www.iht.com Tony Smith NYT Saturday, February 22, 2003   SAO PAULO With crude oil prices edging toward $40 a barrel and a shortfall looming in world production, the two main producers in South America - Petrobras of Brazil and the Spanish-owned Repsol YPF of Argentina - might be forgiven for spotting a silver lining among the clouds of war gathering over Iraq. Remote from the potential combat zone and convenient to the United States, both companies could find ready buyers for stepped-up oil exports and give the economies of their home countries a welcome injection of fresh petrodollars. But in fact, analysts say, neither company can expect to reap a windfall, because of economic volatility, changing government regulations and growing political pressure to keep a lid on fuel prices at home. Energy analysts say a war in Iraq and the continuing instability in Venezuela could combine to depress world daily oil production by 3.5 million barrels, to about 73 million barrels. Most members of the Organization of Petroleum Exporting Countries are already pumping oil at near-capacity rates, so the shortfall would have to be made up by non-OPEC suppliers. Increased output in Russia and Norway would probably fill part of the gap; the remainder is where the opportunity lies for Latin American producers, principally Mexico, Brazil and Argentina. "Anyone who is producing will benefit from higher prices," said George Beranek, an analyst at PFC Energy in Washington. "Petrobras and YPF will also benefit, provided they can get the world price." But that last proviso is crucial. With the advent Jan. 1 of a left-leaning government in Brazil, Petroleo Brasileiro SA, as Petrobras is formally known, appears likely to lose some of the autonomy it has won over the past decade, especially regarding prices. The Brazilian state owns 56 percent of the voting shares in Petrobras and names its top management. President Luiz Inacio da Silva has made two political appointments that will effectively tame Petrobras. A little-known senator, Jose Eduardo Dutra, will take over the company's presidency from the respected, market-friendly Francisco Gros, and Sergio Gabrielli, an academic economist with little commercial experience, will become chief financial officer. Petrobras's refinery prices for fuel are now 23 percent lower than those in the United States, a situation that the company cannot maintain indefinitely. To run its refineries efficiently, it must import some lighter oil to mix with its own heavy crude and pay the going world rate for the imports. Gabrielli said Thursday that Petrobras would "alter prices as soon as possible," but that a recent surge in inflation might prevent the government from allowing any price increases for a while. Despite its dependence on imports of light crude oil, Petrobras, the largest industrial company in Brazil, has grown rapidly to become an aggressive player in global markets. Last year it was Brazil's top exporter, with much of its success coming in refined products rather than crude. In January, it doubled its exports of gasoline, mainly to the United States, after supplies from Venezuela all but ceased because of a nationwide strike against President Hugo Chavez. Petrobras is producing more oil than ever - 1.62 million barrels a day early this month. According to Fabiana Fantoni, an oil analyst at the Sao Paulo-based consultancy Tendencias, it has room to expand its exports of 235,000 barrels a day by about 8 percent. Doing so might bring in $500,000 a day in extra profit, Fantoni estimated - "not an extraordinary increase, but it would certainly be good for Brazil's trade balance." Still, she said, "Petrobras could increase its profit greatly if it kept its pricing at international levels." Though it stepped up production last year, Petrobras posted an 18 percent drop in net profit to $2.25 billion for 2002. After years of trade deficits, Brazil recorded a $13.2 billion surplus last year, offsetting a slide in foreign direct investment, which had financed past deficits. At the moment, though, tackling inflation seems to be the government's prime concern. The central bank has raised interest rates twice this year, despite da Silva's campaign pledges of easier credit. Unlike Brazil, Argentina is a net oil exporter. But it is still gingerly recovering from a four-year economic slump that broke the Argentine peso loose from its dollar-pegged moorings and upended the country's politics. And like his Brazilian counterpart, President Eduardo Duhalde has pressed his country's oil companies to limit their exports and hold the line on domestic prices to nurture the fragile domestic market. So Repsol YPF "can only export a certain part of its production," said Ian Reid, oil analyst at UBS Warburg in London, "and there's a question mark over whether it can pass on price hikes to consumers." And what oil it can ship abroad does not earn the company as much as it might. There is a 20 percent tax on exports, and government regulations say that at least 30 percent of export revenue must be brought back to Argentina to be spent or invested. At one point, the central bank thought the figure should be 100 percent. According to an official at another oil company in Buenos Aires, there is widespread concern in the industry that the economy minister, Roberto Lavagna, wants to increase the export tax rate now that world crude prices are above $35 a barrel. In January, Argentine oil companies reached an agreement with the government to freeze prices for three months and to supply crude to Argentine refineries at $28.50 a barrel, well below the current world price. Repsol YPF has been leading the oil sector's negotiations with the government.

