www.nzherald.co.nz 24.01.2003 9.04 am

LONDON - World oil prices slipped on Thursday after a surprise build in US crude stocks but growing worries over a possible US-led war on Iraq kept prices firm.

International benchmark Brent crude futures lost 48 cents to US$29.86 a barrel while US light crude was off 75 cents at US$32.10.

Brent, which fell on the unexpected crude stock build, suffered further losses after dropping below the psychologically important US$30 level, dealers said.

The increase in stocks defied forecasts of another draw as Venezuela was mired in a long strike that has crippled production in the country, a key supplier to the United States.

The US Energy Information Administration (EIA), said US crude stocks rose 1.5 million barrels last week to 273.8 million barrels while industry group American Petroleum Institute (API) said stocks climbed 181,000 barrels .

Oil markets are fixated on Baghdad and awaiting chief UN weapons inspector Hans Blix's report on Iraq to the Security Council, due on January 27.

US President George W. Bush has turned up the rhetoric on Iraq to disarm but Washington is looking increasingly isolated in its tough stance as key powers China and Russia joined US allies France and Germany in rejecting military action.

Fears of war in Iraq combined with troubles in Venezuela have helped push world crude prices to new two-year highs.

"The price is above US$30 a barrel and it is still high. We appeal to Opec countries to lift production and to supply more to the market," Purnomo Yusgiantoro, mines and energy minister of Indonesia, Opec's only Asian member, told reporters on Thursday.

Saudi Arabia's assurances that it was willing to seek another boost in Opec oil production in the coming weeks if needed to tame prices failed to cool the market.

"Our government is ready to do more in the next two or three weeks if we see the price is not stabilising and going down below US$28," Saudi Ambassador to Washington Prince Bandar Bin Sultan told a meeting of the US Conference of Mayors.

"When our American friends catch cold, we catch pneumonia in our part of the world, so to help your economy is paramount to us," he said.

Traders said the market did not pay too much attention to the ambassador's comment because the Organisation of the Petroleum Exporting Countries has limited spare output capacity.

"How much more can the Saudis produce?," asked Nauman Barakat, a broker at Fimat International Banque in London.

Saudi Arabia, accused by some US politicians of not doing enough to fight terrorism, is trying to please its key ally and oil customer Washington by offering to lower crude prices, analysts say.

An Opec official at the group's Vienna headquarters played down the Saudi comment, saying it did not reflect the producer group's position.

Opec two weeks ago agreed to raise output by 1.5 million barrels a day (bpd) to contain oil price rises driven by a strike in Venezuela and fears of war in Iraq.

Saudi Arabia's new Opec quota from February was set at 7.963 million bpd, but it is expected to be pumping between 8.5-9.0 million bpd in the next few weeks, industry sources said.

Saudi Oil Minister Ali al-Naimi has made clear that the kingdom, the world's biggest oil exporter, is capable if necessary of ramping up flows to 10 million bpd within weeks.

The United Arab Emirates is the only other Opec country that has any significant spare capacity.

Limited idle capacity comes at a difficult time. The cartel is under growing pressure to manage prices while turmoil continues in Venezuela, the world's fifth biggest exporter.

Striking oil workers said on Wednesday that Venezuelan crude oil output rose 40,000 bpd to 714,000 bpd despite the strike. But this is well below the three million bpd the country normally produces.

news.ft.com By Andy Webb-Vidal in Caracas Published: January 23 2003 19:28 | Last Updated: January 24 2003 1:09

Top diplomats from six countries are due to meet in Washington on Friday to search for a solution to Venezuela's escalating political and economic crisis.

Colin Powell, US secretary of state, is to meet foreign ministers and representatives of Brazil, Chile, Mexico, Portugal and Spain - members of the so-called "group of friends" of Venezuela.

The meeting follows the failure of a two-month mission by the Organisation of American States to broker a settlement between Hugo Chávez, Venezuela's president, and opposition groups.

Meanwhile, oil exports from what was previously the world's fifth-largest exporter have collapsed to about 10 per cent of previous levels as a result of the strike by oil employees.

