Reuters, 01.30.03, 10:33 AM ET

NEW YORK, Jan 30 (Reuters) - Merrill Lynch raised Venezuelan sovereign bonds to "market weight" in its model portfolio on Thursday, citing a slow recovery in oil output stifled by a two-month-old general strike and the nation's efforts to preserve cash for debt payments. The investment bank said in a report that Venezuela's bonds have underperformed the market since early December, when foes of President Hugo Chavez began a general strike aimed at forcing the leader to resign or call new elections. The strike has strangled Venezuela's oil production, normally the source of half the government's revenues, and raised concerns about the country's ability to make payments on its debts. The worries have helped sink Venezuela's bonds 3.4 percent so far this year, according to J.P. Morgan's Emerging Market Bond Index Plus. With Chavez using troops and replacement workers in an attempt to break the strike, oil production has crept back up in recent days, bolstering bonds. Merrill also said Venezuela's "consideration" of its external debt payments in its move to capital controls was also a motivation in the rating change to "market weight" from "underweight." Venezuela, grappling with capital flight and a free-falling currency because of the strike uncertainty, shuttered its foreign exchange market last week and is now set to implement a fixed single exchange rate. Finance Minister Tobias Nobrega said the fixed single rate would be adjusted monthly but he has not said the level at which it will be fixed. In spite of the move to market weight, Merrill said it did not expect a sizable rebound in Venezuelan bond prices until oil workers are back at work. "We do not expect, however, a sustainable and significant recovery in Venezuelan debt prices, as the political crisis is to have a damaging effect on the economy, unless (state oil company) PDVSA workers break the strike," the investment bank said.

www.vheadline.com Posted: Thursday, January 30, 2003 - 11:25:28 AM By: VHeadline Reporters

Venezuela's heavily opposition-controlled media chooses to ignore popular support for President Hugo Chavez Frias seen here as he parades through the streets of Caracas to the cheering and applause of thousands of supporters and well-wishers.  Those who have backed the April 12 coup d'etat have put a price on the head of the popular President but as the picture shows, security operations surrounding the President are daringly minimal when compared to the entourage and the massive Secret Service planning that precedes US President George W. Bush's every footstep in his own backyard.

cbs.marketwatch.com

By Myra P. Saefong, CBS.MarketWatch.com Last Update: 11:01 AM ET Jan. 30, 2003

NEW YORK (CBS.MW) -- The prospect of war and falling U.S. supplies of petroleum products kept oil futures solidly above $33 a barrel Thursday. On the New York Mercantile Exchange, the March crude traded at $33.80 a barrel, up 17 cents.

Meanwhile, gold futures held above $367 an ounce with weakness in the U.S. stock market. See Metals Stocks.

The substance and tone of President Bush's State of the Union speech Tuesday night provided support to crude prices, said Michael Cavanaugh, an analyst at Peak Trading Group in Chicago. See speech highlights on CBS News.

The speech "painted a very clear picture to Saddam [Hussein]: Disarm or we are going to do it for you," Cavanaugh said.

But the comments gave the oil market a boost because there was still some uncertainty with the idea of war, he said. "There is no uncertainty anymore."

"As a result, the idea of 'buy the rumor sell the fact,' will weigh heavy selling pressure on the market if no more strong buying comes into the market," he said.

John Person, head financial analyst at Infinity Brokerage Services, disagreed.

Reports indicate that 11 out of 15 U.N. Security Council members are in support of giving more time to the U.N. weapons inspectors, he said.

This could actually indicate that there will not be a "quick resolution" to the Iraq crisis and "keeps the doubt of uninterrupted oil supplies from the Middle East to the U.S. alive in investors minds," he said.

Tightening oil products

Inventory data for crude products, which fell much more than expected, further fueled concerns over supplies.

Distillate inventories declined by 6.8 million to 122.4 million barrels during the week ended Jan. 24, the Energy Department reported Wednesday. The American Petroleum Institute said supplies fell by 7.5 million to 123.1 million barrels.

Fimat USA was looking for a fall of 5 million barrels for distillates and a rise of 1 million barrels for gasoline.

In recent dealings, February unleaded gasoline rose by 2.37 cents to 99.5 cents a gallon and February heating oil traded at 98 cents a gallon, up 0.87 cents. Both petroleum product futures climbed more than 4 percent Wednesday.

