a region well supplied with refineries. "It all works wonderfully. And it's all been disrupted."

"Oil is fungible, it's a product that a lot of countries produce, and at the end of the day, Venezuela is going to be the loser in this if it doesn't resolve this because we'll buy our oil someplace else."

The strike has sharply reduced oil output from the world's fifth largest exporter, although the official declined to say by how much. By using replacement staff and drawing down stored crude, the government has managed to maintain exports at about 500,000 barrels per day compared with the 2.7 million bpd sold in November, according to shipping sources.

usinfo.state.gov

QUESTION: Two questions. Has the United States seen the nearest tragedy that President Lula is doing with Venezuela -- helping in the oil industry. He's going to start in any way to solve the crisis in Venezuela. Do you have any opposition to Brazil doing things like that with his friend Hugo Chavez?

MR. BOUCHER: I am not quite sure what you are referring to as "things like that." I think we, and others, share an interest in seeing a peaceful resolution of events in Venezuela. We have continued to be in touch with other governments about it, about the situation in Venezuela. We have continued to support the efforts of the Secretary General of the OAS.

QUESTION: What I am talking about is Brazil sending oil to Venezuela.

MR. BOUCHER: That was last week, right?

QUESTION: Yeah, you have any --

MR. BOUCHER: No, I do not have any particular comment on that.

QUESTION: On Mexico and Venezuela. Secretary for Foreign Relations of Mexico Jorge Castaneda expressed yesterday that his government, the Government of Mexico would suggest that Venezuelan Government would respect more the Division of Institutional Democratic Powers. What's the take of the US Government in relation to this statement?

MR. BOUCHER: I think you will see elements of that expressed in the Organization of American States statement. On the subject of Venezuela, we are looking for a peaceful, democratic solution that respects the democratic institutions of Venezuela.

One of the people the Secretary has been talking to about the situation in Venezuela is Foreign Secretary Castaneda. They spoke again today about the situation down there.

Okay, Joel?

By CHRISTOPHER TOOTHAKER Associated Press Writer

CARACAS, Venezuela (AP)--Tens of thousands of Venezuelans marched on the federal tax agency Tuesday and many ripped up their tax forms, vowing to further deprive President Hugo Chavez of revenue as part of their strike that has already dried up oil income.

Chavez warned that tax evasion carries up to seven years in prison.

It's a crime not to pay taxes,'' he said in a speech he ordered broadcast on all television and radio stations, interrupting coverage of the march. We will not tolerate it.''

``We'll take all actions necessary to make sure every last cent is paid because it belongs to the people.''

Protesters cheered and blew whistles as they tore up blank tax forms at the doors of the tax agency. They called for individuals and business to stop paying income and value-added taxes.

National Guard troops and police patrolled the headquarters of the agency but there was no unrest. The march was the first opposition protest in the capital since clashes between Chavez foes and followers and security forces left two people dead and 78 injured last week.

This government uses our money to repress the people. We're not going to give one more cent to Hugo Chavez,'' said Luis Carlos Bustillos, 59, a veterinarian. This will cause chaos for a few months but it's better than chaos for a lifetime.''

Venezuela's largest labor confederation, the biggest business chamber and opposition political parties began the strike Dec. 2 to pressure Chavez into resigning or accepting an early vote on his rule. The president has refused to do either.

The strike has crippled Venezuela's oil industry, which provides half of government income and 80 percent of export revenue. The country is world's fifth-largest oil exporter, and the strike has helped send international oil prices above $30.

Most public schools opened after the holidays, but most private schools stayed closed, said Education Minister Aristobulo Isturiz. The strike has been largely ignored by small business owners, but shopping centers and private factories were shuttered. Banks were only opening three hours a day.

The government may have to cut this year's $25 billion budget by up to 10 percent, Finance Minister Tobias Nobrega said Tuesday. Taxes were supposed to pay for a third of the budget. Oil exports were supposed to pay for half.

Eliminating tax evasion--traditionally at 50 percent--is a tenet of Chavez's government. Last year, his government collected $6 billion in tax revenues--91 percent of its original goal.

Adversaries blame Chavez's policies for a deep recession, 17 percent unemployment, an increasingly feeble currency and inflation surpassing 30 percent. Chavez, who survived an April military uprising, says his foes are trying to provoke another coup.

Opponents say they will hold a Feb. 2 referendum to ask Venezuelans if Chavez should quit even if the president ignores it, as he says he will. The opposition delivered 2 million signatures in November to demand the referendum.

Chavez refused requests by the National Elections Council for funds for the vote. But he invites opponents to challenge him in a possible recall referendum in August, midway through his six-year term.

In Washington, a senior State Department official told reporters that negotiations sponsored by the Organization of American States were stalled over whether to hold early presidential elections.

The official said the OAS has reached agreement on several points dealing with confidence building measures but not on elections.

Government efforts to restore oil production and domestic gasoline supplies suffered a setback Tuesday when a vacuum unit of a key refinery was damaged, refinery chief Pedro Jimenez told broadcasters. Industry sources said the accident would delay efforts to bring the 130,000 barrels a day refinery back online.

Still, lines at service stations were considerably shorter in Caracas and there were more vehicles on the roads as the government imported gasoline from Brazil and awaited shipments from Trinidad and Tobago, the United States and Russia.

Local environmentalist Lenin Herrera denounced that oil slicks were accumulating on Lake Maracaibo because ``collection of oil spills on the lake are not taking place regularly and efficiently.'' But Felix Rodriguez, head of western operations of state oil monopoly Petroleos de Venezuela denied there was anything abnormal about the stains.

Energy Minister Rafael Ramirez claims production is back up to 800,000 barrels a day from 200,000 barrels a day, the lowest level since the strike began. Industry sources say output is about 400,000 barrels a day--from a normal level of 3 million barrels a day.

Chavez has fired almost 300 managers from PDVSA, vowing to use the strike to trim the corporation's bureaucracy.