Analysts say the crippling and costly stoppage, which has sent crude prices to a two-year high, will leave Venezuela struggling to produce half of its former capacity of 3m b/d until at least several months after the strike is over.

Concerns are also growing that the highly polarised crisis threatens to evolve into civil war if unresolved. A suspected bomb exploded on Thursday near a pro-government rally, killing one person and injuring 12.

"It really is a race against time for the international community to put something on the table and get both sides to agree to avoid a bloodbath," said Miguel Diaz, director of the South America Project at the Center for Strategic and International Studies.

Two proposals were floated this week by Jimmy Carter, former US president, who said an amendment to the constitution that cuts Mr Chávez's mandate from six years to four - ending it this year - could pave the way for early elections. Alternatively, both sides could agree to fix a date in August for a recall referendum on Mr Chávez's rule.

But opposition groups, led by business leaders and union bosses, suspect Mr Chávez will renege on any agreement and are loath to lift the strike, even as it weakens.

Mr Chávez, wary about the inclusion of the US in the "group of friends", warned against the group taking a stance that impinges on Venezuela's "sovereignty".

Diplomats in Caracas said the wording suggested Mr Chávez was ready to risk diplomatic isolation to stay in power, despite opinion polls indicating that as many as 70 per cent want him to step down.

Foreign businesses operating in Venezuela are, meanwhile, becoming concerned over what looks set to be the imposition of foreign exchange controls, as the government appears unready to establish a new currency trading system.

Mr Chávez said exchange controls would replace the central bank's dollar auction system, which was suspended on Wednesday after a 31 per cent slide this year in the domestic currency, the bolívar, and the depletion of foreign reserves.

A central bank source said a new system had yet to be designed and the bank would only act as "cashier", rather than operator.

Economists expect exchange controls to include a preferential dollar rate for key imports, while the authorities turn a blind eye to a parallel market in which the dollar is likely to trade at a premium of anywhere between 20 and 40 per cent.

Bankers said the dollar was on Thursday being offered at about 2,300 bolívars, a 25 per cent premium to Wednesday's close, despite currency trading officially being suspended.

The replacement system will be revealed next week, but businesses are concerned over a range of effects.

"The three principal concerns of the private sector are transparency, flexibility and the possible use of exchange controls as a political weapon," said Antonio Herrera, vice-president of the Venezuelan-American Chamber of Commerce.

"Without having a definite formula in place, you can create an atmosphere of intense speculation and a panic situation in the next few days."

At least in the short term, the impact of exchange controls is more of a concern to domestic businesses than to portfolio investors on Wall Street.

Unlike the impact of the collapse of Argentina's convertibility system in 2001, Venezuela's foreign debt accounts for only 1 or 2 per cent of emerging market debt portfolios.

The prospect of exchange controls is a signal that, for now, the Venezuelan government is intent on avoiding default on its $22bn of external debt.

www.alertnet.org 23 Jan 2003 19:12

CARACAS, Venezuela, Jan 23 (Reuters) - Crude oil output in strike-hit Venezuela rose by 98,000 barrels per day (bpd) on Thursday to 812,000 bpd, or 25 percent of capacity, striking oil workers said.

The government, which is battling to break the seven-week-old opposition-led strike by using replacement workers, says oil production has already surpassed 1 million bpd.

The opposition figures said most of the gains were in the east of the country, where flows reached 498,000 bpd, while western fields' output dipped slightly to 222,000 bpd. Output from the smaller fields in the south reached 92,000 bpd, the opposition said.

Before the strike, aimed at forcing President Hugo Chavez from office, Venezuela pumped 3.1 million bpd of crude oil.

news.ft.com By Raymond Colitt Published: January 23 2003 19:02 | Last Updated: January 23 2003 19:02

When Luiz Inácio Lula da Silva arrives in southern Brazil's balmy Porto Alegre on Friday to address the World Social Forum he will have two speeches - and a set of winter clothes - but a single policy agenda in his bags.

