europe.cnn.com Friday, January 10, 2003 Posted: 1640 GMT

VIENNA, Austria -- When members of the Organization of Petroleum Exporting Countries meet on Sunday they will be faced with two crucial questions: How much new oil should flow to the West, and how will that decision affect Saudi Arabia, the world's biggest producer, and the United States, the No. 1 importer.

The meeting in Vienna was called by the 11-member cartel to deal with a shortage of crude caused by the six-week national strike in Venezuela.

The strike, led by opponents of President Hugo Chavez, has cut oil shipments from the fifth biggest exporter to just a tickle.

And that has squeezed supplies to the United States and other major industrialised countries and helped boost the price of oil to two-year highs. About 25 percent of that increase has come since the strike began on December 2.

Oil has been trading just below $30 a barrel on the International Petroleum Exchange in London and almost $33 on the New York Mercantile Exchange in New York. Both are well above OPEC's preferred range of $22-$28.

With the threat of war in Iraq, which could also curtail shipments from the oil-rich Gulf region, there are real concerns that higher oil prices could soon threaten the global economy.

The decisions made by OPEC will "make a little bit of virtue out of a necessity," Peter Gignoux, an oil analyst at Schroder Salomon Smith Barney, told CNN. "At the moment [pumping more oil]... is good for the consumer and OPEC can take credit for that."

For Saudi Arabia, the meeting on Sunday should also shed some light on how the OPEC kingpin sees itself in relation to cartel members and to the United States.

It wants to lift output by as much as 2 million barrels a day from the current level of 23 million barrels to cover for losses from the strike in Venezuela.

Saudi Arabia has a vested interest in moderating prices, just as the West does, because previous spikes -- like those in the 1970s and during the 1990-1991 Gulf War -- were followed by economic slumps, which in turn reduced demand and sent prices tumbling.

"It is clearly in Saudi Arabia's interest to mitigate high prices," Paul Stevens, professor of petroleum policy at Britain's Dundee University, told Reuters.

Other members of OPEC -- which provides about a third of the 75 millions barrels consumed globally each day -- are keen to expand their markets and not encourage customers to seek out other sources of fuel such as natural gas.

"From a purely commercial point of view, the last time prices went very high it didn't do OPEC any good," John Mitchell, associate fellow at the Royal Institute of International Affairs, told Reuters.

OPEC unlikely to support Saudi request

But Saudi Arabia may find its muscle is not as strong as it once was.

It is unlikely that other OPEC members will go along with Saudi Arabia's request, partly because they see a 2 million barrel increase as unrealistic, and party because they do not want to be seen as bowing to U.S. pressure for much higher output levels.

Instead, Saudi Arabia is expected to compromise and accept an increase of about a 1.5 million extra barrels a day, or 7 percent than what is now being pumped. Members are also expected to agree to leave the door open to more if war breaks out in Iraq.

Saudi Arabia is anxious to show the U.S. that it won't be pushed around by its former ally in the Gulf War. Their relationship has cooled since the September 11 attacks, perpetrated by mostly Saudi nationals. Still, their mutual interest in the oil sector remains strong.

"From a political point of view, I am sure they don't want to be seen to be just doing what the U.S. wants, but on the other hand nor do they want to create enemies,'' says Mitchell.

The U.S. has been quite vocal in urging OPEC and other oil producers -- like Russia, Central Asia and Africa -- to hike output to keep a lid on oil prices as its energy stockpiles decline due to the strike in Venezuela, which supplies the U.S. with 14 percent of its crude oil imports.

Guy Caruso, the head of the U.S. Energy Information Administration (EIA) said on Thursday that a decision by OPEC to increase oil output by up to 1.5 million barrels a day would only make a "dent'' in making up for crude exports lost as a result of the strike.

"Clearly we've lost roughly 2.5 million barrels a day to the world market from Venezuela, so any additional oil [from OPEC] would offset some of that,'' Caruso told Reuters. "Obviously, if they [OPEC members] want to make a big impact, [pump] more than that.''

Those comments has been dismissed a simply posturing by the U.S.

"The whole point of OPEC releasing more oil was to help cover Venezuela, so the statement from the EIA was a little surprising,'' one broker in New York told Reuters.

Stevens, of Dundee University, added: "The idea that the United States can bang the table and tell OPEC and Saudi Arabia what to do is divorced from reality."

www.thestar.com

New move to box in Central America So why not buy at The Bay, not Gap?

