US, Iraq face-off KAYODE EKUNDAYO

WITH Bagdad under heavy attack by the United States, Nigeria’s age-long dream of raising its daily production quota to 3,000 barrels per day may be realised, amidst fear that the fuel crisis across the country may persist.

Nigeria, like other Members of the Organisation of Petroleum Exporting Countries (OPEC) had, in the last few years been lobbying the cartel for a redistribution output quota in line with its objective of attaining a daily production of 3,000 bpd and 30 billion barrels reserves by 2003.

The current attack against Iraq, the third largest crude oil producer and the disruption of supply from Kuwait coupled with Venezuela’s output suspension due to on-going industrial strike, gave a ray of hope to Nigeria that the crisis, if continued, may lead to quota increase to as much as 3,000bpd.

Although OPEC agreed last week before the commencement of the war to leave formal output of 24.5 million bpd in place despite fears that an attack on Iraq could cut off its 1.7 million bpd exports.

Kuwait had already said it may need to shut up to 700,000 bpd of production from fields near its northern boarder with Iraq, where US troops are poised to invade.

Presidential Adviser on Petroleum Matters, Rilwanu Lukman, said with the war, the cartel was ready to drop everything and either hold a meeting where they could agreed to raise production or via telephone if required.

At the cartel last meeting held in Vienna, Austria two weeks ago, Lukman said Nigeria has the capacity to sustain 2.5 million bpd in the space of a few weeks from the current 1.2 million.

“We have the potential to increase to 2.8 and 2.9 million bpd but this is not immediate. Call for quotas increase among members began last year and members are now debating what formula to use, but there was no timetable for the new divisions,” he said.

With the increase in drilling technology innovation around the world, multi-national oil firms in the country, namely Shell Petroleum Development Company (SPDC) ChevronTexaco, TotalFinaElf, Nigeria Agip Oil Company (NAOC) the current nation’s quota.

Their hindrance has been quota restriction which reduce output capacity.

For instance, SPDC, with daily production capacity of 1.3 million barrels, produces an average of 840-900,000

With the crisis in Iraq, international market is under tension as more consumer nations scramble for products to sustain their economy.

URL Reuters, 03.25.03, 7:24 AM ET

LONDON, March 25 (Reuters) - Brent oil futures extended gains on Tuesday as fierce resistance to U.S.-led forces in Iraq provoked fears of a protracted war, and open-ended supply disruptions in Nigeria further stressed the market.

At 1200 GMT, Brent crude for May delivery stood 61 cents higher at $26.70, building on gains of $1.75 on Monday.

U.S. light crude on the New York Mercantile Exchange (NYMEX) was up 81 cents at $29.47 per barrel in ACCESS trade, adding to gains of $1.75 in New York on Monday.

Traders said the twin concerns of Iraq and Nigeria were moving the market with worries that an extended Iraq campaign could disrupt oil supplies from the Middle East.

They also said the loss of sweet Nigerian crude due to ethnic unrest was a bullish factor at this time of the year when refiners are trying to up gasoline production ahead of summer. Nigerian sweet crude has a high gasoline yield.

"Iraq and Nigeria are the two classic symptoms driving the market. The strong performance today is off concerns about production loss in Nigeria and the Iraqis fighting back hard," said one IPE trader.

"Last week some people overdid it on the downside," he added. IPE Brent futures for May delivery fell under $25 a barrel for the first time in over three months on Friday.

U.S. marines fought fierce battles with Iraqi forces on Tuesday in the strategic southern city of Nassiriya and forward units began an assault on troops defending Baghdad. British Prime Minister Tony Blair warned of tough fighting ahead.

Earlier Iraq asked other oil producing states not to hike output to compensate for the loss of Iraqi crude.

Traders said that while world oil markets are generally well supplied, they are still spooked by the shutting of nearly 40 percent of OPEC member Nigeria's over two million barrels per day (bpd) oil output.

As unrest escalates, oil multinationals have closed down practically all their operations in Nigeria's troubled western delta with production of some 817,000 bpd shut in. They could not say when production would resume.

Analysts said the shut-ins once again raised the issue of spare production capacity within the OPEC cartel as another member state Venezuela is only just getting back to normal after a protracted three-month strike.

Weekly U.S. government petroleum data due on Wednesday should show a modest decline in U.S. gasoline stocks, analysts polled by Reuters predicted. April NYMEX unleaded gasoline was up 1.30 cents a gallon to 91.09 cents.