www.iht.com NYT NYT Saturday, February 22, 2003   Americans have a twofold interest in Venezuela's resolution of its current political problems peacefully and constitutionally. The country sits atop the largest petroleum fields outside the Middle East, with most of its oil exports going to the United States. A nationwide strike has sharply lowered those exports in recent months. Venezuela may also be the most fragile of Latin America's growing number of troubled democracies. A turn toward authoritarianism of the left or right could have damaging ripple effects across the region. Regrettably, President Hugo Chávez, instead of working to heal his badly divided country, seems determined to provoke new and dangerous tensions. Less than two days after government and opposition representatives promised to step back from their confrontation, two of the country's most visible opposition leaders face charges of rebellion, sabotage and a series of other crimes growing out of their leadership of a now faltering national strike. Carlos Fernández, who leads Venezuela's most important business federation, was arrested early Thursday. Carlos Ortega, the head of the country's main union alliance, has gone into hiding. The vindictive charges against them could undo the modest progress recently made toward a peaceful, constitutional resolution of Venezuela's long-running political crisis. The strike led by Fernández and Ortega aimed at forcing Chávez from power. The right way to determine Venezuela's political future is through democratic elections. The constitution devised by Chávez permits a recall vote this August. Between now and then, all sides should work to calm the inflamed political atmosphere. That seemed possible as recently as Tuesday, when government and opposition representatives issued a joint declaration pledging efforts to promote reconciliation and mutual understanding. Then came the two arrest orders. Chávez's opponents were already alarmed by the kidnapping and murder of four anti-Chávez demonstrators, whose bodies were found earlier this week. Police investigators now suggest that the killings were not politically motivated, but the victims' relatives disagree. It's easy to see why. This month Chávez proclaimed 2003 the "year of the revolutionary offensive." He vowed to take retribution against his many enemies, especially the strike leaders. Days later, he introduced currency controls, and ominously warned that they could be used as a financial weapon against opposition businessmen. The state oil company has permanently dismissed thousands of striking workers. These steps threaten to overwhelm the compromise proposals put forth by former President Jimmy Carter after a mediation mission last month. His ideas drew positive responses from both sides and encouragement from Washington. The centerpiece of the package was a recall vote or new elections after August. Preliminary steps called for the opposition to end its strike and for the government to refrain from reprisals. That remains good advice. Unfortunately, Chávez, having all but vanquished the strike, no longer seems to be listening.

reuters.com Fri February 21, 2003 06:19 PM ET By Patrick Markey

CARACAS, Venezuela (Reuters) - Venezuela's President Hugo Chavez on Friday railed against international criticism over the arrest of one of his opponents who was detained for leading a strike against the leftist leader.

A squadron of plainclothes police on Friday hustled a grim-faced Carlos Fernandez into the attorney general's office, where he faces civil rebellion and treason charges for spearheading the two-month strike that battered the economy of the world's No. 5 oil exporter.

His arrest late Wednesday at gunpoint drew fire from international organizations and the United States, which said it feared the move would undermine negotiations to end the bitter political feud over the president's rule.

"We are nobody's colony," Chavez roared at a crowd of supporters in western Trujillo state. "We have our own institutions, our own constitution ... and we will not accept meddling in Venezuela's domestic affairs."

DISIP state security police on Friday were still holding Fernandez, a silver-haired trucking executive who leads the Fedecamaras business chamber. He was not formally charged.

Armed officers snatched Fernandez from outside a Caracas restaurant around midnight Wednesday after a judge ordered him and another strike leader, union boss Carlos Ortega, arrested. Ortega, a fierce Chavez critic, has gone into hiding.

Opponents of the populist president, who they accuse of trampling over democracy, have slammed the arrest as illegal and urged the international community to prevent what they fear will descend into a political witch hunt.

They say the judge's decision was politically motivated although the attorney general, a staunch Chavez ally, rejected their claims. The president has repeatedly demanded judges jail his critics.

