usinfo.state.gov 03 March 2003

QUESTION: On Venezuela.

MR. BOUCHER: We'll come back to you, Joel.

QUESTION: Last Wednesday, after the Venezuelan Ambassador was coming from the oil industry, presented his credential, it was a meeting between higher official of the State Department and the Venezuelan Energy Minister and the president of the oil company of Venezuela. And in this meeting, the U.S. Government made clear that Venezuela cannot be considered as a reliable partner, oil supplier to the United States.

Mr. Curt Struble, the Acting Assistant Secretary, the day after, goes more forward and he said at the hearing at the Congress that Venezuela, considering the political crisis, can be considered as a threat to the region, political and economical threat to the region.

I just want to know, there is a meeting on -- of the Group of Friends of Gaviria in Brazil. There will be any change in the strategy?

And the second question is, did President Chavez' inflammatory rhetoric cause some damage to the relationship between the United States and Venezuela?

MR. BOUCHER: First of all, you are better informed than I am on current events. I believe there was a statement by the Group of Friends late last week or over the weekend. There is an upcoming meeting of the Group of Friends, I think next Monday. Acting Assistant Secretary Struble will go down to that, confer with other people in the hemisphere.

We do follow the situation in Venezuela very closely and we have been concerned about the situation down there, but I don't think I have any further update for you at this moment.

QUESTION: Well, could you check to see whether that's an accurate description of what he said -- political and economic threat to the region?

MR. BOUCHER: I'll have to check on that. I assume that's somewhere in the public record if it was at a Congressional hearing.

Sir.

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: usinfo.state.gov)

straitstimes.asia1.com.sg

Members are nearing capacity and US inventories will have to rise to keep prices down in case of war, analysts say

LONDON - Opec may struggle to replace output from Iraq should the nation's exports be halted by a war because most members are pumping near their limit, analysts said.

Opec, or the Organisation of Petroleum Exporting Countries, supplies a third of the world's oil.

Oil prices have surged 63 per cent in the past year and last week approached US$40, the highest since the 1990-91 Gulf War, after United States inventories fell to among the lowest levels in three decades.

Should an attack disrupt Iraqi supply, oil importers will have to tap emergency reserves to prevent soaring prices, analysts said.

'The problem is Opec is getting close to the limit of what it can do,' said Mr Julian Lee, a senior analyst at the Centre for Global Energy Studies in London, a think-tank founded by a former Saudi oil minister, Sheikh Zaki Yamani.

'Prices aren't going to come down much until US inventories start to rise.'

Analysts put Opec's spare capacity at about two million barrels a day, equal to 2.6 per cent of world output and less than Iraq's daily output of 2.5 million barrels.

Two million barrels is enough to meet daily demand in France, the world's fifth-largest economy.

All Opec members, except Iraq, agree to restrain oil supply to boost prices. The group raised quotas twice this year to fill a shortage caused by a strike in Venezuela and after a colder-than-normal winter boosted demand for heating fuel.

In 2000, Opec neared the limits of its spare capacity after the group raised production quotas and US prices surged to more than US$37 in September of that year. The present situation is similar, analysts said.

'If war starts with Iraq, there will have to be a significant release from the strategic reserves in the US to avoid an economic catastrophe,' said Mr Adam Sieminski, an oil strategist at Deutsche Bank.

The US and other industrialised countries hold inventories to alleviate supply shortages, reserves built to avert a repeat of the shortages seen during the 1973 Arab oil embargo.

US Energy Secretary Spencer Abraham has said the nation may use its 600-million-barrel strategic reserve to offset any 'severe' disruption in supply.

After Opec lifted quotas in the first two months of the year, and a Venezuelan strike eased, members other than Iraq are on track to produce 25.1 million barrels of oil a day last month, two million more than in January, said PetroLogoistics, a consultant group.

A recovery in Opec's oil capacity depends in part on Venezuela. Production there has risen to two million barrels a day, the government said. That is still two-thirds of its output in November.