DAVID OLIVE Jan. 11, 2003. 08:20 AM

The Americans deserve a prize for chutzpah in trade relations with ostensible allies.

In Washington this week, Robert Zoellick, the Bush administration trade representative, launched official talks to bring five Central American countries into the ever-widening Western Hemisphere trade zone that already binds Canada and Mexico to the United States.

It must have been a humiliating moment for the foreign ministers of Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua, as they watched Zoellick rationalize U.S. altruism in Latin America, with his patronizing assessment of the region.

"This is more than a trade negotiation," Zoellick said, adding it is "a plan to strengthen democracy and promote development in a region that has known too little of both."

Civil unrest in Central America. Who might have played a role in that? Sponsored the overthrow of a democratically elected government in Chile? Exercised gunboat diplomacy in Grenada? Sent Ollie North to help the Contras in Nicaragua?

A diplomat would know better than to open old wounds. But Zoellick is no diplomat, notwithstanding his State Department credentials. He's the Bush administration's trade bully.

Brazil has its own ideas of hemispheric trade, modelled on the European Community, where there was no union until all its members were prepared to sign on. The United States prefers to recruit its trade partners a few at a time — first Canada, then Mexico, then Chile last month, none of them strong enough to negotiate with the Americans as equal partners.

Earlier this month, Zoellick told Brazil, by far the largest of the Latin American economies and the best managed of them under outgoing president Fernando Henrique Cardoso, that it had better join Team U.S.A. soon or risk trading exclusively with Antarctica.

Howls of outrage in the Brazilian press. These Americans, they're subtle as a brick. And dumb, too. Doesn't everyone know it's Argentina that claims the South Pole as its hinterland?

That's the context in which George Bush's commerce department issued another of its recent demands, namely that British Columbia and other Canadian provinces be stripped of the right to determine their own forestry policies.

No need to go into the details, which amount to a U.S. insistence that Victoria stop its alleged subsidies to Canadian softwood producers. The hoped-for result? Our wood becomes less competitive in the U.S. market. And Americans are forced to pay more for a new house — another of Bush's curious ideas for reviving a stagnant U.S. economy.

Never mind that Canada keeps winning the right for B.C. to manage its natural resources at a succession of international trade-dispute panels. Like separatist governments in Quebec that threaten to continue holding sovereignty referendums until they're satisfied with the result, the United States simply ignores world trade decisions that go against it, restates its original allegations and imposes more punitive duties on our exports.

That is also the context in which a few supine mandarins in our Foreign Affairs and International Trade ministries developed an early Valentine's Day list of steps Ottawa should take to develop a more affectionate relationship with the United States.

In a memo obtained by the Star last week, the authors propose that Canada go beyond the recent move to jointly manage our borders. In order to allay potential U.S. concerns about its energy security, Ottawa should invite the United States to jointly manage our energy policy, too.

"Such an initiative is increasingly enjoying analytical support," say the government policy advisers, citing as an authoritative source the free-market pamphleteers at the C.D. Howe Institute and other conservative think-tanks. "And the costs of not doing so are immense," they say, without explaining why, or justifying their alarmism with proof.

It must occur to Americans that we take some kind of masochistic pleasure in negotiating from weakness.

The United States projects its strength, threatening to close the world's most lucrative market to trading partners unless they submit to U.S. dictates on everything from drug-patent policy to intellectual property rights for software, music and Steven Spielberg epics.

We project our weakness. The starting point for our negotiators is that our centuries-old trading relationship will almost certainly be obliterated if we don't find a way to oblige U.S. demands as comfortably as we can manage.

The United States doesn't hide its bluster, a wise negotiating tactic; and we don't hide our fear, a bone-headed tactic.

Bush's $180 billion (U.S.) handout to American farmers last year has depressed world prices for agricultural commodities, cutting Canadian farm receipts by an estimated $1.3 billion Canadian.

Meanwhile, the U.S. relies on Canada, its second-largest source of imported oil, for 1.8 million barrels of oil each day. It is so strapped for oil that it's still taking 500,000 barrels a day from Iraq, of all places.

Georgia and other states have used copious handouts to entice automakers to build the North American industry's 13 newest plants there and not in Canada.

Meanwhile, the U.S. auto industry relies heavily on Canada for its total production. Several of the industry's most efficient and highest-volume assembly plants are here in Ontario, their output mostly destined for U.S. showrooms. A brief shutdown at a single Ontario parts plant not long ago crippled much of GM's vehicle production.