"Carlos Fernandez is a political prisoner," said Fedecamaras vice president Albis Munoz.

OPPOSITION FEARS OF CRACKDOWN

His arrest, coming shortly after the murky deaths of three dissident soldiers and an anti-Chavez protester, stoked opposition fears of a government crackdown. Police say the four deaths are likely linked to a grudge though relatives blame political persecution.

Amnesty International on Friday joined a chorus of concern in expressing worry for Venezuela's human rights situation and calling for an independent investigation into the killings.

"The judiciary has a key role in preventing these events from triggering an escalation of the human rights crisis," the group said in a statement.

Chavez, who dismisses his critics as "terrorists" and "fascists," has hardened his position against his foes after their strike failed to topple his self-styled revolutionary government. He calls 2003 the "year of the offensive."

The Venezuelan leader, who was elected in 1998 and survived a coup in April, has vowed to defeat opponents he says tried to sabotage the oil industry. The strike briefly choked off oil exports that account for half of the state's revenues.

But opposition leaders say they seek only to press Chavez into elections. Three months of negotiations chaired by the Organization of American States have made little headway. Chavez has so far resisted opposition demands that he accept an early vote to defuse the nation's crisis.

(Additional reporting by Silene Ramirez)

www.kansascity.com Posted on Fri, Feb. 21, 2003 REBECCA GOMEZ Associated Press

NEW YORK - A massive explosion at an ExxonMobil Corp. oil storage facility sent shock waves through an energy market already roiled by fears of war, pushing crude oil prices up more than a dollar in trading Friday. Heating oil and gasoline futures also surged.

The explosion occurred midmorning when a barge stocked with 100,000 barrels of unleaded gasoline was being unloaded at the Port Mobil terminal, a storage facility that holds 2 million barrels of oil products, on the tip of Staten Island. The cause was under investigation.

Prices eased somewhat after analysts and traders realized the loss of gas supplies on the barge and thousands of barrels of heating oil at the terminal in Staten Island would pose only a short-term problem for the Northeast.

"This is two million barrels and that's an important size for Staten Island and the region," said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York. "Heating oil is extremely tight right now in the East. We can't be losing this quantity at this time."

Even though the barge was carrying gas only, the fire damage makes it nearly impossible to retrieve the heating oil from the facility, hurting regional supplies.

"It could have an effect for a couple of weeks, a little more tightness in heating oil," said Tom Kloza, chief oil analyst with the oil price information service. "Much more significant is whether it's cold in the Northeast in the next few weeks."

The national oil market is not likely to suffer as a result of the fire, analysts said.

Still, crude oil for April delivery rose $1.15 to $35.95 a barrel on the New York Mercantile Exchange, after news reports of the fire. It finished the day at $35.58 a barrel, up 84 cents for the day. Earlier, in London trading, Brent crude from the North Sea finished at $32.27, up 71 cents.

The fire broke out as U.S. crude supplies are already at their lowest level since 1975 and crude, gasoline and heating oil inventories are all below what the industry considers essential for smooth operation, the government reported last week.

The United States has not been getting the massive supplies of imported crude oil from Venezuela because of political turmoil and a nationwide strike there that began in December.

Prices also have been sensitive to worries about a war with Iraq and Middle East oil supplies.

As a result, analysts said, any news about the oil markets will cause rumbles, regardless of the long-term impact.

"There's this heightened effect on the market," Silliere said. "Everybody is ready to jump on the latest news.

Elsewhere on the Nymex, March heating oil contract rose 4.98 cents, or 5 percent, to $1.10 a gallon, while the March unleaded gasoline gained 4.7 cents, or about 5 percent, to trade at $1.01 a gallon. Natural gas for March delivery surged nearly 7 percent, or 44.4 cents, to $6.606 per 1,000 cubic feet.

"The market shot up when they thought it was a refinery fire and perhaps there was some other concerns that it could have been terrorist related," said Kloza.

A fire at an oil refinery, rather than a storage facility, would have had a far greater impact, analysts said. Refineries contain much more oil than terminal facilities, such as the Port Mobil, and they house expensive manufacturing equipment.

One person was killed in the explosion, another was critically injured and a third was missing, officials said.

