www.iht.com Ravil Shirodkar and Sri Jegarajah Bloomberg News Monday, January 13, 2003   NEW DELHI Schlumberger Ltd., the largest oil-services company in the world, and rivals said Sunday that they were seeing few gains from oil prices near two-year highs because the producers that hire them to find oil do not expect the rally to last.

A monthlong national strike in Venezuela and a possible U.S. war with Iraq helped oil prices rise 44 percent in London last year. That has failed to prompt Exxon Mobil Corp., Royal/Dutch Shell Group and other producers to bolster spending on survey work and drilling, contractors said.

"We're not seeing a significant increase in business because oil companies don't expect current prices to last," Satish Pai, a vice president at Schlumberger, said at a conference in New Delhi. "Prices are high because of the war premium and Venezuela. Both of those situations could quickly evaporate."

Lower-than-anticipated drilling activity may worsen the drop in earnings at oil-field services companies. Schlumberger's pretax profit from services fell 22 percent in the first three quarters of 2002. Precision Drilling Corp., the biggest Canadian oil-services company, said fourth-quarter income may drop 78 percent. Stolt Offshore of Britain cut its full-year forecast to a loss.

The Organization of Petroleum Exporting Countries was meeting Sunday in Vienna to discuss oil prices and was expected to agree to raise output temporarily to bring prices down.

Producers say the fluctuation in oil prices meant that decisions about long-term investment in exploration were not made just on the basis of current oil prices.

"This business is a cyclical business, and you don't spend a lot when the oil price is high, and you don't cut your costs too deep when the oil price is low," said David McManus, executive vice president of Asia operations at BG Group PLC of Britain, the third-largest natural gas producer.

There is typically a lag of as long as 18 months between a surge in oil prices and new business appearing for service companies, contractors said.

"It can take over a year before oil companies invest in a new rig," said Kazimierz Pietrzyk, the India country manager for Geofizyka Torun of Poland, which is mapping oil fields for Cairn Energy PLC and Reliance Industries Ltd. in India.

Reliance made a major discovery in 2002 off the east coast of India.

Cairn has found oil or gas in nine of 11 wells it dug in India in the past two years.

The French bank Societe Generale predicts that Brent oil in London will average $22 a barrel this year, dropping from an average of $25 a barrel in the first quarter to $21 a barrel in the third, according a report by Frederic Lasserre, head of commodities research at SG Economic Research. "You only have to look at the basic pricing assumptions of the major exploration and production companies to see that they plan for a lower sustained oil price" than $25 a barrel, McManus said at the conference.

Brent oil for February delivery rose Friday in London to $29.67 a barrel on the International Petroleum Exchange. Prices rose above $30 early this month, the highest in two years.

Energy companies will probably spend less on equipment in the United States in 2003 than last year, according to a survey made by Lehman Brothers Inc. last month.

Spending in the United States may fall 0.7 percent to $30.3 billion from $30.5 billion in 2002, the survey of 323 oil and gas companies found. Global investment may gain 4.2 percent to $132.4 billion, after a 1.2 percent drop in 2002. Lehman previously expected both U.S. and global spending to rise 7 percent in 2003.

Petrotech 2003, the biggest oil conference in India, ended Sunday. Indian field could reach 7 billion tons

Oil fields off the Indian east coast may hold as much as 7 billion tons of oil and gas, one-fourth of the country's untapped reserves, a government official said over the weekend.

About 3.5 billion tons of the reserves may be provable by drilling, said Avinash Chandra, director general for hydrocarbons at the oil ministry. Of that, about 500 million tons has already been proven from discoveries by Reliance Industries and Cairn Energy, he said at the conference in New Delhi.

Reliance, India's biggest non-state company, made the discovery in 2002 off India's east coast, the country's biggest find for three decades. Cairn has found oil or gas in nine of 11 wells it has dug in the past two years. India is trying to open up exploration to reduce the need to import fuel.

"The discoveries made by Reliance and Cairn on the east coast only underscore our view" of how much oil and gas is waiting to be found, said Chandra. "The proof of the pudding is in the eating."