National crude stocks were seen rising by 2.6 million barrels, or about one percent, in the week to last Friday.

April IPE gas oil stood $8.50 higher to $234.75 a tonne.

Universal Resource Locator Posted on Tue, Mar. 25, 2003 By Daniel Altman NEW YORK TIMES

Depending on the outcome of the war in Iraq, its impact on the economy could range anywhere from a recession to a mild stimulant.

The early indications for the economy, as for the war, had been good. On Monday, however, a touch of trepidation dampened the mood.

"On Friday, when everyone went home for the weekend, there was a degree of euphoria," said Henry G. Willmore, chief U.S. economist at Barclays Capital. "There's been a bit of reassessment given the events over the weekend." Still, he added, since a week ago Monday night, when President Bush announced the 48-hour deadline for Saddam Hussein to leave Iraq, "we've still had significant declines in oil prices, and the stock market is up."

For months, expert studies have predicted that a brisk campaign followed by total victory would lead to lower oil prices and increased consumer confidence. In addition, the removal of uncertainty could help some businesses to make investment decisions. Even in the best case, though, some side effects -- from higher mortgage rates to deepening government deficits -- could shave off part of the economy's gains.

"In terms of growth in the first half of the year, we're going to be somewhere in the vicinity of 2 percent" at an annual rate, predicted Peter Hooper, chief U.S. economist at Deutsche Bank Securities. Without the war-related uncertainty, he said, the economy would probably have been able to expand at an annual rate of 3 percent in the first half.

Economists generally agree that the economy needs to grow by at least 3 percent annually in order to improve employment. With growth of just 2 percent, hundreds of thousands of jobs could be lost in a year.

In addition to the stagnating effects of uncertainty, rising oil prices in the months leading up to the war substantially influenced the economy through a "war premium" caused by worries about disrupted oil shipments from the Persian Gulf. The strike in Venezuela's oil industry, which has reduced global supply, and now problems in Nigeria, make isolating the war's effect on prices difficult, though.

Edward F. McKelvey, a senior economist at Goldman Sachs, said he had heard figures of a $7- to $10-a-barrel premium in the first quarter of this year. A premium of $10, he said, would cost consumers about $50 billion a year. Still, he cautioned, "you don't have any really good sense of where the baseline was."

In the first few days of the war, the premium in oil prices had seemed to be vanishing. By Friday, the price of crude oil had fallen to about $27 a barrel from a peak of about $38 on March 7. If that trend held, the war's indirect impact on the economy could be minimal, according to a study by William D. Nordhaus, a professor of economics at Yale University. And yet, as it appeared that Iraqi resistance to the invasion might be stiffening Monday, oil prices edged back up.

In the worst case, a price spike could cost as much as $391 billion over 10 years, Nordhaus wrote. The Center for Strategic and International Studies forecast that a prolonged war accompanied by serious terrorist attacks could drain $472 billion from gross domestic product in this year alone. A loss of that magnitude could qualify as another recession.

Blaming the war for weaker retail sales and a lack of hiring might be a step too far, though, according to McKelvey. "How much of that's war uncertainty, and how much of it's other stuff?" he said. "We would tend to go with other stuff."

On the other hand, a successful conclusion to the U.S.-led invasion could give the economy an immediate shot in the arm for the second half of the year. A report published in November by the Center for Strategic and International Studies suggested that the economy could gain an extra $52 billion in growth in the best case.

"If we get through this without major damage to Iraqi oil facilities, and without any kind of terrorist action, and relatively quickly on the military front, I would think that would be good for the economy," Hooper said. "It would be good for the equity market, and it would be good for consumer confidence."

Read more... Posted on Tue, Mar. 25, 2003 STAFF AND WIRE REPORTS

ChevronTexaco Corp. shut its main oil terminal and offshore oil wells in Nigeria and began evacuating employees and refugees after violent clashes between the Nigerian army and militant members of an ethnic group seeking political reforms.

An employee of a ChevronTexaco contractor was killed by a stray bullet, the company said.

ChevronTexaco said it shut down most of its daily output in Nigeria, including wells that turn out 440,000 barrels a day of crude oil and 285 million cubic feet of natural gas. Loss of its 40 percent stake in that output cut ChevronTexaco's global oil production by about 7 percent, the company said.

