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<a href=reuters.com>Reuters, Thu April 17, 2003 04:01 PM ET

NEW YORK (Reuters) - World oil prices rose nearly five percent on Thursday ahead of next week's emergency OPEC meeting as traders expect the cartel to tighten global crude supply.

U.S. crude futures in New York added $1.37 to $30.55, the highest price for more than two weeks, while Brent crude oil in London gained 86 cents to $25.85 per barrel.

Prices rose as Iran called on OPEC to cut its official output limits at the April 24 meeting, warning that failure to rein in supply could trigger a price collapse.

Having raised exports close to maximum capacity ahead of the U.S.-led war on Iraq, OPEC ministers have taken fright from a 30 percent drop in prices.

Iran's view is the most hawkish aired so far by members of the Organization of the Petroleum Exporting Countries, which controls over half of world exports.

Algeria believes OPEC could balance markets simply by restoring compliance to its existing 24.5 million barrel per day (bpd) ceiling, cutting out two million bpd of surplus.

Paul Horsnell, oil analyst at investment bank J.P.Morgan, said predictions of a price crash did not stand up and expected any supply cuts to push prices back up.

"We do not think that OPEC should be in any rush to cut production at this point," he said.

"There is a risk that, in responding to overly bearish sentiment, OPEC will simply repeat the mistake of last year and over-tighten the market."

Oil demand usually dips in the second quarter because of lower winter fuel needs in the northern hemisphere. But analysts point to an expected recovery in demand over the summer months when gasoline use soars during the long summer break.

The International Energy Agency, energy watchdog for 26 industrialized nations, has urged OPEC to be cautious in any supply cut, saying that prices are still too high for companies to rebuild low stocks.

IRAQ FACTOR

Iranian Oil Minister Bijan Zanganeh said the expected return of Iraqi oil exports was an important development for world oil markets which could lead to a "price challenge."

He said he expected Iraqi output to return to its pre-war rate of three million bpd in short order, rising another 500,000 bpd within a year.

Output from Venezuela and Nigeria is also recovering after political strife in those countries hit exports.

"Any increased supplies from Venezuela, Nigeria or, less plausibly in the short run, Iraq, would need to be offset if and when they arrived," Horsnell said, "but we would view any reduction in the total as skewing price risks to the upside."

The U.S. military reckons it could get Iraqi oilfields pumping at two-thirds of pre-war levels within weeks, but exports will not resume until a political authority is created in Baghdad and United Nations sanctions are lifted or modified.

President Bush on Wednesday urged the U.N. to lift sanctions, but United Nations diplomats said an end to the embargo should depend upon the world body certifying that Iraq is free of nuclear, biological and chemical weapons, one of the reasons Washington gave for launching the war.

The U.N. Security Council is likely to again sidestep any decision on a mechanism for Iraqi oil sales when it next moves to keep humanitarian goods flowing to Iraq in the next few weeks as it will raise questions of who would be in charge of post-war Iraq in the near term, diplomats said.

Forbes.com-Reuters, 04.17.03, 3:56 PM ET    

CARACAS, Venezuela, April 17 (Reuters) - Venezuela's No. 1 telephone company CANTV said Thursday the lack of a working conversion mechanism under government foreign exchange controls meant foreign shareholders would probably be unable to receive in dollars their share of a dividend due April 23.

The announcement by CANTV <TDVd.CR>(nyse: VNT - news - people), whose main shareholder is U.S. telephone company Verizon Communications (nyse: VNT - news - people), was an example of multiple problems raised by the slow introduction of regulations governing the currency controls.

These were decreed by President Hugo Chavez's government Feb. 6 to stem capital flight and halt a slide in the bolivar currency caused by a crippling two-month opposition strike that slashed oil output by the world's No. 5 petroleum exporter. The strike ended in early February.

CANTV said in a statement sent to Reuters that the remaining portion of the ordinary dividend for 2003 of 71 bolivars per share, or 497 bolivars per American Depositary Share, to be handed over April 23, would be paid in bolivars.

Under the foreign exchange control regime, the state currency control board CADIVI must approve and establish procedures for the conversion of bolivars into U.S. dollars for the payment of dividends to foreign investors. The government has set a fixed rate of 1,600 bolivars to the dollar but is establishing detailed procedures for different transactions.

"As of the date of this announcement, CADIVI is yet to establish such procedures (for dividends) and therefore it is unlikely that foreign investors will be able to receive their portion of the dividend in dollars by April 23," CANTV said.

Left-winger Chavez's government had announced that the repatriation of profits and payment of dividends to foreign investors would be authorized under the controls, which have been heavily criticized by Venezuela's private sector.