Jeffrey E. Garten IHT Monday, January 13, 2003 Get together   PARIS The Bush administration is leaving no doubt that it intends to use America's enormous military power to make the world a safer place. But to succeed, it must develop a more robust global economic policy as well. Unless military confrontations lead to something much better for the millions of people who will be hurt, America will have won the wars and lost the peace. It is true that the administration is aggressively promoting trade liberalization by pushing for new commercial deals with Latin America, as it has recently done with Chile and is now doing in Central America.

It is also pressing for more tariff and quota reductions around the world in an omnibus negotiation that it hopes to conclude within two years under the auspices of the World Trade Organization.

These efforts are an excellent start. But there are at least four broader challenges that the United States should now confront, and with an urgency that the Bush administration has yet to demonstrate. The first is reinvigorating global economic growth. The world economy is in trouble. Corporate investment and trade are slowing, factories are producing more than they can sell, and deflation is threatening many regions. Germany and Japan, are stagnating. Big emerging markets, from Indonesia to Brazil, are in deep trouble.

America's economy is the world's most powerful by far, accounting for almost a third of global demand these days. But even if it grows at a healthy rate this year, the United States by itself cannot create a sustainable international economic recovery.

A U.S. revival depends on the health of American companies, and that in turn depends in part on expanding foreign markets. Overseas sales of American goods and services made up at least 25 percent of U.S. economic growth in the 1990s.

And because many of America's top companies - Intel, Coca-Cola, Johnson Johnson, for example - rely on Europe, Japan and developing countries for more than 30 percent of their revenues, stronger foreign economies are important to the health of U.S. stock markets, the principal financing vehicle for corporate America's expansion.

Washington must bring together its economic partners - the Group of Seven nations made up of Canada and Japan and four in the European Union - to get the global economy moving again.

The United States, which is already running huge budget deficits and has lowered interest rates to levels not seen in generations, has little room to maneuver. But it can encourage the European Central Bank to lower its relatively high interest rates, since inflation on the Continent is not nearly the threat that stagflation is. The European Union must also let up on its growth-constricting demands that Germany, Italy and France restrict spending and, in some instances, raise taxes. The United States and Europe can push Japan to restructure its growth-strangling bank debts. Second, there will soon be an acute need to rebuild countries that are defeated or disintegrating. Estimates for reconstructing Iraq range from $120 billion over 10 years, in the case of a very short war, to $1.2 trillion after a prolonged conflict, according to extensive work done by the Yale economist William Nordhaus. This amount does not include the costs of the administration's vision of spreading democratic and free market institutions in the Gulf region.

The job of economic relief and reconstruction will most likely need to be handled by the United Nations, but substantial American financial support will be essential. Given budget deficits at home, this will be no easy task.

Will this money come from domestic programs or from foreign aid already promised to others? At the least, the Bush administration needs to be working with Congress to incorporate the requirements in planning - something which Mitchell E. Daniels Jr., director of the Office of Management and Budget, has been reluctant to do. One problem is that there is no single agency in Washington capable of overseeing the extensive United Nations efforts that must be mounted. One needs to be created, just as the Economic Cooperation Administration was established in 1948 to oversee the Marshall Plan. Like it or not, we are entering a decade of political and military tension, and nation-building is going to be a major part of America's response. Third, Washington needs to prepare for all-too-possible international economic crises. A major rise in oil prices in reaction to turmoil in Venezuela and Iraq has already begun and could send the global economy into a deep recession. America should be working with the European Union and Japan to release emergency oil reserves if oil prices spiral out of control. It should be encouraging Russia to expand production, too, by promising that it will buy Moscow's supplies well into the future.

Another crisis could involve the dollar, which was down 15 percent against the euro for all of 2002. If the U.S. trade deficit continues to soar and foreigners get nervous, they could dump their dollars.

It would help if Washington could persuade the European Central Bank to lower its interest rates - which it should do anyway to stimulate economic growth - and make the euro less attractive as an alternative to the dollar. Beyond that, Washington, Brussels and Tokyo will have to be prepared to coordinate purchases of the dollar if it goes into free fall.