Following what promises to be a heated anti-globalisation gathering, Mr Lula da Silva will be off to the the Swiss Alps to address the global economic policymakers who are the focus of rage at the "anti- Davos" in Brazil.

The unprecedented move is indicative of how Mr Lula da Silva has been straddling two opposite worlds of economic and political thought since elected president of Latin America's largest country three months ago.

At home he is seeking to balance demands for radical social change with economic austerity - for example, by pursuing fiscal discipline but trying to improve the efficiency of social spending.

Mr Lula da Silva's government has so far defied the traditional labels of Latin America regimes. "It is a type of neo-socialism anchored in economic orthodoxy," says Carlos Langoni, head of the Rio de Janeiro-based centre of global economy at the FGV, a think-tank and business school.

Mr Lula da Silva's first foreign policy initiatives have mirrored this dichotomy, pursuing a more assertive defence of trade interests and regional leadership but seeking to maintain good relations with Washington and multilateral agencies.

He has been sympathetic to Hugo Chávez, Venezuela's embattled president, and has sent fuel to ease the effect of the ongoing oil strike designed to force Mr Chávez out of office. Yet he denied Mr Chávez's request to exclude the US or include more pro-Chávez countries in the "group of friends" that hopes to promote negotiations for a peaceful solution to Venezuela's crisis.

Mr Lula da Silva talks tough on trade, is friendly with Fidel Castro and eager to rebuild Mercosur, the South American trade bloc, but is ready to negotiate on free trade with US, Europe and within the World Trade Organisation.

Those gathered in Porto Alegre and Davos have big expectations of Mr Lula da Silva. To many in southern Brazil's port city, the former union leader embodies their struggle for a more just world economic order. In Davos, international investors encouraged by early signs of economic orthodoxy remain cautious and will want to see more action to follow good intentions.

Mr Lula da Silva will have treats for both audiences. Pledges of property titles for shanty dwellers and food for the poor will be music to the ears of peasant and homeless movements, including France's José Bové and the MST, the Brazilian landless movement that is one of Mr Lula da Silva's more radical sources of support.

In Davos, Mr Lula da Silva and his economic team will be talking up their plans, which include far-reaching reforms to make Brazil more efficient and business more competitive. Antonio Palocci, finance minister, will be taking the message to bankers, investors, and Anne Krueger of the International Monetary Fund.

But Mr Lula da Silva's two-pronged approach will certainly disappoint hardliners on either side of the Atlantic. "We would prefer he didn't go to Davos," says Atila Roque, one of the organisers of the event. "Lula is more important than Davos, he's a leader who embodies many of the core values of the forum."

Colleagues in his leftwing Workers' party (PT) reverted to class struggle rhetoric to defend the president's rapprochement with the bourgeoisie. "Lenin said that the proletariat should not refuse any audience to expose its ideas," said Marta Suplicy, São Paulo's PT mayor.

In Davos Mr Lula da Silva will talk not only business but also inequality. Pharmaceutical companies can expect his government to relaunch Brazil's fight for more flexible drug patent laws to benefit the world's developing countries.

Mr Lula da Silva will also expound his ideas on a new social contract between capital and labour. "Lula is the spokesperson of inequality," said Luiz Furlan, trade minister and the principal proponent of the president's visit to Davos. "His legitimacy comes from his [impoverished] origin and not the office he holds."

Mr Lula da Silva "will defend his own particular, pragmatic line of government," says Antônio Corrêa de Lacerda, who heads the society for the study of multinational companies. "His presence in both forums signals the willingness for dialogue. This is one of the president's strong points."

His government opens "a promising political alternative in a subcontinent frustrated that democracy and a decade of economic liberalisation have not brought more prosperity and social justice," Javier Solana, the European Union's foreign policy chief, argued recently. "If Lula succeeds . . . he will forge a new model for the

reuters.com Thu January 23, 2003 01:41 PM ET By Pascal Fletcher

CARACAS, Venezuela (Reuters) - Several hundred thousand supporters of Venezuelan President Hugo Chavez rallied in Caracas on Thursday to back the defiant leftist leader who is resisting an opposition strike battering the economy.