We don't play to these strengths. For instance, because we're not a banana republic — all right, a maple syrup republic — it doesn't occur to us to answer U.S. bullying with a seller's strike.

With riot-torn oil exporter Venezuela out of production, this would be an especially unfortunate time for the United States to contemplate an OPEC-like closing of the Alberta spigots. Or a not-unreasonable delay in shipping Ontario-made minivans, SUVs, land yachts, econoboxes and pickups across the border — until we're absolutely sure that the new border arrangements are fail-safe.

Oh gosh, Uncle Sam, we'll need another month at least, to determine if these new screening devices are working properly. Can't take a chance that any of those five suspects on the FBI list are strapped to the underbelly of these transports!

You wouldn't envy Zoellick that day.

"Mr. Zoellick, it's Bill Ford. Listen, we've got a problem here."

"Bill, I've got to put you on hold, I've got Rick Wagoner and a Dieter-something on the other lines."

That would be amateur hour in Ottawa, of course. And a clear contravention of the zillion bilateral and multilateral trade agreements to which Canada is a faithfully observant signatory. Funny how these sworn avowals to uphold free trade principles do not inform U.S. trade policy, or even awaken any sense of irony that U.S. protectionists might possess.

Hardball is not a specialty of Canadian governments.

But there's nothing stopping voters in our consumer society from taking up the cause on behalf of unemployed B.C. timber workers and subsistence farmers on the Prairies. Or of the Ontario autoworkers who've been warned they stand no chance of getting either of the two remaining new assembly plants to be built in North America unless the automakers succeed in extracting a sizeable dollop of corporate welfare from Canadian taxpayers.

So why not buy that next pair of jeans at The Bay, rather than Gap. Rent those videos at Rogers, rather than Blockbuster? Order an espresso at Timothy's or Second Cup, instead of Starbucks, and you don't need to be told that the burgers are way better at Harvey's than you-know-where. And at Rona, instead of Home Depot, you'll want the lumber stamped Canfor, not Georgia-Pacific.

Try it for a day, a week. They'll get the message. It's the only one they'd understand.

Sound juvenile? Insensitive to the United States, supposedly our best friend in the world? Yes, it would be juvenile, insensitive and, without a trace of ambiguity, self-serving. Now you understand U.S. trade policy.

www.timesofmalta.com Tom Ashby in Vienna, Reuters

The United States may have a vested interest in Opec opening up the oil taps but Washington and other industrialised powers will have to rely on the cartel's self-interest to prevent an oil price shock, analysts said yesteday.

Arab-dominated Opec does not openly welcome US calls for extra supply, but producers are expected at an emergency meeting on Sunday to raise output to stop prices going much above $30 a barrel.

"The idea that the United States can bang the table and tell Opec or Saudi Arabia what to do is divorced from reality," said Paul Stevens, professor of petroleum policy at Britain's Dundee University.

"Having said that, it is clearly in Saudi Arabia's interest to mitigate high prices."

Opec kingpin Saudi Arabia wants the group to lift output by as much as two million barrels per day from 23 million bpd now to cover for losses from a strike in Venezuela.

With others in Opec unwilling to add that much, Riyadh is likely to compromise on about a 1.5 million bpd, or seven per cent, addition and leave the door open to more if war breaks out in Iraq.

US-Saudi diplomatic relations are still cool after the September 11 attacks, perpetrated by mostly Saudi nationals, but their mutual interest in the oil sector remains strong.

Riyadh, with the lion's share of spare capacity, has as much interest in moderating prices as the West, because previous spikes in the 1970s and during the 1990-1991 Gulf War were followed by economic downturns, hitting demand and prices.

And with several decades' worth of reserves, Opec wants to ensure a growing market for oil against competition from natural gas and other fuel sources.

"From a purely commercial point of view, the last time prices went very high it didn't do Opec any good," said John Mitchell, associate fellow at the Royal Institute of International Affairs.

"From a political point of view, I am sure they don't want to be seen to be just doing what the US wants, but on the other hand nor do they want to create enemies."

Oil prices soared by 25 per cent in the last two months to touch two-year highs at $33.60 for US crude, well above Opec's preferred range of $22-$28, because of the export halt in Venezuela and fears of further shortages in an Iraq war.

Fears are that prices could soar if a cornered Iraqi President Saddam Hussein lashes out and tries to damage oil facilities in neighbouring Kuwait and Saudi.