"The reality that there is an increase in consumption of by-product without the replacement of raw product had caught traders by surprise," said Person.

"Crude oil inventories are now forecasted to decline next week because of this," he said.

Crude inventories were little changed in the latest week.

Inventories fell by 500,000 barrels, the Energy Department said, but the API posted a 232,000 barrel rise. Total crude inventories stand at 273 million barrels, according to both groups.

Analysts at Fimat expected a decline of 4 million barrels in crude inventories.

Crude inventories are about 45 million barrels below their year-ago level and just above the minimum operational inventory level of 270 million barrels.

Still, Venezuela's production has been slowly climbing, with both President Hugo Chavez and striking oil workers confirming that output has climbed back above 1 million barrels per day, about one-third of normal production.

Natural gas inches up

In other energy news, March natural gas traded higher by 4.1 cents at $5.76 per million British thermal units after a weekly U.S. report revealed a bigger-than-expected decline in last week's supplies.

Natural-gas inventories fell by 247 billion cubic feet to total 1.729 trillion cubic feet in the week ended Jan. 24, the Energy Department said early Wednesday. Fimat forecast a drop of 210 billion cubic feet.

Total stocks are now 681 billion cubic feet less than last year at this time and 190 billion cubic feet below the five-year average, the report said.

Over in the equities arena, most oil service stocks traded higher. The Oil Service Index ($OSX: news, chart, profile) traded up 2.4 percent.

The Reuters/CRB Index, a broad-based measure of the commodity futures market, traded at 246.7, up 0.3 percent amid strength in crude, natural gas and gold futures. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.

www.nzherald.co.nz 31.01.2003

CARACAS - Venezuelan private banks have decided to restore normal working hours, delivering a fresh blow to a faltering eight-week-old opposition strike against leftist President Hugo Chavez.

But the striking oil workers at the heart of the opposition campaign stayed firm in their shutdown, which has battered Venezuela's fragile economy and rattled energy markets by slashing crude output in the world's No 5 petroleum exporter.

Commercial banks, which make up nearly 90 per cent of the Venezuelan financial sector, had been operating for limited daily hours and restricting transactions since last month in support of the strike to push Chavez from office.

"This is a result of demands from the public and deposit-holders ... banks don't belong to their presidents," federal banking group president Nelson Mezerhane said after banking associations decided to restore normal hours.

Chavez, a populist former paratrooper, had threatened to seize striking banks, schools and factories to break the strike.

As the shutdown nears the two-month mark, backing for the protest in non-oil sectors has begun to fray as private businesses and stores reopen to fend off bankruptcy.

Opposition leaders, who brand Chavez's rule as dictatorial, inept and corrupt, offered to ease their strike by exempting food production and education.

But they have vowed to stay out until Chavez accepts elections. The President, whose term ends in 2007, has so far shown no signs of accepting their proposals for an early vote.

But economic pressure is building on the Government.

With the strike disrupting oil exports that account for half of its revenues, it plans to slash its budget and has suspended foreign currency trading while it prepares a fixed exchange rate to protect its reserves.

Battered by economic uncertainty, the currency has plummeted more than 24 per cent. Venezuela's international reserves have dipped more than 7 per cent, to $11.05 billion, since the start of the year.

Chavez, who was elected in 1998 and survived a coup last year, has dismissed calls for him to resign.

Though his popularity has fallen sharply this year, he maintains a solid base of support among poorer voters, who believe his left-wing reforms are the key to a better life.

He has fought back against the strikers by firing oil workers and deploying troops and replacement crews to oil installations.

But attempts to restart the industry have had limited success. Crude production stands at about one third of the 3.1 million barrels a day the Opec member produced in

www.upi.com From the Business & Economics Desk Published 1/30/2003 11:12 AM View printer-friendly version

NEW YORK, Jan. 30 (UPI) -- Here is a look at more of Thursday's top business stories:

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Boeing earnings fall before charges

CHICAGO, Jan. 30 (UPI) -- Boeing Co., the world's largest aircraft maker, said its fourth-quarter net income surged to $590 million, or 73 cents a diluted share, from $100 million, or 12 cents a share during the same period a year earlier.

Excluding Sept. 11-related charges of $622 million in the 2001 fourth quarter, and current charges, Boeing said its net income fell in the latest quarter to $571 million, or 71 cents a share, from an operating profit of $722 million, or 90 cents a share a year earlier.

