Friday March 7, 4:39 AM

CARACAS (Dow Jones)--Crude production at Venezuela's state-owned oil monopoly Petroleos de Venezuela SA (E.PVZ) currently stands at 2.5 million barrels a day, the nation's Oil Minister was quoted as saying in a report by state-run news agency Venpres Thursday.

"We're close to reaching our OPEC production ... by the end of this month," Rafael Ramirez was further quoted as saying. Venezuela's official output quota as agreed upon by the Organization of Petroleum Exporting Countries, or OPEC, stands at 2.819 million b/d. Ramirez could not be reached for additional comment.

The government's production level sharply contrasts with figures maintained by ex-staff of PdVSA. They claim production stands only at 1.09 million b/d after PdVSA temporary shut in 500,000 b/d of crude production due to an export bottleneck in the east. The government, however, claims the 500,000 b/d have already been recovered.

A nationwide strike which started Dec. 2 and lasted for two months severely crippled exports and production, which stood at around 3 million b/d by the end of November.

The company is struggling to reach or go beyond the 2 million b/d production level, analysts have said. After focusing on easy oil fields that don't require much added pressure to get the oil flowing, PdVSA faces difficulties as mature oil fields are more labor and capital intensive and take more time to pump oil.

Experts have said they doubt PdVSA would reach 2.5 million b/d any time soon due to a lack of financial and human resources.

-By Fred Pals, Dow Jones Newswires; 58414-2887461; fred.palsdowjones.com

www.smartmoney.com

  Over a Barrel “I don't think oil could cause a recession at the levels they're at now, but...if they get into that $40 to $50 range for a year, that could certainly cause [one].” — David Wyss By Scott Patterson March 6, 2003

MANY AMERICANS, IF asked for their opinion on the current state of "light crude," would probably reply with some disparaging references to Will Farrell's "Old School" and bemoan the pathetic state of the frat-house comedy, which has fallen into sorry times of late.

But ask a Wall Street economist about light crude, and you're more likely to get hand-wringing prognostications of double-dip recessions, global deflation and even — harkening back to the 1970s (which saw the birth of the frat-house comedy) — that dreaded word: stagflation.

Last week, the price of light crude oil touched $40 a barrel on the New York Mercantile Exchange, a level not seen since Iraq invaded Kuwait in 1990. Suffering from the shock of a strike in Venezuela and war jitters over the Middle East, oil prices have skyrocketed during the past few months, threatening to derail the shaky economic recovery and plunge the U.S. into its second recession in three years.

This is no laughing matter to Standard & Poor's Chief Economist David Wyss, who estimates that a double-dip recession could cause the S&P 500 to plunge 20% to the mid-600s. As Wyss points out, "we've got this huge cloud sitting in front of us called Iraq," and everything depends on what happens there. If the war is quick and crude production in the Middle East is left relatively stable, then the price of oil will drop and a recession will probably be averted. But if things don't go to plan, all bets are off.

SmartMoney.com asked Wyss, 58 years old, for his opinion on the economic fallout from high oil prices, whether the Energy Department should open up the Strategic Petroleum Reserve and who stands to benefit from the rising cost of energy in today's market.

SmartMoney.com: What are the odds of high crude-oil prices leading to a recession?

David Wyss: It depends on how high they go and how long they stay high, which depends mostly on what happens in Iraq. I'd have to say the odds are 25% to 30%. I don't think oil could cause a recession at the levels they're at now, but they're getting close to that level, and if they get into that $40 to $50 range for a year, that could certainly cause a recession. If it gets into the $60 range, it wouldn't have to stay that high for as long. It's a tradeoff between price and length. In today's prices, we hit $75 in 1979 during the Iranian hostage crises, and it stayed above $40 in today's dollars for over five years from 1979 to 1985, so high prices can be sustainable for a long time.

SM: How would a double-dip recession impact the S&P 500?

DW: Not good [laughs]. I think we would find some new lows. We're already down a lot, of course. My guess is that we'd probably get a correction down into the mid-600s. Any recession should last as long as oil prices stay high. If oil prices start to come down, we'll start to see the stock market recover. It would take the economy a while to turn around, but the market's normally a leading indicator. The market will start to turn up as soon as it sees the light at the end of the tunnel.

SM: Which industries will get hurt the most by the high cost of oil, and who will benefit?