The US State Department said earlier this week that a substantial Opec increase would be a "positive development".

A spokesman said officials had been in contact with some of the Organisation of the Petroleum Exporting Countries ahead of tomorrow's meeting in Vienna.

The head of the US Energy Information Administration said an output increase of 1.5 million bpd "would certainly make a big dent" in the shortfall from Venezuela, where a strike has reduced oil exports by about two million bpd.

"Obviously, if they want to make a big impact, (they would increase output by) more than that," said EIA Administrator Guy Caruso.

Washington in 2000 made a very public plea to Opec and Saudi Arabia in particular when oil prices last surpassed $30 per barrel, creating huge tensions in the cartel which controls two-thirds of world exports.

Iran walked out of an Opec meeting in that year, denouncing outside interference in the group's decision making.

Since George W. Bush took the US presidency, the world's biggest energy consumer has concentrated more on encouraging Western investors to lift output outside Opec, especially in Russia, Central Asia and Africa.

Stevens said Saudi Arabia had already put its oil industry on a war footing, despite tight Opec limits, by pumping extra oil in October and November.

This oil is still either slow-steaming in tankers towards its markets in the West or kept in storage close to markets for release in case of a crisis, he said.

Shippers and traders say Riyadh is already preparing to raise production from the end of January, with customers told to expect more crude and extra tankers on charter.

The danger is that the Venezuelan stoppage, nearly six weeks old, could require that oil before any war on Iraq starts.

www.globeandmail.com Saturday, January 11, 2003 – Page B7

The West's energy watchdog, the International Energy Agency, could begin preliminary discussions on a possible emergency oil release in a week's time, the agency's acting executive director William Ramsay said yesterday. War in Iraq, if an oil strike in Venezuela were still running, could trigger deliveries from the IEA, he said. "But we don't need to wait for a war, if there is one, because we've already lost three million barrels a day from Venezuela," he added.

www.globeandmail.com By LILY NGUYEN With files from Reuters and Bloomberg

Saturday, January 11, 2003 – Page B1

CALGARY -- Motorists will endure a year of ups and downs in the price of driving as geopolitical tensions send crude oil -- the key driver of retail gasoline prices -- swinging to extremes, a Toronto-Dominion Bank economist said yesterday.

In a topic paper, TD senior economist Craig Alexander predicted retail gasoline prices in the country could hit 84 cents a litre on average and go even higher if the United States and its supporters decide to go to war against Iraq.

Conversely, the easing of political tensions could push pump prices down to 66 cents or lower.

"Geopolitical events are likely to produce considerable volatility in crude oil prices in 2003, which will translate into large swings in prices at the gas pumps," Mr. Alexander wrote.

The average pump price across Canada today is about 76 cents, he said.

The possibility of impending war with Iraq, an interruption of oil exports from Venezuela because of a general strike and low U.S. crude inventories have already combined to send crude prices well into the range of $30-plus (U.S.) a barrel.

Yesterday, light sweet oil for February delivery slipped 31 cents on the New York Mercantile Exchange to close at $31.68 a barrel on expectations the Organization of Petroleum Exporting Countries would boost production to make up for the shortfall from Venezuela.

Analysts predicted the oil cartel would raise its output quota by between one million and 1.5 million barrels a day at its emergency meeting tomorrow.

"OPEC's going to lift production, it's just a question of how much," said Juha Laiho, a crude oil trader in Houston for Finnish oil company Fortum Oyj.

But Mr. Alexander said an output change may not have a big effect.

"It is important to note that commodity markets have already priced in an increase in production, so unless the increase is significantly larger than one million barrels, the impact on prices will be limited."

Mr. Alexander said that while OPEC is moving to limit some of the effects of the Venezuelan strike, it has only limited capacity to absorb a war-related supply crunch.

If Venezuelan exports are not back on track in the event a war breaks out, a price jump would be more pronounced, he said.

Mr. Alexander added that such a concern could affect the timing of a move by the United States against Iraq.

"A conflict would likely drive prices temporarily up to $40 to $50 a barrel or higher if Venezuelan oil exports are still disrupted," he said.

A price increase of $1 a barrel translates into a rise of approximately 1 cent (Canadian) a litre at the pumps, he said.

Yesterday, a U.S. official said the United States supports creating a "group of friends" of Venezuela made up of the South American nation's neighbouring countries to end the crisis and get exports flowing again.