news.ft.com By Nerma Jelacic in London Published: January 10 2003 12:55 | Last Updated: January 10 2003 13:14

Brent crude oil prices reversed early losses in London on Friday as investors reacted to latest developments in Iraq and ahead of an emergency Opec meeting this weekend.

Observers said the threat of war in the Gulf region seemed to have receeded after a mixed report from UN inspectors in Iraq gave ammunition to both the supporters of the US preparation for a possible war and for the peace doves.

Hans Blix, the head of the UN weapons inspections team, said on Thursday his team had yet to find evidence that Iraq had weapons of mass destructin and that the inspections would need more time.

However, in his speech to the United Naitons, he added that Iraq had failed to answer key questions on the weapons issue.

While in the US analysts chose to concentrate on the second part of Mr Blix's speech, their European counterparts found the threat of war diminishing after some comments from British prime minister Tony Blair.

Mr Blair, up to know the key US ally, indicated that the weapons inspectors should get more time to complete their work.

Other European nations, including Germany, argued that there was no reason for a military attack against Iraq at present.

IPE February Brent stood 21 cents higher at $29.85 a barrel having closed at $29.19 a barrel in the previous session.

"Traders will have to balance pre-Opec meeting concerns with fears of weekend developments in the Gulf and Venezuela in determining their positioning today," said Lawrence Eagles, an analyst with GNI Research.

Apart from the situation in the Gulf, investors were awaiting the decision of an emergency Opec meeting on Sunday which is expected to agree an output increase to help compensate for supply losses from the Venezuelan strike which has now entered its 40th day.

Opec members are considering how best to implement the necessary replacement of between 1m and 1.5m barrels a day lost through the strike.

"The Opec ministers are debating how best to accomplish this without worrying the market that the announced increase will be perceived as either under-supplying or over-supplying requirements," said Adam Sieminski, an analyst with Deutsche Bank.

The head of the Energy Information Administration, Guy Caruso said that an Opec increase of up to 1.5m barrels a day would make a dent in offsetting the lost Venezuelan crude, but there was a need for more oil.

"We believe that the world supplies will be insufficient to meet world demand this month and possibly throughout February as well," said Mr Eagles.

He added that the gap would not be huge, but with world oil stocks at low levels this will represent a significant tightening of the world oil market.

"This, coupled with Iraqi war fears, should keep prices above the $28 a barrel Opec basket benchmark, but similarily prices are unlikely to surpass the recent highs," he added.

This was echoed by Mr Sieminski: "Despite the shift toward more negative sentiment on oil, we believe the bullish case remains more persuasive in the near term," he said.

"Inventories are already very low, Venezuela remains in turmoil until August elections, fighting in Iraq is coming in February or March - and recovery from those dynamics will be slow. Inventories stay low and oil prices stay high," Mr Sieminski added.

By Myra P. Saefong, CBS.MarketWatch.com Last Update: 10:39 AM ET Jan. 10, 2003

February crude traded at $31.50 a barrel on the New York Mercantile Exchange, down 49 cents.

The contract gained more than a dollar, or 5 percent, Thursday on doubts that OPEC members can pump enough extra oil to replace production lost to Venezuela's oil strike and the potential disruption of supplies from Iraq.

OPEC members agreed to hold an emergency meeting this Sunday to discuss increased production targets, with Saudi Arabia reportedly supporting an output hike of 1.5 million to 2 million barrels per day.

"An increase of more than 1.5 to 2 million barrels per day will cause prices to stabilize and perhaps fall," John Kilduff, an analyst at Fimat USA told clients Friday, while "anything less than 1.5 million barrels per day will be viewed as insufficient and prices will probably continue to rise."

Analysts have said that it takes around five weeks for oil shipments resulting from the hike to show up on U.S. shores, and with OPEC not expecting to implement its increase in quotas until Feb. 1, traders are doubtful of OPEC's ability to help supplies in the near term.

The cartel has also said it plans to cancel the increase in production once the strike in Venezuela, which began on Dec. 2 in opposition to President Hugo Chavez, is resolved.

"Even if the strike is settled today, the Department of Energy estimates that it will take about four months [for Venezuela] to reach production levels attained before the strike," said Kilduff, adding that both the opposition and supporters of Chavez seem far apart and adamant in their demands.

Against this backdrop, "OPEC will probably not increase production enough to make up for that lost from Venezuela," he said. The South American nation produced around 3 million barrels a day and comprised more than 10 percent of U.S. oil imports prior to the strike.

Concerns over OPEC's ability to cover lost oil in the event of a U.S. war with Iraq on top of Venezuela's shortfall have also surfaced. Analysts pegged OPEC's spare capacity at around 3 million barrels, which would fall short covering a total of around 5 million barrels lost from OPEC members Venezuela and Iraq.

Iraqi President Saddam Hussein is "a wild card and there is no telling what he might do," said Kilduff. If a war starts, prices could spike higher, he added.