Latin America could provide the spark for a global financial debacle. After all, Argentina and Venezuela are in deep trouble, and Brazil's economy is fragile at best. In 1997 a currency collapse in Thailand set off a global financial meltdown. Washington and its economic partners had better focus more on what is happening south of the Rio Grande. Finally, the United States will have to give much more attention to helping developing countries, the very nations in which so much of today's turmoil exists, to get a fairer deal from globalization, which has disproportionately benefited rich countries so far.

This means not only negotiating trade agreements but also improving the World Trade Organization's ability to settle trade disputes and to give technical assistance to struggling countries overwhelmed by the blizzard of new trade laws in the last decade.

It also means helping the World Bank and its regional counterparts deal with poverty more effectively, rather than just criticizing their performance, which is what Washington so often does. The Bush administration has never shown much interest in multilateral diplomacy except when other countries press it to the wall, as they have with Iraq. But in the economic realm there is no choice but to seek partners.

In the immediate aftermath of World War II, the United States pushed for the establishment of the IMF and the World Bank, and coordinated the Marshall Plan with European nations. Washington realized that economic stability and prosperity were essential to security. It is true today, too. The writer is dean of the Yale School of Management and author of "The Politics of Fortune: A New Agenda for Business Leaders." He held economic and foreign policy positions in the Nixon, Ford, Carter and Clinton administrations.

www.rapidcityjournal.com By ALEXANDRA OLSON

Soldiers in riot gear blocked the entrance to a park outside a military base Sunday as opponents of President Hugo Chavez prepared to march on the site, where rioting left two dead and dozens injured two weeks ago.

The march is aimed at persuading the military to support a 42-day-old strike that has paralyzed the world's fifth-largest oil exporter but hasn't rattled Chavez's resolve to stay in power.

The military _ purged of dissidents after a brief April coup _ has supported Chavez, with troops seizing oil tankers, commandeering gasoline trucks and locking striking workers out of oil installations. Top commanders have professed their loyalty to the government. Dozens of soldiers used barbed wire and armored personnel carriers to block the entrance to Los Proceres park, outside the Fort Tiuna military base. The park is one of eight security zones in Caracas as decreed by Chavez. Protests are banned in those areas unless authorized by the defense ministry.

A few residents protested the show of force, chanting, "The government will fall!"

"This is totally out of proportion. It's no way to control a march," said Carlos Melo, of the opposition Democratic Coordinator movement. "If the government thinks these trucks and weapons are going to stop us, it won't."

Venezuela's largest labor confederation, business chamber and opposition parties called for the strike on Dec. 2 to demand that Chavez resign and call early elections if he loses a nonbinding referendum on his rule.

The National Elections Council scheduled the referendum for Feb. 2 after accepting an opposition petition signed by 2 million people. Chavez says the vote would be unconstitutional, and his supporters have challenged it in the Supreme Court. He was elected in 1998 and re-elected in 2000, and his term ends in 2007. Opponents accuse the president of running roughshod over democratic institutions and wrecking the economy with leftist policies. The opposition has staged dozens of street marches, called for a tax boycott and held a two-day bank strike last week.

Chavez has threatened to order troops to seize food production plants that are participating in the strike and to fire or jail striking teachers and have soldiers take over their duties.

He already has fired 1,000 oil workers after some 30,000 of 40,000 workers joined the strike, which has caused fuel shortages and slowed oil exports to a trickle.

The strike is costing the country an estimated $70 million a day.

On Jan. 3, Chavez supporters and opponents clashed while police fired tear gas to keep the sides apart during an opposition march on Los Proceres. Two Chavez supporters died after being shot and at least 78 were injured, five with gunshot wounds. It was unclear who fired on marchers.

Police also intervened Saturday when Chavez supporters blocked the route of a planned opposition march through the streets of Maracay, the military's nerve center, and on Margarita island off Venezuela's coast.

The country's crude output is estimated at about 400,000 barrels a day, compared with the pre-strike level of 3 million barrels. Exports are a fifth of the 2.5 million barrels a day the country usually produces.

