www.news24.com 03/03/2003 08:14  - (SA)  

Washington - The United States is using trade interests as leverage in its diplomatic efforts to persuade certain United Nations members to vote for a new resolution at the security council to allow military strikes against Iraq.

Two of those nations, Mexico and Chile, both non-permanent members of the 15-nation security council, are in an awkward position as a result, experts say.

Mexico forms part of the North American Free Trade Agreement and is America's second most-important partner with trade worth $232bn (about R1 898bn) a year.

Chile is set to seal a free-trade accord with Washington to eliminate customs tariffs on industrial and agricultural produce within 12 years.

Ambler Moss, director of the Dante B Fascell North-South Centre, a policy research institute at the University of Miami, said: "Both Mexico and Chile are in an extremely difficult and vulnerable situation right now."

The two nations are also negotiating a pan-American Free Trade Area of the Americas scheduled to get off the ground in 2005.

A good personal relationship between Mexico's President Vicente Fox and President George W Bush has lost some of its glow in recent months.

Special envoy sent to Chile

Now, Latin America has returned to the back-burner at the White House with the fight against terrorism and the prospect of war on Iraq being more-pressing issues.

The United States, Britain and Spain, which have put forward a second resolution on Iraq to the United Nations, need six more votes - nine in all - to ensure it is passed.

France, Russia and China from the five permanent security council members - the other two being the United States, Britain - could veto it since they support a separate move to extend weapons inspections in Iraq.

The other security council non-permanent members are Germany, Angola, Bulgaria, Cameroon, Spain, Guinea, Pakistan and Syria.

On Friday, Washington sent a special envoy for Latin America, Otto Reich, to Chile to try to secure the South American nation's vote.

Chilean President Ricardo Lagos said after meeting Reich that Chile was waiting for the five permanent council members to make a decision, since "it is not for certain major countries to abstain, which would force us, the smaller countries, to make the decision".

"What they (Mexico and Chile) might do is to sacrifice their own political considerations because the immense majority of people in their countries are against the war and against supporting the United States in this thing for expediency."

The position of Angola is more difficult still.

The southern African nation has been trying to join up to the African Growth and Opportunity Act to allow it improved access to the US marketplace in certain areas of commercial activity to the 38-nation members, including Cameroon and Guinea.

Angola itself has a need to capitalise on its oil resources and thus seeks to attract US oil company investors.

Walter Kansteiner, US assistant secretary of state for Africa, visited Luanda last week to meet Angolan President José Eduardo dos Santos, who also received a phone call from Bush. - Sapa-AFP

onebusiness.nzoom.com

Looming war in Iraq and a Venezuelan workers' strike have stolen the headlines in the build toward $US40 oil, but it is a decade-long shrinkage of the US energy industry that underlies the soaring price.

As energy companies bid to improve profit margins by cutting costs, oil and natural gas drillers are pumping less supply from the US mainland, while unprofitable refiners have closed plants and drained storage tanks, analysts said.

The result: a US energy supply system that finds it increasing vulnerable to supply shocks, leaving fuel consumers at home and abroad more exposed to sudden price rises.

"The oil industry has been generally underinvested in last 20 years ... so what happens is if we get into a situation where we get a hiccup in the oil balance and you get these very leveraged affects on price," said Mike Rothman, analyst at Merrill Lynch bank.

The US supply shortage has undercut the ability of the Opec oil producer cartel -- itself now bumping up against production capacity limits -- to keep oil price rises under control. Opec meets next week to decide policy in the event of war in Iraq.

US oil companies keep on hand about 1 billion barrels of spare supply of crude oil and oil products like gasoline, worth tens of billions of dollars. But when oil prices drop, the cost to refiners can be overwhelming, as inventory on hand loses value.

Plagued by poor profits for much of the 1990s, US oil refiners increasingly used computer software to manage inventories more efficiently and whittle down the stock cushion they keep on hand. The shift gained pace in the Internet boom.

"If refiners wanted to maintain share price in an environment of high tech stocks they're going to do everything to cut costs," said Sarah Emerson, director of Boston-based Energy Security Analysis Inc (ESAI).

Low stocks, high prices

From February 1993 to this year commercial crude inventories have fallen 18% and now stand at the lowest level since 1975, according to government figures. The lack of oil last week pushed crude prices to within a penny of hitting $US40 for the first time in 12 years.

"Throughout the US energy industry, assets and activity have been undervalued by markets," said Paul Horsnell of J.P, Morgan bank.

This winter the slow inventory evaporation has been accelerated by a anti-government Venezuelan strike that has chopped oil exports of the world's former No. 5 supplier by one-third, or 1 million barrels per day (bpd).

UScrude stocks have dropped to the minimum 270 million-barrel level the government says is needed to keep supplies flowing smoothly -- just as the international oil system braces for war in Iraq, which ships around 4% of world crude exports.