To the sound of throbbing drums and trilling whistles, followers of the populist president marched from the east and the west of the capital to converge on a downtown avenue. The government brought many of them by bus from other cities.

Chavez called the rally to protest the opposition strike, which has ground on for more than seven weeks, slashing oil output by the world's No. 5 petroleum exporter.

Chanting "Hey, hey, Chavez is here to stay," the marchers, many waving pro-government banners, noisily rejected opposition calls for the president to resign and hold early elections.

Several carried Cuban flags and portraits of the guerrilla legend Ernesto "Che" Guevara, reflecting the left-wing ideology that permeates the president's self-styled "revolution."

The nation is tensely divided over Chavez's rule. While foes accuse him of dragging Venezuela toward Cuba-style communism, his backers hail him as a champion of the poor.

"We have to support our president," said Chavez supporter Atilio Mata, a 50-year-old grocer wearing a red beret, a symbol of Chavez's movement.

The 53-day-old opposition shutdown has choked off the government's oil income, triggering a fiscal crisis and forcing the government to temporarily suspend foreign currency trading and slash budget spending for 2003. The Central Bank is preparing foreign exchange controls to stem a sharp slide in the bolivar currency and falling international reserves.

Supplies of gasoline and some food items have been disrupted, causing anger and frustration among the population.

The cut in oil exports has helped push up the price on international markets at a time when it is already high because of fears of a possible war in Iraq, another major producer.

Thursday's rally rekindled fears of violence. At least six people have been killed in clashes between rival protesters since the strike began Dec. 2. To avoid confrontation, opposition supporters stayed at home Thursday.

IS CHAVEZ WINNING? Chavez, who was elected in 1998 and survived a short-lived coup last year, has vowed to beat the strike, condemning his striking foes as "terrorists" attempting to topple him. "Bit by bit, we're defeating the chaos," he said late Wednesday.

The combative former paratrooper has proved many pundits wrong by holding out against the crippling strike for so long.

"I think he's winning this round ... his strategy is to wear down the opposition and wait. It's a war of attrition he thinks he can win," Michael Gavin, Head of Latin American Economic Research for UBS Warburg, told Reuters.

The president, who appears to have the backing of the armed forces, has sent troops to take over strike-hit oil installations and raid food plants the government alleges are hoarding products. One of the plants raided last week was a local bottling affiliate of Coca-Cola Co. .

Thursday's pro-Chavez marchers carried a huge model of a Coca-Cola bottle painted with the words" "Don't drink it!."

Gavin predicted Chavez could hold out against the opposition onslaught in the short term but the pressure for elections was building. "Chavez will have to choose between remaining democratic and staying in office," Gavin said.

Opposition hopes of testing Chavez in a national vote next month were dashed Wednesday when the Supreme Court suspended a nonbinding referendum on his rule planned for Feb 2.

Opposition leaders accused the tribunal of bias. They said the ruling showed how the president had taken over the nation's democratic institutions and was ruling like a dictator.

Government supporters Thursday tore down an opposition billboard supporting the suspended Feb. 2 referendum.

Chavez tells foes they should wait until Aug. 19, halfway through his term, when the constitution allows for a binding referendum on his rule, which is due to end in early 2007.

Oil production has been creeping back up in recent weeks as the government struggles to restart oil fields and refineries. It says that output is now running at more than 1 million barrels a day, around a third of pre-strike levels But strike leaders say production is still around one fifth of normal.

The United States, alarmed by the cutoff of more than 13 percent of its oil imports because of the Venezuela crisis, is part of a six-nation "group of friends" which will meet in Washington Friday to discuss ways of solving the conflict.

In a broadcast late Wednesday, Chavez voiced reservations about the "friends" group -- which also includes Brazil, Mexico, Chile, Spain and Portugal. He insisted it should be expanded to include nations like China, Russia and France. (Additional reporting by Fabian Cambero)