DW: Well, start with the usual suspects. Transportation gets hit, especially airlines. Tourism drops off. Obviously areas like trucking are going to have to try to pass through higher costs. Also utilities, although they don't burn as much oil anymore. The refining businesses take a hit. Although with the refiners, if you have an integrated producer, they're going to make up enough on the crude to offset what they'll lose on refining. It's the pure refiners that are in trouble. Also car companies, because when oil prices go up people don't want to buy those huge SUVs anymore. In the last month or two we've seen a huge drop-off in SUV sales, and part of that I think is people are realizing how much it costs to fill up the tank on a Chevy Suburban. The crude producers will benefit, of course. If the prices stay high long enough, the oil-service providers will see a big upside, as well as the natural-gas producers, and probably some of the alternative-energy producers.

SM: Do you think high oil prices could cause deflation, as Morgan Stanley Chief Economist Stephen Roach has argued?

DW: I tend to disagree with that. I was around in the 1970s, and believe me, the high price of oil didn't cause deflation back then, and I'm not sure why it would now. High oil prices will slow the economy, they can cause recession, but to call that deflation seems to be a misuse of the term. If energy costs go up for manufacturers, they have to raise the price of their products, or else they lose money. That's the standard argument. That's not deflation by any normal use of the term. I think what [Roach] is doing is mixing up deflation and recession. Yes, high energy prices can cause a period of stagnation, but I'm much more worried about this causing a repeat of the stagflation [a combination of high inflation and weak growth] of the '70s than a Japanese-style deflation.

SM: Many analysts are blaming war fears for the high cost of oil, but what about the strike in Venezuela? Hasn't that had a big impact as well?

DW: I actually think that's more of a factor than war fears. We're losing about two- to two-and-a-half-million barrels a day in Venezuelan production. That's more than the total Iraqi production. Without the situation in the Middle East, of course, we'd be seeing high prices, but probably not this high, and it wouldn't last as long. And we might have been able to put more pressure on Venezuela if we weren't so worried about Iraq.

SM: In 1991, after the Gulf War, oil prices dropped precipitously. But some economists are arguing that, since oil inventories aren't as high as they were during the Gulf War, prices will remain inflated after a war because there won't be sufficient supply to push the cost of oil down. What do you think?

DW: I'm not sure that's true. I don't think we've counted all the reserves. I remember that people made the same argument back in 1991. There's always a tendency to look back at the last two points and draw a straight line between them and call it a long-term trend, and I think we're getting that in the oil market. There seems to be a long-term stability for oil prices, corrected for inflation, in a $20 to $30 range. If you go back to pre-OPEC days, prices are running around $20 a barrel at today's prices. So except for that period from 1979 to 1985, it's been in that range since about 1960. So I think oil prices will drop to the extent that there is going to be a knee-jerk rise, which will then go down after the war ends. But how quickly oil prices come back down depends mostly on how much damage gets done to the oil fields during the war and how long it takes to bring them back online. It depends on how the war goes. Absent damage to the oil fields, I don't think there's any reason to believe that oil prices won't go back down. I don't think they'll go down to $18, but I do think they'll go back down to the high $20s.

SM: Energy Secretary Spencer Abraham has resisted calls to open up the Strategic Petroleum Reverse so far. Do you think the Energy Department should release some of the reserves?

DW: No, because what happens if there's a war and we really do get cut off? Maybe the high prices now are hurting the economy, but if you don't have that reserve ready when we go into war, what do we do? Releasing a minimal amount won't do anything. You've got to supply significant added oil to the market, and if you do that you deplete the reserves that have to be there to fight a war. It's true that today's prices are high enough to cause some damage to the economy. Roughly what we've seen today is about $50 billion off consumer purchasing power from the rising oil prices over the last six months or so. Generally speaking, $10 on oil adds a little over half a point to inflation and takes about three-tenths of a point off of gross domestic product.

SM: Will OPEC offset the high prices by expanding production during the war?