--Bloomberg News

straitstimes.asia1.com.sg Rebecca Lee

With the deal in the bag, American Eagle Tankers could fetch a higher price if ailing NOL decides to sell it, say analysts

AMERICAN Eagle Tankers (AET) - Neptune Orient Lines' (NOL's) only profitable subsidiary, of which it is looking to divest - has clinched a US$220 million (S$383.46 million) contract to transport fuel from Venezuela to Asia.

The shipping line, which last week unveiled record losses of US$330 million, yesterday said that it had won the tender to transport orimulsion for Bitor, a unit of Venezuela's state-owned oil company, Petroleos de Venezuela.

Orimulsion is a bitumen-based fuel used for electricity generation.

AET will deliver the fuel to Singapore power company Power Seraya for seven years, starting from next year, with an option to extend the contract for another three years, NOL said in a statement.

The deal will require a fleet of five Very Large Crude Carriers (VLCCs), of which three will be new ships to be delivered from the end of next year to the beginning of 2005.

In shipping parlance, VLCCs are oil tankers with a capacity of 200,000 to 320,000 deadweight tonnes (dwt).

'We negotiated with Far Eastern shipyards last year to book capacity to build an additional three VLCCs with the possibility of winning this tender in mind,' NOL chairman Cheng Wai Keung said.

AET's president and chief executive officer, Mr Joseph Kwok, also highlighted the fact that the contract made use of otherwise unused capacity in the backhaul - or return route - transportation leg from the Americas to Asia.

'We are able to fully utilise capacity on both legs of the journey, so instead of returning empty back to Asia, the vessels will be earning revenue,' he said.

Analysts yesterday agreed that the deal was welcome news for troubled NOL.

Kim Eng Ong Asia analyst Ong Seng Yeow upgraded the stock to a 'trading buy' from 'market perform', saying in a research report yesterday that the announcement was 'positive for NOL as AET is a wholly owned subsidiary'.

He said: 'We anticipate that AET will continue to be a major beneficiary of rising crude prices, which are correlated to charter rates.

'As of December last year, 12-month Aframax charter rates stood at US$19,000 a day, and there is still more upside considering the historical peak of more than US$30,000 a day,' he said.

An Aframax carrier is an oil tanker of about 80,000 to 120,000 dwt.

DBS Vickers transport analyst John Casey also pointed out that the new deal would mean that AET could fetch a higher price if NOL indeed decided to sell it.

NOL said last week that it would complete its ongoing review of its investment in AET by the end of this month.

It had said previously that it would not sell AET for less than its book value of US$400 million.

Malaysian International Shipping Corp - the shipping arm of national oil corporation Petroliam Nasional - is formulating its bid for AET after a lengthy due diligence process, said Mr Casey.

Yesterday NOL's stock closed up 1.5 cents at 90.5 cents with 2.2 million shares changing hands.

allafrica.com Public Agenda (Accra) EDITORIAL March 3, 2003 Posted to the web March 3, 2003

Accra

In spite of all the gloss being put on the 2003 budget, the economic outlook is not good for the Ghanaian. At ¢9.200 the minimum wage has broken the dollar barrier for the first time in recent times. But that is cold comfort against the rocketing cost of goods and services. Transportation to and from the office alone is likely to erode one third of the new wage.

Then comes the cost of crude oil. The uncertainties about whether or not America will invade Iraq and the paralysis visited on Venezuela by the opposition's resolve to remove President Hugo Chavez has conspired to push oil prices to the high heavens. At the time of going to press on Friday, Brent Crude was offered on the international market at $40 a barrel. At the time the Ministry of Energy increased petroleum prices by nearly 100 per cent, crude was offered at $28 a barrel. On the evidence of the rising fuel imports alone, Ghanaians are in for a tough time.

The bad news for most Ghanaians is that it is not only oil that poses a serious challenge to this nation's ability to balance the books. The electricity front is equally challenging. The onset of the dry season means that the water level in the Akosombo Dam is lowering in its ability to hold water to turn the turbines.

As President John Agyekum Kufuor outlined in his Sessional Address to Parliament, we are all in for a very rough ride this year. The Government, according to Minister of Finance Yaw Osafo-Maafo faces the challenge of dealing with higher than expected expenditure on wages and salaries, higher than anticipated subsidies to utility companies and worse of all substantial shortfalls in expected foreign inflows.