The latest reports on U.S. crude supplies, both released Wednesday, however, failed to reflect much of an impact from Venezuela's 40-day oil strike.

The American Petroleum Institute said crude supplies fell by only 2 million barrels to total 275 million barrels during the week ended Jan. 3. The Energy Department said crude supplies actually rose by 400,000 barrels to 278.7 million barrels. See full story.

In other Nymex trading, February unleaded gasoline declined by 0.75 cents to 88.5 cents a gallon. February heating oil also fell by 0.6 cent to 86.9 cents a gallon.

The losses in petroleum futures also weighed on most oil-service stocks. The Oil Service Index ($OSX: news, chart, profile) was down 0.3 percent.

Natural gas slips

Also on Nymex, natural-gas futures fell in delayed reaction to the latest government report on supplies, which revealed a smaller-than-expected decline in last week's stocks.

February natural gas fell by 7.4 cents to stand at $5.23 per million British thermal units.

The Energy Department reported early Thursday that natural-gas supplies fell by 86 billion cubic feet to 2.331 trillion cubic feet during the week ended Jan. 3.

Fimat predicted a 109 billion cubic foot decline and estimates ranged between a 60-billion and 110-billion-cubic-foot draw. A year ago, inventories fell by 199 billion cubic feet.

Supplies are now 459 billion cubic feet lower than last year at this time and 2 billion cubic feet below the five-year average, the government said.

Weekly declines of 111 billion cubic feet are needed in the remaining 12 weeks of the withdrawal season for inventories to drop to about 1 trillion cubic feet by March 28.

The Reuters/CRB Index, broad-based measure of the commodity futures market, traded at 241, down 0.1 percent. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.

Many fear the country could descend into civil war By Stephen Cviic BBC regional analyst news.bbc.co.uk

There are signs that the United States is to become more involved in the search for a solution to the political crisis in Venezuela.

US-Venezuelan relations soured following a failed coup against Chavez

A report in the Washington Post newspaper says the Bush administration is to planning to throw its weight behind the formation of a group of countries to be called the Friends of Venezuela.

This grouping - to include the US, Brazil, Mexico and Chile - would develop a proposal for early elections and would back existing negotiations sponsored by the Organization of American States (OAS).

It comes as a month-long general strike called by opponents of President Hugo Chavez continues to bring chaos to Venezuela's crucial oil industry.

Strained relations

The US had been reluctant to get too involved in Venezuela's political turmoil.

Lula: Interested in becoming a "Friend of Venezuela"?

In April last year the Bush administration had its fingers burned when it appeared to accept a short-lived coup against President Hugo Chavez.

The coup failed, and relations between Mr Chavez and Washington - which were uncomfortable even at the best of times - never recovered.

But Venezuela is becoming hard to ignore.

It is the largest foreign oil supplier to the US, and the bitter hostility between government and opposition supporters has had some commentators talking about a civil war.

On Thursday US State Department spokesman Richard Boucher said his boss, US Secretary of State Colin Powell, had been in close contact with foreign ministers from various Latin American countries.

'Jockeying for position'

Now, the Washington Post newspaper is reporting that the US will soon announce a diplomatic initiative based on the formation of a group to be called the Friends of Venezuela.

In fact, the idea of such grouping has already been mentioned.

Brazil's new president, Luiz Inacio Lula da Silva, is known to be interested in the idea.

What is not clear is the level of co-ordination between the various countries.

Brazil's left-wing government is sympathetic to Mr Chavez.

The US would probably like to have somebody else in charge.

At the very least, there will be some jockeying for position between the two regional giants over who is driving the

news.sify.com New Delhi, Jan 10

Prime Minister Atal Behari Vajpayee said Friday India was considering creating strategic oil reserves to counter potential disturbances in supplies of crude oil, particularly from the Middle East.

"Crude oil prices may shoot up if tensions in West Asia(the Middle East) rise, leading to a prolonged shortage of supplies in the world oil market," Vajpayee told an international petroleum conference in the Indian capital.

"This may adversely affect our national economy. Recent developments have already affected oil markets and sent prices upwards.

"Therefore oil security has come to occupy a key position in the present policy matrix of our government. We are examining the feasibility of establishing strategic storage of crude oil and petroleum products in our country to create a buffer for meeting unforeseen disturbances and strengthening India's oil security."

Vajpayee said the "security of supplies has become one of the most important challenges that needs to be carefully addressed".

His remarks come against the backdrop of the possibility of a US-led invasion of Iraq, which has heightened concerns about a disruption in oil supplies as well as a rise in prices of fuel in India.

According to oil ministry officials, India keeps about 10-12 days of crude stocks.

India currently imports 70 per cent of its requirement of oil and petroleum products - most of it from the Middle East and particularly Iraq.

India's state-run oil firms last week were forced to increase the price of petrol and diesel by one rupee a litre following a rise in global oil prices.