DW: It'll try, but whether OPEC can do it or not is the question. If everything goes to plan, it wouldn't have to produce that much more extra, because we don't get that much from Iraq. It's less than we're losing in Venezuela because of the strike. So if there's no disruption of other production, then it's not a big deal. Be there's probably going to be a lot of Kuwaiti production shut down. And there's always the risk of not just disruption to the fields, but disruption of the oil flow through the Straits of Hormuz as a result of terrorist activity or Iraqi military action. They could drop bombs on a couple of tankers going to the Straits, or terrorists could run a speedboat up to one and set off a bomb, or even fire a shoulder-fired missile from the shore. And if you have terrorism targeted against major refineries, against oil shipment facilities in the Middle East, it could have a major impact.

www.forbes.com Reuters, 03.06.03, 3:30 PM ET CARACAS, Venezuela, March 6 (Reuters) - Venezuela's foreign-financed Cerro Negro extra heavy oil upgrading project has temporarily shut down its synthetic crude processing unit, project partner ExxonMobil (nyse: XOM - news - people) said on Thursday. "The plant's process operations have been temporarily and safely shut down," an ExxonMobil statement said. An investigation determined the fuel gas system had been upset but did not give further details. The upgrading unit, which has the capacity to process 120,000 barrels per day (bpd) of extra heavy crude from the Orinoco region into 108,000 bpd of light synthetic oil, was restarting after a strike by foes of President Hugo Chavez cut gas feedstock supplies and forced a temporary shutdown. The statement said the project continued to pump some 60,000 bpd of extra heavy oil. The oil was being placed into storage until the processing unit resumes operations.

www.zwire.com By: Andrea Kiliany Thatcher March 06, 2003

Surprisingly, gas prices in Pennsylvania are eight cents lower than the national average. However, consumers won't be surprised to find that the average is more than 50 cents higher than numbers for the same time one year ago.

      While the national average is currently $1.67 for regular unleaded fuel, Pennsylvania is hovering around $1.59. This holds true for Elizabethtown in specific. At press time, $1.59 is the highest price in the group of stations sampled.

      Of the stations sampled, Citgo and Mobile had the highest prices at $1.59 for regular unleaded, $1.69 for middle-grade, and $1.73-$1.75 for high octane.

      Shell was slightly lower with prices of $1.58, $1.66 and $1.69. In the middle with $1.57, $1.65 and $1.73 was Turkey Hill.

      The lowest priced gas among the sampled stations in Elizabethtown at press time was found at Giant. Their prices were $1.55, $1.62 and $1.68.

      The U.S. Energy Information Administration reports that gas prices are at the highest since 2001 and have been rising steadily for more than nine weeks. Some explanations include the colder-than-expected winter, a strike in Venezuela and worries about the war with Iraq.

      When paying so much more for gas, consumers become more concerned with where that money is going.

      Thirty-seven percent of your money goes towards the crude oil itself. This is determined by the Organization of the Petroleum Exporting Countries.

      Taxes make up twenty-seven percent of the price of gas. Federal excise taxes are 18.4 cents per gallon, and state excise taxes average around 19.96 cents per gallon. State sales tax, as well as local and city taxes, are sometimes added to this.

      The cost of refining the oil makes up about twenty percent of the price paid at the pump. Less than ten percent of the price is attributed to distribution and marketing. The crude oil is transported to the refinery, the resulting gasoline is shipped to distribution centers and from there it goes to gas stations. The cost of all this transportation, as well as that of marketing a particular brand of oil, is passed along to the consumer.

      Station markup, the money a service station adds to the price they pay in order to make a profit, is usually only a few cents but sometimes up to ten cents. There is no standard for how much is added.

      Taxes and local competition are the biggest factors in the difference of prices from state to state, region to region. Stations closer to the oil refineries in the Gulf of Mexico often have lower prices, as well as areas with lower environmental standards.

new.stockwatch.com 2003-03-06 14:33 ET - Street Wire by Brent Mudry

The United States Securities and Exchange Commission, North America's most aggressive securities regulator, has won a lifetime penny stock bar against Norman F. Piatti, the former president and chief executive of Lifekeepers International Inc., a penny stock pump and dump which featured accounts at several Canadian brokerages, including Union Securities in Vancouver and now defunct Rampart Securities in Toronto.

In a parallel criminal case, key Lifekeepers target Jeffrey Senger, a notorious Florida promoter, has recently pled guilty in Operation Bermuda Short, the latest target in the broad FBI-RCMP undercover sting to cut a deal and agree to rat on his colleagues in the penny stock world. Mr. Senger, 36, of West Palm Beach, in jail without bail since his arrest Aug. 13, faces sentencing on May 23. In the Bermuda Short case, Mr. Senger agreed to bribe several undercover agents and federal operatives, posing as corrupt mutual fund officials, to buy worthless penny stocks.