Fred Gorell, a spokesman for the San Ramon-based oil giant, declined to speculate on how long the shutdown would last. "We hope it's going to be resolved soon, quickly and peacefully," he said. Other ChevronTexaco affiliates in Nigeria have continued to produce about 40,000 barrels a day, he said.

Gorell, citing uncertainty as to whether next of kin had been notified, declined to identify the employee who was killed. ChevronTexaco said it had airlifted 1,600 non-employees who had sought refuge in its facilities to safety in Nigerian cities.

Shutdowns by ChevronTexaco and other oil companies, including Royal Dutch/Shell Group, owner of a Martinez refinery, reduced by about one-third daily oil production in Nigeria, the United States' fifth-largest source of petroleum imports.

The shutdowns halted the flow of more than 800,000 barrels a day of Nigerian crude into the world market, squeezing oil supplies even as war in Iraq shut off that country's 2.5 million barrels a day and Venezuela struggled to ramp up production after a recent strike. A barrel is 42 gallons.

News of the Nigerian cutoff and uncertainty about the duration of the Iraq war sent wholesale oil prices higher after a week of declines. The benchmark price of a barrel of West Texas Intermediate crude rose 6 percent late Monday, to $29.18 from $24.50, according to Dow Jones Energy Service.

Nigeria is the fourth-largest producer in the Organization of Petroleum Exporting Countries. OPEC President Abdullah bin Hamad al-Attiyah told Cable News Network the disruption is "temporary" and that OPEC members are following developments closely.

Residents of the Niger delta have repeatedly disrupted oil operations in Nigeria, Africa's largest oil producer, to put pressure on the government and demand the producers invest in their communities. Some, with the backing of human rights groups, have sued American oil companies, including Shell and ChevronTexaco, charging them with backing military repression, charges the companies have denied.

On Monday militants of the Ijaw ethnic group threatened to attack oil facilities in the western delta of the Niger River unless President Olusegun Obasanjo's government addresses their demands, Agence France-Presse reported

"We have the tank farms and oil facilities at our disposal, and we will do very funny things with them if the government does not look into the root causes of the matter," AFP quoted Kingsley Otuaro, secretary of the Federation of Niger Delta Ijaw Communities, as saying.

Ijaws want the government to re-draw electoral boundaries near the city of Warri so that members of the ethnic group can control a local government council.

"The Ijaws are sandwiched between local governments controlled by the Itsikerri and Urhobo ethnic groups," said Bobo Brown, a Shell spokesman in Port Harcourt, Nigeria. "Over time, the struggle to get the Ijaws an independent local government has not been very successful."

Obasanjo, who is seeking re-election April 19, has sent troops to the area to quell the unrest. About 10,000 people have died in religious, ethnic and political violence since 1999, when 15 years of military rule ended.

"There has been a running battle between different ethnic groups as the elections approach; they are all caught in this confusion," Brown said. "Years of military rule have left us a culture of crisis and confusion in trying to redress political disputes."

Times staff writer Rick Jurgens and Bloomberg News Service contributed to this story.

Source Tuesday March 25, 7:10 PM

SINGAPORE (Dow Jones)--Oil prices will likely remain higher for longer than is the consensus view, even if the war in Iraq is a "quick and clean" one, Goldman Sachs said in its latest research report.

Goldman said the oil market is experiencing a number of other shocks that are significant to help the prices to stay high.

Oil prices could overcorrect on the downside in the near term. However, after the resolution of the war, oil prices will likely stabilize in the mid-US$20 a barrel range, the report said.

If the war is not quick and clean, there is potential upside to the Brent crude oil forecast of US$26/bbl for 2003, it said.

Goldman said several dislocations other than Iraq are there in the oil market. They include Venezuela's lower production and Japan's closure of nuclear power plants.

Venezuela's production, around 2 million b/d, is 1.4 million b/d less than the pre-strike level, and Japan's closure of most of its nuclear plants has led to a 500,000 b/d increase in oil demand

In the meantime, the natural gas supply crisis in the U.S. has led to users switching from natural gas to oil products, adding 200,000 b/d of demand in 2003. The outbreak of civil unrest in Nigeria over the past week has caused the shut-in of more than 550,000 b/d of production.

The net impact of these shocks is very low inventories, which should support prices for some time, the report said.

-By Xu Yihe, Dow Jones Newswires; 65-6415-4068; yi-he.xu@dowjones.com

-Edited by George Bernard