The sheer size of the energy needs of the United States -- which consumes a quarter of the world's oil and imports 60 percent of its fuel -- means higher U.S. prices ripple through to Europe and Asia, even though supplies there are not nearly as tight.

"The United States has probably been the most active (nation) in terms of moving toward a lower average level of inventories for petroleum," said Dave Costello economist at the federal Energy Information Administration (EIA).

Winter woes

A long, cold winter has pulled US heating oil stocks to their lowest levels in nearly three years. Gasoline stocks, which should soon be building for summer driving demand, are 11% lower than last year.

Supplies have now fallen to dangerous levels, said Matthew Simmons, oil consultant with Simmons and Co, in Houston. "We got here over a decade, as a result it's going to take long time to figure out how we get out of this hole," said Simmons.

Cost-conscious companies' reluctance to drill for new supplies has also helped press prices for natural gas -- a rival heating and industrial fuel -- to all-time highs for the second time in three winters.

"This is not the sign of a market that is either working well or playing a constructive role in the US economy," said JP Morgan's Horsnell.

And as companies curb spending, US oil reservoirs on the mainland are drying up. From 1990 to 2002 domestic crude production has fallen more than 20% to 5.82 million barrels daily.

"The effort to produce has gone elsewhere, to the former Soviet Union and West Africa as well as Mexico," said the EIA's Costello.

The current structure of oil futures -- in which later months are greatly discounted to current prices as traders bet the prices will fall after a US victory in Iraq -- gives no incentive for companies to start storing more.

"Right now there's no reason at all for any refiner to put anything into a tank." said ESAI's Emerson. "Do you want to buy $37 a barrel crude and sell it at $25 in two or three months?"

Source: Reuters

biz.yahoo.com Tuesday March 4, 4:41 pm ET

WASHINGTON, March 4 (Reuters) - In a move to keep more oil in the U.S. market amid high crude prices, the Energy Department said on Tuesday it will allow oil companies to defer delivering 3.5 million barrels of crude supposed to be shipped to the Strategic Petroleum Reserve during April.

The department's decision will keep more oil in the market as U.S. crude inventories are low and oil prices remain high because of fears of a war with Iraq and a disruption in Venezuelan crude exports due to a workers strike.

Oil companies have until April 2004 to deliver the deferred crude, plus additional barrels as interested.

The emergency stockpile will still receive a shipment of 400,000 barrels of oil already scheduled for next month, a department spokesman said.

The crude bound for the reserve comes from oil companies that turn over the oil to the government as royalty payments for drilling on federal leases. Energy firms normally pay cash royalties on the crude they find.

The Bush administration has suspended about 18.5 million barrels in royalty-in-kind oil shipments since mid-December that were bound for the emergency reserve.

The stockpile was created by Congress in the mid 1970s after the Arab oil embargo and currently holds 599 million barrel of crude in a series of underground salt caverns at four sites in Texas and Louisiana.

The administration plans to fill the reserve to its capacity of 700 million barrels by the end of 2005.

biz.yahoo.com Tuesday March 4, 2:20 pm ET By Dan Molinski, Of DOW JONES NEWSWIRES

BOGOTA (Dow Jones)--One day after Colombia's state oil company Ecopetrol said it found an estimated 200 million barrels of "high quality" crude on what is ancestral land of the U'wa Indians, tribal officials said they plan to oppose further drilling on the site.

But, unlike in the past, the U'wa aren't talking about group suicide.

"We are going to ask to meet directly with the national government on this issue because we do not accept drilling here," tribal spokesman Trinidad Cobaria said Tuesday in a telephone interview with Dow Jones Newswires.

He added: "But as far as threatening to join hands and run and jump off a cliff, no, we won't be doing that."

The U'wa gained notoriety in 1999 when they threatened exactly that - mass suicide - if the original contract holder for the Gibraltar I well, Occidental Petroleum Corp. (NYSE:OXY - News) , began drilling.

A legal dispute with the U'wa ended with Occidental receiving the green light to explore, as the well, located near the border with Venezuela in the state of Boyaca, is outside the official boundaries of the U'wa reserves.

The Los Angeles-based firm began drilling in 2000 and the U'wa never followed through with its suicide threat.

Occidental originally said the well may hold up to 1.2 billion barrels of reserves, which would put it on par with the nation's top two fields, BP PLC's ( BP) Cusiana-Cupiagua and Occidental's Cano Limon, which when discovered had reserves of more than 1 billion barrels each.

But the drilling failed to produce results and Occidental stopped looking in July 2001.

After Occidental handed the contract back over to Ecopetrol, the state-run firm decided to try its hand at the well. It began looking for oil at Gibraltar last November.

The U'wa, meanwhile, said Ecopetrol would never find a drop of oil, claiming its ancestral gods would hide what it calls "the blood of the earth."