The destruction of the facility quickly affected wholesale oil prices in local New York markets. In Albany, independent heating oil distributors increased their prices by 7 cents to $1.20 a gallon, said Silliere, who tracks the spot market. Small businesses getting supplies of heating oil Friday morning would have seen a quick pop in prices.

The Port Mobil facility is a vital link to oil supplies for the Northeast. It stores oil products taken off the Colonial pipeline, which brings supplies to the region from refinery centers in Louisiana and Texas. The Port Mobil stores the oil product in tanks, then it is loaded into barges that ferry the gas and heating oil to regional distributors.

The fire knocked the Port Mobil out of commission. "Oil products are trapped there for some time because the only way out is barge and barging capabilities are destroyed," Silliere said.

boston.com By Rebecca Gomez, Associated Press, 2/21/2003 17:12

NEW YORK (AP) A massive explosion at an ExxonMobil Corp. oil storage facility sent shock waves through an energy market already roiled by fears of war, pushing crude oil prices up more than a dollar in trading Friday. Heating oil and gasoline futures also surged.

The explosion occurred midmorning when a barge stocked with 100,000 barrels of unleaded gasoline was being unloaded at the Port Mobil terminal, a storage facility that holds 2 million barrels of oil products, on the tip of Staten Island. The cause was under investigation.

Prices eased somewhat after analysts and traders realized the loss of gas supplies on the barge and thousands of barrels of heating oil at the terminal in Staten Island would pose only a short-term problem for the Northeast.

''This is two million barrels and that's an important size for Staten Island and the region,'' said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York. ''Heating oil is extremely tight right now in the East. We can't be losing this quantity at this time.''

Even though the barge was carrying gas only, the fire damage makes it nearly impossible to retrieve the heating oil from the facility, hurting regional supplies.

''It could have an effect for a couple of weeks, a little more tightness in heating oil,'' said Tom Kloza, chief oil analyst with the oil price information service. ''Much more significant is whether it's cold in the Northeast in the next few weeks.''

The national oil market is not likely to suffer as a result of the fire, analysts said.

Still, crude oil for April delivery rose $1.15 to $35.95 a barrel on the New York Mercantile Exchange, after news reports of the fire. It finished the day at $35.58 a barrel, up 84 cents for the day. Earlier, in London trading, Brent crude from the North Sea finished at $32.27, up 71 cents.

The fire broke out as U.S. crude supplies are already at their lowest level since 1975 and crude, gasoline and heating oil inventories are all below what the industry considers essential for smooth operation, the government reported last week.

The United States has not been getting the massive supplies of imported crude oil from Venezuela because of political turmoil and a nationwide strike there that began in December.

Prices also have been sensitive to worries about a war with Iraq and Middle East oil supplies.

As a result, analysts said, any news about the oil markets will cause rumbles, regardless of the long-term impact.

''There's this heightened effect on the market,'' Silliere said. ''Everybody is ready to jump on the latest news.

Elsewhere on the Nymex, March heating oil contract rose 4.98 cents, or 5 percent, to $1.10 a gallon, while the March unleaded gasoline gained 4.7 cents, or about 5 percent, to trade at $1.01 a gallon. Natural gas for March delivery surged nearly 7 percent, or 44.4 cents, to $6.606 per 1,000 cubic feet.

''The market shot up when they thought it was a refinery fire and perhaps there was some other concerns that it could have been terrorist related,'' said Kloza.

A fire at an oil refinery, rather than a storage facility, would have had a far greater impact, analysts said. Refineries contain much more oil than terminal facilities, such as the Port Mobil, and they house expensive manufacturing equipment.

One person was killed in the explosion, another was critically injured and a third was missing, officials said.

The destruction of the facility quickly affected wholesale oil prices in local New York markets. In Albany, independent heating oil distributors increased their prices by 7 cents to $1.20 a gallon, said Silliere, who tracks the spot market. Small businesses getting supplies of heating oil Friday morning would have seen a quick pop in prices.

The Port Mobil facility is a vital link to oil supplies for the Northeast. It stores oil products taken off the Colonial pipeline, which brings supplies to the region from refinery centers in Louisiana and Texas. The Port Mobil stores the oil product in tanks, then it is loaded into barges that ferry the gas and heating oil to regional distributors.

The fire knocked the Port Mobil out of commission. ''Oil products are trapped there for some time because the only way out is barge and barging capabilities are destroyed,'' Silliere said.