In the SEC case, Mr. Piatti, 48, also of West Palm Beach, has been prohibited from participating in the offer or sale of any penny stock, in a consent settlement recently entered by Judge Daniel Hurley of U.S. District Court for the Southern District of Florida. The court did not order Mr. Piatti to pay a fine or any other civil penalty, based on his demonstrated financial inability to pay. Mr. Senger has not yet settled with the SEC.

Mr. Senger's dealings through Rampart, the former Bay Street brokerage, are featured in 19 of his 27 counts of masterminding the pump-and-dump rig job of Lifekeepers. Mr. Senger was charged with a total of 22 counts of securities fraud, four counts of conspiracy and four counts of money laundering in connection with two fraudulent stock manipulation schemes. His guilty plea was entered Feb. 19.

In the SEC case, the regulator claims Mr. Senger and civil co-defendant Brad M. Nirenberg sold 150,000 shares of Lifekeepers and reaped $260,000 in illegal profits, aided by a slick campaign of bogus or misleading press releases issued mainly by Mr. Piatti. (All figures are in U.S. dollars.)

"At various times during 1999, Senger and Nirenberg acquired substantial blocks of Lifekeepers stock and placed it in accounts at certain broker-dealers. Together, with the assistance of Piatti, Senger and Nirenberg proceeded to pump-up the demand and price for Lifekeepers' stock through a series of manipulative activities while dumping their own shares into the market at a substantial profit," states the SEC in its civil complaint.

Lifekeepers claimed it bought a 20-per-cent stake, worth between $80-million and $500-million, in MyMedic.com, a health care Web site. In reality, MyMedic, which was owned and operated by Mr. Senger and had offices across the hall, had no revenues and was not even fully operational. A corporate resolution signed by Mr. Piatti showed Lifekeepers bought a 7.2-per-cent stake in MyMedic for $50, after loaning $120,000 to the dot-com sham.

Mr. Senger, a user of Canadian brokerages, has been dogged and shadowed by U.S. authorities for years in various deals. He was under active investigation by U.S. authorities since early 1999, during the early stages of his Lifekeepers promotion, for his activities at Baxter Banks, a notorious U.S. boiler room operation. U.S. securities regulators received more than 200 complaints related to the flogging of Lifekeepers shares by Mr. Senger's boiler room brokers at Baxter Banks.

"He had two accounts in Canada that were at Rampart and Union Securities. Both of those accounts were closed when Canada -- they are brokerage accounts, and both of them were closed when Canada changed their law and apparently precluded U.S. citizens from holding brokerage accounts," stated Miami criminal defence lawyer Samuel Rabin in a detention hearing soon after Mr. Senger's arrest. (Canada has not changed any laws on foreign clients of brokerages, but the practice has come under increasing scrutiny by Canadian securities regulators, and some brokerage chiefs, in recent years.)

While Rampart collapsed more than a year ago, Mr. Senger continued to fly to Toronto on business, although his recent brokerage contacts or dealings are not identified. On Jan. 30, 2002, in a conversation taped by Bermuda Short agents, Mr. Senger said he had just gotten back from a business trip to Toronto. "He says that, 'Rick and I,' Rick being his brother and him, 'had been making money faster than we can count it,'" Assistant U.S. Attorney Rolando Garcia told the judge. Customs records also show Mr. Senger entered the U.S. from Toronto twice in late July, a few weeks before he was arrested at his home in Florida.

The Miami judge also heard of Mr. Senger's offshore prowess, including his brokerage and bank dealings in such secretive enclaves as Panama, the Turks and Caicos Islands, Bermuda and the Bahamas. In September, 2001, Mr. Senger spent three days on Margherita Island, just off the coast of Venezuela. On Aug. 6, a week before his Bermuda Short arrest, he told the co-operating witnesses he was thinking of opening a "room," presumably a boiler room, on Margherita Island, and working the sucker market in Europe.

Several Lifekeepers co-conspirators were charged in a separate grand jury indictment in 2001. A number of these indicted Lifekeepers associates were also fond of Canadian brokerages as stock and money laundering conduits. In July, 1998, South American native Valentin Fernandez, through a nominee, opened an account at controversial Vancouver brokerage Pacific International Securities under the name Kuatro Ltd. In February, 1999, Mr. Valentin, again using a nominee, opened an account in the name of Dominion Investments at the former First Marathon Securities in Toronto. His brother, Juan (John) Fernandez, who controlled a branch of Baxter Banks, and four other Baxter Banks brokers were also indicted.

bmudry@stockwatch.com