After Ecopetrol's President, Isaac Yanovich, announced Monday that oil has, in fact, been found at Gibraltar, U'wa spokesman Cobaria said with a slight chuckle that the gods simply didn't hide all of it.

"Yes, Ecopetrol found some oil, but from what I've just seen on the television news, it's a tiny amount compared to what (U.S. firm) Occidental had originally expected to find there," he said.

Occidental Didn't Dig Quite Far Enough

The discovery at Gibraltar, if confirmed by upcoming final tests, would be the largest ever for Ecopetrol, albeit much less than earlier estimates of the well's potential.

The find was made at a depth of 12,050 feet, after an investment of about $9.5 million, Yanovich said Monday.

An Occidental official told Dow Jones Newswires in 2001 that the company gave up looking for oil on the same well at a depth of 12,000 feet, after spending $ 60 million and only finding traces of gas and water.

Yanovich noted that Occidental has no rights to the find, since it abandoned the project.

The possible discovery of 200 million barrels of crude at Gibraltar is by no means the answer to the country's oil or economic problems, however.

The administration of Uribe says it needs to find a total of 1 billion in reserves by the end of his four-year term, which began in August, in order to avoid becoming a net importer.

Oil and its derivatives are Colombia's main export, accounting for more than 25% of total foreign revenues.

As Latin America's fourth-largest producer, the country produced about 580,000 barrels a day of crude in 2002 - about half for export - but total production will fall to about 535,000 barrels per day this year.

The country produced a total of 210 million barrels last year, while adding only 114 million barrels to its proven reserves. The country's estimated total reserves were 1.8 billion barrels at the end of 2001.

The search for oil in Colombia has been hurt by a long-running rebel conflict that has scared off many would-be investors.

Marxist rebels blew a hole in the No. 2 Cano Limon oil pipeline 40 times last year.

-By Dan Molinski, Dow Jones Newswires; 571-600-1980; colombia@dowjones.com

www.sfgate.com Tuesday, March 4, 2003
(03-04) 16:08 PST (AP) -- Dow Jones News Service

NEW YORK (Dow Jones/AP) -- Crude oil futures rallied Tuesday, staging a sharp recovery after three straight sessions of declines on hopes that a war with Iraq could be averted.

Between Thursday and Monday, prices fell sharply as Iraq's increased cooperation with U.N. weapons inspectors and Turkey's rejection of access to U.S. troops sparked speculation that a U.S.-led attack on Iraq could be avoided, or at least delayed by several weeks.

But prices turned around Tuesday as the U.S. stepped up military preparations for a possible war and indicated it would seek U.N. Security Council approval of a resolution on military action next week, analysts said.

At the New York Mercantile Exchange, April crude oil futures rose $1.01 to end at $36.89 a barrel after rising as high as $37.18 intraday.

April heating oil futures ended up 1.26 cent at $1.0486 a gallon, while April gasoline futures climbed 1.74 cent to settle at $1.1122 a gallon.

At London's International Petroleum Exchange, April Brent futures rose 61 cents to close at $33.09 a barrel.

Natural gas for April delivery retreated 12.1 cents to settle at $7.041 per 1,000 cubic feet.

American officials, dismissing Iraq's destruction of its short-range Al Samoud 2 missiles as inadequate and insincere, pressed ahead for a final confrontation.

Military forces continued to mass in the Persian Gulf, with the United States deploying an additional 60,000 troops to the region atop the 230,000 troops already there. Turkey is also debating whether to resubmit a parliamentary motion to allow more than 60,000 U.S. troops to use the country as a northern front against Iraq.

At the same time, officials said they plan to bring to a vote next week a Security Council resolution authorizing military action against Iraq.

The measure, backed by Great Britain and Spain, faces stiff opposition from Security Council members, with Russia's foreign minister Igor Ivanov issuing a veiled threat to veto it.

But a White House spokesman said the United States believes it has the nine votes necessary to pass the resolution, though he left open the possibility that the United States might withdraw the resolution if it concludes it would not pass.

Regardless of the outcome of a vote, the United States says it's prepared to press ahead with an attack, barring an 11th-hour decision by Iraq to give up its weapons of mass destruction.

U.S. officials say there is virtually nothing Iraq could do to convince them that it is serious about disarming. In a speech Tuesday, President Bush reiterated his determination to see Iraq stripped of its weapons of mass destruction.

Energy traders worry that an attack on Iraq could disrupt the flow of oil from the Persian Gulf.

Meanwhile, OPEC and non-OPEC oil ministers will meet next week to discuss what they could do in the event of a war in Iraq, an official from the Organization of Petroleum Exporting Countries said.

OPEC countries have increased production in recent months in response to a strike in Venezuela and soaring oil prices. According to a Dow Jones Newswires survey, OPEC crude oil output jumped by 1.43 million barrels a day to 27.091 million barrels a day in February from January.