The country's $100 billion economy shrank an estimated 8 percent in 2002, largely due to constant political instability. Inflation has surpassed 30 percent while unemployment reaches 17 percent. Negotiations sponsored by the Organization of American States have produced few results.

sg.biz.yahoo.com Monday January 13, 6:00 AM By Grainne McCarthy Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Having fallen swiftly on the back of some surprisingly weak U.S. employment data, the dollar is set to remain under pressure this week, increasingly vulnerable to the drumbeat of war surrounding Iraq and nuclear saber-rattling in North Korea.

"People are positioned for Armageddon on the dollar, in that scenario you can get whacky moves," says Paul Podolsky, chief strategist at Fleet Global Markets in Boston.

Investors unsure of the dollar's vulnerability to U.S. economic data got a resounding wake-up call Friday, with the currency tumbling swiftly after the government reported a dismal December payrolls report that fueled concerns about the lingering soft spot dogging the world's largest economy. The dollar hit a fresh three-year trough against the euro, while sliding to its weakest point against the Swiss franc in four years.

Late Friday in New York, the euro was at $1.0574, up steeply from $1.0488 late Thursday. Against the Swiss franc, the dollar was at CHF1.3802, sharply down from CHF1.3909 late, while sterling was at $1.6082, modestly up from $1.6061 late Thursday. The dollar was at Y119.20, modestly lower than Y119.26 late Thursday in New York.

Even as Canada reported another remarkably strong month of employment growth, job losses in the U.S. soared to 101,000, disarmingly far from consensus forecasts for a modest increase of 20,000.

There were clearly some seasonal explanations for the massive leap but the report still further underscored a view that the sluggish U.S. economic recovery isn't creating jobs, potentially boding ill for the dollar at a time when it's already being undermined by war concerns.

"Until Iraq goes away and the outlook for consumer confidence and business spending improves, the dollar is going to remain under pressure," said Jay Bryson, global economist at Wachovia Securities in Charlotte, N.C.

There will certainly be plenty of economic data this week for dollar investors to sink their teeth into, with the focus most likely on somewhat stronger economic activity and benign inflation. Headline retail sales for December - to be reported Tuesday - are expected to come in very firm, mostly thanks to the 18% jump in auto sales already reported. But excluding autos, economists anticipate just a 0.3% increase.

The U.S. will also see December's producer price and consumer price indexes on Wednesday and Thursday respectively, while the focus for Friday will be squarely on the initial University of Michigan consumer sentiment report for January, which should provide a glimpse of how confidence is holding up amid growing war jitters.

But aside from the clear significance of much of this data, many analysts expect the dollar to look more to the Pentagon, State Department and ultimately the White House for signposts for near-term direction.

As the central emblem in financial markets of the world's only superpower, the dollar is beset by multiple threats to global stability that are simultaneously breaking out on several fronts. As well as the situations in North Korea and Iraq, the ongoing battle against terrorist network al-Qaida is high on the list of nightmarish issues facing the Bush administration. The U.S. - given its position of global hegemon - has almost by default become the first line of defense in tackling these challenges.

"Connect the dots and what emerges is hardly encouraging for the dollar in particular and the financial markets in general," said Joseph Quinlan, global economist at Johns Hopkins University in Washington.

He argues that investors in U.S. assets, while certainly cognizant of war risk, may have priced in an overly rosy scenario under which the war on terrorism has already been won, the war against Iraq has already been priced in and a war on the Korean peninsula is too remote a possibility to take seriously.

An upset to this more optimistic picture could weigh much more heavily on global capital flows, ultimately depressing the dollar given the U.S. status as a creditor nation dependent on capital inflows to finance the current account.

Indeed, some analysts believe the dollar's swift reaction to the jobs data raises the question of whether the currency might be headed for a more precipitous slide, which has the potential to ripple more heavily over into other U.S. asset markets, while also raising alarm among policy makers.

"We've had a pretty quick move here and a lot of people are scratching their heads and asking if the speed of adjustments might be more than they've already anticipated," said Marcel Kasumovich, head of G-10 currency strategy at Merrill Lynch in New York. "Especially if you start to see a feedback to interest rates or equity markets, that sends a warning signal to central banks that maybe there's a confidence issue."