DOLLAR DROUGHT DRIES UP BUSINESS Business leaders say the stringent currency curbs, coupled with tight price controls and long delays in the introduction of bureaucratic mechanisms to allocate dollars for essential imports and foreign investment transactions, are virtually paralyzing business activity in the already battered economy.

CANTV said it was working with CADIVI to try to facilitate the process of requesting the purchase of dollars with which to pay dividends to foreign investors.

"At this point in time, the Company cannot reasonably give any guidance with regards to the length of the process and possible dates for the conversion of bolivars into dollars," it said in its statement.

In February, CANTV reported that its 2002 net income fell nearly 28 percent and the company posted a fourth-quarter loss as its results were undercut by the opposition strike, a sliding bolivar and a smaller nonresidential client base.

There have been other cases of the currency controls hitting foreign investors and manufacturers in Venezuela.

General Motors Corp.'s (nyse: GM - news - people) Venezuelan unit, the largest vehicle assembler in the South American country, said last month it was temporarily halting production because of problems caused by the foreign exchange curbs.

Foreign-owned vehicle assemblers like GM have been unable to import essential parts due to the restrictions and a long delay in the allocation of dollars.

Despite the barrage of complaints from foreign and local businessmen, populist Chavez has effusively praised the currency board CADIVI -- which is headed by a political ally -- saying it was doing a "tremendous job".

He said the foreign exchange controls were "here to stay," although some of his ministers have said they will eventually be lifted as the oil-reliant economy shows signs of improvement.

Opponents in the business community have accused Chavez of using the controls in a political vendetta to deny access to dollars to firms which supported the grueling opposition strike in December and January. The stoppage tried unsuccessfully to force him to resign and hold early elections.

CNN, Wednesday, April 16, 2003 Posted: 9:24 PM EDT (0124 GMT)

[Chavez] is going to be given a test, and a test is before him now. -- Secretary of State Colin Powell

CARACAS, Venezuela (AP) -- The U.S. Embassy on Wednesday denied Venezuelan claims that the United States supported last year's short-lived coup against President Hugo Chavez.

Army Gen. Melvin Lopez said Tuesday that Venezuela had proof of U.S. involvement. He said on state television that three U.S. helicopters were in Venezuelan territory during the April 11-14 coup, but didn't elaborate further. "We have the evidence," he said.

"These speculations are unfounded, totally false," U.S. Embassy spokesman John Law told Union Radio on Wednesday.

Law denied any U.S. aircraft was in Venezuelan territory during the coup.

"There was no American plane or helicopter in Venezuelan territory at that date," he said.

Dissident generals rose up against Chavez after 19 Venezuelans died and over 100 were wounded by gunfire as opposition marchers clashed with government supporters in downtown Caracas.

Loyalists in the military helped Chavez regain power on the 14th.

Following his return, Chavez said "worrying details" had emerged suggesting a foreign country might have been involved in his temporary overthrow.

The Bush administration has repeatedly denied that it was involved in the coup.

Powell has concerns about Chavez's commitment to democracy

Secretary of State Colin Powell said Wednesday that Venezuelan President Hugo Chavez can show a commitment to democracy by holding a free and fair referendum later this year on whether he should step down.

In an interview with Associated Press Television News, Powell acknowledged that he has had "concerns about Chavez's commitment to the kinds of democratic institutions that we believe are vital in a democracy."

Chavez "is going to be given a test, and a test is before him now," Powell said, alluding to the referendum agreement brokered in recent days by the Organization of American States.

If Chavez agrees to a referendum and to an implementing role for the OAS and the Carter Center, "then he will be showing a commitment to democracy of the kind we believe is the correct form of democracy for our hemisphere."

He added that it is up to the Venezuelan people to make a judgment as to what kind of democracy they want for their country.

The Organization of American States announced Friday that the Venezuelan government and opposition had agreed to pave the way for a midterm referendum on Chavez's presidency. The OAS has been sponsoring the peace talks since November.

In the document, both sides agree to play by the rules as the opposition works toward a midterm referendum on Chavez's presidency while the chief of state has pledged to leave office if he loses.

Chavez, elected to a six-year term in 2000, accuses Venezuela's traditional elite of seeking his ouster and foiling his efforts to distribute Venezuela's oil riches to the poor.

His opposition accuses the former army paratrooper of imposing an authoritarian regime and ruining the economy.

<a href=ogj.pennnet.com>Oil &Gas Journal Sam Fletcher Senior Writer

HOUSTON, Apr. 17 -- Energy futures prices were mixed Wednesday as traders contemplated conflicting signals from weekly reports of US inventories of crude and petroleum products.