Analysts on Wall Street had expected Boeing to post a net income of 71 cents a share before special items, according to Thomson First Call.

Revenue declined to $13.7 billion from $15.7 billion during the fourth quarter of 2001.

Phil Condit, chairman and chief executive officer, said, "In 2002 several of our businesses successfully confronted the severe downturn in commercial aviation, while our Integrated Defense Systems business established itself as a market leader in integrated battlespace solutions and homeland security."

Boeing said its operating earnings were down as a result of decreased commercial airplane deliveries, increased customer financing charges and higher commercial satellite production costs.

The company said its Commercial Airplanes division during 2002 moved aggressively to resize operations and remain profitable. Since September 2001 employment has been reduced by approximately 30,000 people (including Shared Services personnel) and airplane production rates cut in half.

Boeing noted Commercial Airplanes profitably managed through the unprecedented disruption in commercial aviation markets that followed the events of Sept. 11.

In 2002, annual deliveries of commercial airplanes decreased 28 percent and revenues fell 19 percent. The impact of reduced revenues was significantly offset by strong operating performance. Segment, or unit cost, operating margins for the year excluding non-recurring items were 10 percent, just below the 10.1 percent achieved in 2001.

On a program accounting basis, Commercial Airplanes' operating earnings totaled $2 billion, resulting in a 7.1 percent margin in 2002.

This compares to earnings of $1.9 billion in 2001, which include $908 million of non-recurring charges related to the events of Sept. 11. When these charges are added back, Commercial Airplanes earnings calculated on a program accounting basis in 2001 totaled $2.8 billion, resulting in an 8 percent margin.

Fourth quarter deliveries of commercial airplanes decreased 40 percent and revenues fell 32 percent.

Boeing said Commercial Airplanes received 67 gross orders during the quarter and 251 for the year from a broad cross-section of customers. Contractual backlog at quarter-end totaled $68.2 billion compared with $75.9 billion at the end of 2001.

Looking ahead, Boeing also projected it would earn $1.90 to $2.10 a share for the full year 2003 and $2.10 to $2.30 a share in 2004.

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Earnings rise at Exxon Mobil

IRVING, Texas, Jan. 30 (UPI) -- Exxon Mobil Corp., the world's largest publicly traded oil company, said its fourth-quarter net income was lifted by sharply higher oil and gas prices.

The oil giant reported its fourth-quarter net income climbed to $4.09 billion, or 60 cents a share, from $2.68 billion, or 39 cents a share during the same period a year ago.

Excluding special items, the Exxon Mobil reported earnings per share of 56 cents. Analysts on Wall Street had expected the company to post a net income of 50 cents a share, according to Thomson First Call.

Revenue jumped to $56.2 billion from $47.7 billion a year ago.

Exxon Mobil said its upstream exploration and production results rose to $3 billion, up $1.27 billion from a year-ago, helped by crude oil prices that rallied more than 40 percent in the last three months of 2002 from the year before.

The increase in crude prices was driven by fears of a potential war in Iraq, a strike in Venezuela -- the world's fifth-largest exporter of oil -- and increasing U.S. demand for petroleum products during a frigid winter.

Downstream, or refining and marketing, earnings fell to $821 million, down $198 million from the year before, reflecting weaker industrywide conditions. Refiners struggled through last year as high inventories of refined products such as jet fuel and gasoline hurt refining margins.

The company, which is a component of the Dow Jones industrial average, said capital spending rose to $4.03 billion in the fourth quarter from $3.86 billion a year earlier.

On an oil-equivalent basis, production increased 1 percent excluding the effect of OPEC quota restrictions. Liquids production, excluding the effect of OPEC quota restrictions, remained flat during the quarter as new production in Canada, Angola and Equatorial Guinea was offset by natural field decline.

Exxon said natural gas volumes rose 3 percent in the quarter in light of higher European demand and the return to full production levels at Arun in Indonesia.

Chairman Lee R. Raymond said, "ExxonMobil's fourth quarter 2002 net income of $4.09 billion was up $1.45 billion or 55 percent from third quarter 2002 and represents the corporation's highest net income since the second quarter of 2001."

The company said its chemicals earnings fell by $277 million compared with the third quarter due to weaker worldwide margins.

"Corporate and financing expenses of $109 million increased $68 million mainly due to the absence of favorable foreign exchange impacts," Raymond said.