The projected requirement in India for the year to March 2003 is 108 million tonnes of crude oil compared with production of 33 million tonnes. Consumption of natural gas is expected to be 55 million tonnes compared with production of 24 million tonnes.

Vajpayee urged the domestic oil sector to increase production, without which he said "the nation would be subject to volatility in crude oil supplies and prices and oil security would be difficult to achieve."

He also urged private domestic and foreign players to cooperate with India in the hydrocarbon technology sector.

Vajpayee said it was important that the existing "energy resource gap between the developing and developed countries" be bridged.

Indian Oil Minister Ram Naik, speaking at the same conference said he hoped that a meeting of the Organisation of Petroleum Exporting Countries(OPEC) in Vienna on Sunday would bring good news for international consumers.

On Wednesday, Naik said he would petition OPEC for an output hike as oil prices have leapt to 32 dollars a barrel this month from 19 dollars last February.

OPEC president Abdulla Bin Hamed Al Attiyah of Qatar, in New Delhi for the petroleum meet, said Thursday that the organisation's meeting in Vienna this weekend would consider India's request for concessional pricing of crude oil for developing countries.

OPEC oil ministers head to Vienna this weekend to discuss proposals spearheaded by Saudi Arabia for the cartel to raise output to help calm a market roiled by a strike in Venezuela and a possible war in Iraq.

www.smh.com.au January 11 2003

Thousands of bank employees went on strike yesterday to support a national work stoppage that has dried up income in the world's fifth-largest oil exporter while seeking to oust President Hugo Chavez.

Jose Torres, president of the Fetrabanca workers union, claimed 80 per cent of the country's nearly 60,000 bank employees were participating in the two-day strike. He urged workers to provide only minimal services, such as such as processing payments for medical emergencies.

Spokeswomen for three of Venezuela's four largest banks - Banco Provincial, Banco de Venezuela and Banesco - said at least 80 per cent of their branches in the country were closed. Officials at the second biggest, Banco Mercantile, were not available for comment.

An official with the Venezuelan Bank Association, who spoke on condition of anonymity, said 70 per cent of branches nationwide were closed. The association represents all of Venezuela's private banks.

But many branches opened in downtown Caracas, and people began lining up at automatic teller machines many of which were stocked with cash despite union threats to shut them down.

Those banks that were not shuttered only opened for three hours as they have since December 9 in a management decision to support the national strike against Chavez.

The Central Bank suspended its dollar auctions Thursday after the local bolivar currency plunged to a record low against the dollar Wednesday. The Central Bank has been auctioning $US45 million a day since Wednesday.

Chavez has threatened to nationalise private banks. In Caracas, thousands of people line up each morning outside banks splattered with graffiti reading "I want my money!" and "Banker thieves!"

Demand for dollars soared on speculation that Chavez's government, facing a fiscal crisis because of dwindling oil and tax revenues, would devalue the bolivar to balance its budget. Nervous depositors wanted dollars before the banks closed, not knowing what the bolivar would be worth when banks reopen next week.

The bank strike underscored the intransigence of both sides, despite international pleas for them to join the Organization of American States in negotiating a solution to the 5-week-old national work stoppage.

The bolivar plunged by as much as 13 per cent before its official close at 1,510 bolivars per dollar, down 6 per cent, said the Central Bank, which uses an average of all the day's trading prices. Previously the lowest close was 1,492 per dollar on September 15.

Before Thursday, the bolivar's value had fallen by more than 45 per cent since Chavez abandoned exchange controls last year to curb capital flight. Venezuela spent $US6 billion in 2001 to support the bolivar.

The government, meanwhile, tried to raise money by offering 40.5 billion bolivars in government bonds, worth $US29 million at that point. There were no takers.

Strike leaders are calling for a February 2 nonbinding referendum on Chavez's rule and want him to schedule elections in 30 days if he loses the referendum.

Chavez insists the constitution only requires him to respect a possible recall referendum next August, the midpoint of his six-year term.

The strike briefly sent international oil prices above $US30. The state oil company is gradually resuming production but still operating well below normal. Crude output is estimated at about 400,000 barrels a day, compared to the pre-strike level of 3 million barrels a day. Exports, normally 2.5 million barrels a day, are at 500,000 barrels a day.

Chavez has managed to somewhat stabilize domestic gasoline supplies through imports. Caracas streets were jammed with traffic, and many businesses were open. However, international franchises, large malls and many factories were closed, emptying industrial parks. Public schools have opened for the new year, but some private schools have delayed classes.

Energy Minister Rafael Ramirez has vowed to crush the strike by decentralising the oil monopoly, where 30,000 workers are on strike.

Chavez's government will cut jobs at the Caracas headquarters of the company, a hotbed of dissent where 7,000 are employed, Ramirez said. The government is systematically firing strikers throughout the giant corporation.

The strike has all but shut down Venezuela's oil industry, which contributes half of government income. Other revenue is down because thousands of businesses closed, affecting tax collection. The government has said it may cut its $US25 billion 2003 budget by 10 per cent.