The US Department of Energy estimated commercial US crude inventories increased by 100,000 bbl to 277.2 million bbl during the week ended Apr. 11. However, the American Petroleum Institute estimated a drop of 4.5 million bbl to 273.8 million bbl of crude during the same period. Although the two organizations use different methodologies to compute their estimates, such a large discrepancy in stock estimates is relatively rare, analysts said.

DOE reported US gasoline stocks fell by 300,000 bbl to 201.9 million bbl during the same period, while API registered an increase of 1.1 million bbl to 203.4 million bbl of gasoline. DOE said US distillate inventories dropped 400,000 bbl to 95.7 million bbl; API reported a larger loss of 1.6 million bbl to 97.1 million bbl of distillate.

Focused on OPEC Meanwhile, market attention is focusing on the upcoming Apr. 24 meeting in Vienna of oil ministers from the Organization of Petroleum Exporting Countries. Many traders, analysts, and "some OPEC ministers" are "clamoring for significant production cuts to prevent a major slide in prices," noted Paul Horsnell, head of energy research for JP Morgan Chase & Co., London.

However, Horsnell said Tuesday in a weekly report, "We do not think that OPEC should be in any rush to cut production at this point. We see no pending oil glut." Instead, he said, "There is a risk that, in responding to overly bearish sentiment, OPEC will simply repeat the mistake of last year and over-tighten the market through (the second and third quarters)."

Officials of the Paris-based International Energy Agency also cautioned OPEC ministers against cutting crude production next week when oil prices are still relatively high. Some OPEC ministers have indicated that they may need only to trim back their collective overproduction. OPEC's 10 active members, excluding Iraq, are estimated by some to have produced in March 1.4 million b/d above their official quota of 24.5 million b/d.

"With the falling off in Iraqi and Nigerian output, total OPEC production seems to have entered April at no more than 26.2 million b/d. There is also a question raised by tanker trackers as to whether Saudi Arabia is actually supplying as much as it is producing, suggesting that actual supplies may have fallen below 26 million b/d," Horsnell said. "Any increased supplies from Venezuela, Nigeria, or, less plausibly in the short run, Iraq, would need to be offset if and when they arrived, but we would view any reduction in the total (quota) as skewing price risks to the upside."

However, the situation may look different to OPEC ministers who, said Horsnell, "are naturally risk adverse and are faced with contradictory balances, with bearish (market) sentiment, and with estimates of production from the Venezuelan government that they must accept but that look to be overstating the reality." Under those conditions, he said, "The odds seem slightly to favor some sort of bias toward production decreasing as from June. In all, the more talk there is of price crashes, the greater the chance of prices overheating (from resulting production cuts)."

Market prices The May contract for benchmark US light, sweet crudes dipped by 11¢ to $29.18/bbl Wednesday on the New York Mercantile Exchange, while the June position was unchanged at $27.53/bbl. Unleaded gasoline for May delivery jumped by 1.39¢ to 87.27¢/gal. Heating oil for the same month was down 0.77¢ to 76.49¢/gal.

The May contract for natural gas gained 2.4¢ to $5.68/Mcf Wednesday on NYMEX "after being hammered early by fund and trade selling on technical factors, then lifted by locals short-covering (buying commodities to close out a short sale) late," analysts said Thursday at Enerfax Daily.

Anticipation among traders that the US Energy Information Administration would report Thursday another draw down of natural gas from underground storage "helped turn the market around with buying from locals. A technical shift from down to up shows the illiquidity of the market. With thin volume, the market is easier yanked around. The trend-day down became a trend-day up, an unusual occurrence that can signal a market to reversal, or a market turning downward."

EIA said Thursday that 48 bcf of gas was withdrawn from US underground storage during the week ended Apr. 11. That compares with a withdrawal of 9 bcf the previous week and an injection of 15 bcf during the same period last year. That leaves 623 bcf of gas in US underground storage, down 883 bcf from a year ago and 598 bcf below the 5-year average.

In London, futures prices for North Sea Brent crude settled slightly lower Wednesday, following expiration of the May contract on the International Petroleum Exchange. Brokers said the market ignored conflicting reports on US crude inventories to focus on the recovery of Nigerian production and the apparent end to major military conflict in Iraq.

The June Brent contract lost 14¢ to $25.02/bbl. The May natural gas contract gained 4¢ to the equivalent of $2.62/Mcf on IPE

The average price for OPEC's basket of seven benchmark crudes increased by 15¢ to $25.71/bbl Wednesday.

Contact Sam Fletcher at samf@ogjonline.com