For now, that's not happening, but the tenacity of the euro's gains could have clear consequences for U.S. fixed income markets. A stronger euro only enhances the appeal of European sovereign debt, which many global fund managers have been advocating for months as much more appealing than Treasurys, particularly with expectations that the European Central Bank still has some room to lower interest rates.

Already currency analysts are talking about the euro reaching as high as $1.10 this month, a dramatic contrast from just a couple of weeks ago when a survey of major currency dealing banks predicted the euro only scaling those heights at the end of this year.

Elsewhere, the focus this week will once again be on Venezuela, after the bolivar tumbled last week amid some panic buying ahead of a 48-hour bank strike. The currency did rebound on Friday, but remains vulnerable to further instability, with the general strike, which began Dec. 2, lingering.

-By Grainne McCarthy; Dow Jones Newswires; 201 938 2381; grainne.mccarthy@dowjones.com

asia.reuters.com Sun January 12, 2003 05:41 PM ET By Tom Ashby

VIENNA (Reuters) - Embattled Venezuelan officials on Sunday accused striking oil workers of sabotaging the country's energy industry, while assuring fellow OPEC states the government would restore output swiftly.

State oil company chief Ali Rodriguez said he would start criminal prosecutions against workers he said had sabotaged oilfields, refineries and computer systems during the six-week-old strike that has brought the industry to its knees.

"There are criminal and civil cases to answer in this and of course we will apply the law in Venezuela," Rodriguez told a press conference after an OPEC meeting in the Austrian capital.

Striking executives of Petroleos de Venezuela, many of whom have now been sacked by Rodriguez, say incompetence by replacement workers is to blame for a recent spate of accidents, including oil spills in the western Lake Maracaibo.

The Organization of the Petroleum Exporting Countries met on Sunday in emergency session to deal with the Venezuelan stoppage, lifting quotas by 1.5 million barrels a day, seven percent.

In response to Venezuelan assurances that output would resume swiftly, OPEC included the South American country in the production hike despite its current inability to fill its quota.

OPEC President Abdullah al-Attiyah said OPEC was hopeful that Venezuela would return to full production soon and said the other cartel members would reverse the hike when that happened.

OUTPUT SLUMP

Opposition oil executives said output fell below half a million barrels per day last week, from more than three million in November. Government officials peg it closer to a million.

"Internal market distribution is being normalized, we have managed to free up port operations and we have drawn down stocks whose build-up had blocked production," Rodriguez said.

"This has helped a sustained rise in output, so this month we should achieve our objectives."

Oil Minister Rafael Ramirez said oil output should rise to two million barrels per day by the end of January and 2.5 million by mid-February.

Asked if Venezuela would pump its full 2.8 million bpd quota by the end of February, Rodriguez replied: "Not totally because damage has been very great and we don't know if there has been sabotage in some wells, so we have to be very careful."

The government has repeatedly failed to meet previous deadlines for restarting the industry, and still faces a major obstacle from a crashed central computer system. Striking workers say Venezuela will take months to get back to quota. "There has been electronic sabotage and sabotage on valves because the campaign is aimed at causing accidents, and we have to take anti-sabotage measures to start up safely," said Rodriguez, a former OPEC secretary-general.

The United States welcomed OPEC's big output hike, having lost some 13 percent of its imports from Venezuela.

The country's main oil refineries have ground to a virtual halt, export terminals have drastically reduced loadings and long lines have formed at gasoline stations, while Venezuela resorts to importing fuel.

Rodriguez said the small El Palito refinery was now being started again after a seal blew in last week's attempt to restore the flow of refined products to the domestic market. Rodriguez said the country's largest refinery complex at Amuay-Cardon had been shut down incorrectly by striking workers, leaving deposits of asphalt and sulphur in some units.

Nevertheless, he said operations there would resume in two or three weeks.

"Our objective is to re-establish basic production this month and restart the refineries to satisfy the internal market because we are importing gasoline at prices far above what we sell it at, which is creating losses for the company," Rodriguez said.