The shortfall means that the over-burdened Ghanaian will have to fork out the difference if Government should meet its target in developmental projects. These are hard times but we expect the government to cushion the poor and vulnerable in society.

According to the Finance Minister Government has allocated c4,633 billion made up of ¢3,553 from state resources, c680 billion from the HIPC fund for 2003 and c400 billion resources left over from 2002 to implement programmes and projects directly affecting the poor. Public Agenda hopes this would translate into quality education, affordable medical care, good social services and general improvement in the living standards of the rural folks. We hope the HIPC disbursement will go beyond paper guarantees.

Public Agenda is also happy that the government has taken the bold step to slap additional tariffs on imported poultry and rice. This will go a long way to protect local industries against unfair competition. In fact this paper thinks that five percent levy on rice is not enough and that government should have made it at least 10 percent to discourage the mad rush for foreign goods.

The retention of the National Reconstruction Levy for another three years is in the right direction. We urge the Government not to give in to those clamouring for a review. The banks are making obscene profits for virtually doing nothing. They must pay towards the infrastructure re-engineering of this country.

reuters.com Mon March 3, 2003 04:03 PM ET By Mark Wilkinson

WASHINGTON, March 3 (Reuters) - The rise in heating oil and gasoline prices on war fears and frigid weather may have made many American consumers frown, but economists say the climb is not yet sharp enough to crimp spending significantly.

Nor is the impact on the broader economy from the recent rise likely to be too harsh, barring a prolonged and messy war with Iraq.

The White House last week said President George W. Bush was "greatly" concerned about the price jump, and some on Capitol Hill fretted that higher prices will be a significant drag on economic growth.

"Our economy is driven by what we spend," Republican Rep. John Peterson said. "When we pay triple for home heating, we don't have as much consumer goods to buy."

But James Glassman, senior economist at JP Morgan, said higher prices will do little more than shift growth from the first to the second half of the year.

"It will be a bit of a drag on the economy in the first half of the year, but it will only push that lost growth into the second," he said.

While the oil price spikes in the 1970s took a sharp toll on the U.S. economy, analysts believe rising costs should only have very limited effects on consumers this year because the economy is less reliant on oil and rising costs are less likely to creep into broad inflation.

"Over the past fifteen years, oil prices have had very little impact on the overall economy because they don't have a dramatic influence on the cost structure of businesses," Tim O'Neill, chief economist at Bank of Montreal/Harris Bank said.

However, he added: "A rise in prices will directly affect the (consumer's) pocket book." O'Neill said the rise should not so far be enough to badly hurt spending.

While utility prices have pushed the Consumer Price Index -- the broadest gauge of U.S. inflation -- slightly higher, the core CPI, which excludes volatile energy and food prices, has remained very tame, soothing recent inflation fears.

A BAD JANUARY

Energy prices jumped in January and crude oil futures approaching $40 a barrel last week, the highest level since the Gulf War. The spike was spurred by fears of a looming war with Iraq and worker strikes in Venezuela, the world's fifth-largest oil producer.

Gasoline prices last month jumped to $1.46 per gallon, almost one-third higher than in January 2002, and are expected to rise another 20 percent by the spring, according to the Department of Energy's Energy Information Administration.

Low natural gas inventories pushed up prices, and the cold spell that took the Northeast by surprise this month pushed heating oil costs up.

Dave Costello, an economist at EIA, estimated that while American households spent $600 to $650 on average on natural gas during the winter of 2001-2002, this year's cost will be about $150 higher.

The hardest hit, however, will be those consumers who last year paid on average $640 for heating oil and will have to dish out close to $1,000 this winter.

"It won't be the worst season," Costello however said. "(Consumers) will make adjustments."

Since today's consumers drive more energy-efficient cars, live in energy efficient homes and can choose to travel less or take public transportation to cut down on energy spending, the effects of higher energy costs will be limited, O'Neill said.

Economists believe that a each $10 increase in the price of crude oil could shave off as much as 0.5 percent off gross domestic product.

Bank of Montreal's O'Neill believes, however, that high energy prices would only seriously hurt the economy were they to be sustained over a year or more.

"It's not so much about how high prices go, but how long they stay there," he said.