www.planetark.org USA: March 21, 2003

WASHINGTON - Amid heightened tensions in the Middle East, Venezuela is quietly launching a campaign to rebuild its shattered prestige as a reliable supplier of oil to the United States.

The effort will be spearheaded by an energy task force that will operate from the Venezuelan embassy in Washington. Its mission is to maintain regular contact with top Bush administration energy officials and key members of Congress and the oil industry. "We have put forth a plan of action over the next two or three months," Ambassador Bernardo Alvarez told Reuters in an interview late on Tuesday. "And we are going to contact all levels of American society.

"We have seen the need to deepen the strategic relationship between the United States and Venezuela."

The effort reflects a new approach to bilateral relations by Hugo Chavez, Venezuela's controversial president and a fiery populist who in the past has repeatedly clashed with Washington on issues that range from free trade to Cuba.

Traditionally, energy ties between the two countries have been tight.

Venezuela supplied more than 13 percent of U.S. oil imports until a two-month strike at state-run oil giant PDVSA ground shipments to a halt in December and January. Venezuela is also a key supplier of refined products as tough U.S. environmental laws discourage building new plants.

Many think Chavez' energy overtures will be well received in the Bush administration, given U.S. preparations for war against Iraq and the potential for disruptions in oil shipments from the Middle East.

"Clearly Venezuelan oil is very important to the United States and clearly an effort by Chavez to satisfy the U.S. on this front is a positive sign and will be taken that way," said Peter Hakim of the Inter-American Dialogue, a Washington think tank.

OIL TASK FORCE

Senior officials from both PDVSA and Citgo, PDVSA's U.S. gasoline retailer, will be permanently based in Washington to staff the new task force, as will specialists from Venezuela's ministry of energy and mines, Alvarez said.

"Three institutions are taking part, and the embassy here will coordinate everything," he said.

A similar task force existed until 2001, but it broke up as relations between the two nations deteriorated.

But as PDVSA gets its crude production back up to pre-strike levels, the task force will face the crucial task of convincing the United States that Venezuela means business.

Venezuela is also dispatching PDVSA's production and refining chiefs to Washington to explain Chavez' plans for the company.

The government earlier this year sacked 16,000 workers who took part in the strike and wants to downsize the company to make it more efficient. The opposition accuses Chavez of carrying out a witch hunt against opponents in the oil firm.

The task force will also tout what Ambassador Alvarez calls "the need for a more profound strategic alliance between Venezuela and the United States."

Venezuela wants U.S. firms to invest more to expand refining capacity in Venezuela to make up for an expected five million barrel-per-day refining shortfall in the United States in five years, the diplomat said. Likewise, the United States will need 38 trillion cubic feet of natural gas by 2015, up from 23 trillion now, and Venezuela has enough reserves to fill the gap, provided U.S. firms are willing to develop in natural gas fields there.

OIL AS STATE POLICY

Venezuelan officials will fan out in roadshows to carry the message to New York, Dallas, Houston and other energy centers in the United States.

Above all, they will try to convince U.S. officials that oil is a matter of "state policy" and not "an instrument to be used by the right or the left," Alvarez said.

Story by Pablo Bachelet

www.hpj.com Monday, March 17, 2003  Good Evening!   Venezuela plans to produce above its OPEC crude oil output quota to make up for lost revenue during a two-month strike, the oil minister said Friday, The Associated Press reported.

Rafael Ramirez wouldn't say how much Venezuela would pump above its 2.8 million barrels a day quota. Output is 2.9 million barrels a day now, the government says. "We have to do it gradually so as not to affect the oil market too much," Ramirez told state television station Venezolana de Television. "It will reach a level that will compensate what we stopped selling in the market."

Ramirez said Venezuela had an agreement with the Organization of Petroleum Exporting Countries allowing it to overproduce.

Venezuela is recovering from a political strike that petered out last month. Oil production reached a low of 200,000 barrels a day at the height of the walkout, which cost Venezuela $6 billion. It also forced Venezuela to spend $540 million on gasoline imports to make up for severe shortages. Executives fired from the state oil monopoly for participating in the strike say production is only 2.1 billion barrels a day. The government fired almost half the 35,000-strong work force at Petroleos de Venezuela SA for walking out.

On Thursday, Venezuela brought its largest catalytic cracker back online, bringing the country a step closer to resuming gasoline exports to the United States. Venezuela was the world's fifth-largest exporter before the strike. Venezuela crude and refined products accounted for 14 percent of U.S. oil imports last year.

Venezuela also announced Thursday that it had stopped importing gasoline.

Ramirez said there was an $8 to $10 premium on international oil prices because of U.S. threats to lead an attack on Iraq. He said there was enough world production to meet demand.

www.businessweek.com COMMENTARY By Peter Coy

Economists predicting a new recession based on historical trends are overlooking the extent to which the U.S. has become less oil-dependent Is the U.S. economy heading for another recession? The latest surge in energy prices has plenty of smart economists worried. And they have the weight of history on their side: Since the first Arab oil embargo in 1973, nearly every oil spike in the U.S. has been followed by a recession. Writes Stephen S. Roach, Morgan Stanley's chief economist: "Inasmuch as America has yet to withstand an oil shock without tumbling back into recession, I am hard-pressed to believe that this will be the sole exception." The latest spike is a doozy -- the price of crude has doubled to about $37 a barrel. Natural gas has more than tripled. Gasoline at the pump is up 50 cents. And there's little doubt high energy prices are hampering the recovery of an economy that's already battered by slow business investment, a huge trade deficit, weak consumer confidence, and a depressed stock market. Yet even with all the short-term pain the energy spike is causing, if the Iraq conflict doesn't boil over into a regionwide war, there's a good chance the effect of the oil shock won't be severe. The history of oil spikes is a poor guide, in part because the country is less dependent on oil than it used to be. The U.S. uses only about half as much oil per dollar of inflation-adjusted output as it did in the early 1970s. Even since the last Gulf War, the economy's energy dependence has shrunk. THE BIG IF.  For energy prices to do real damage, they must remain high. It's only since December that crude has been firmly above its long-term average of the mid-$20s. And the factors propping up prices are mostly temporary, from a cold winter in parts of the U.S. to a Venezuelan oil strike to war fears. Winter is almost over and Venezuela has partially restored production. If the conflict with Iraq is resolved within a few months -- a big if, to be sure -- oil prices are likely to drop below $30 a barrel by summer. Some experts even think an oil glut is possible. Oil-company analyst Frederick P. Leuffer of Bear, Stearns & Co. predicts oil will average $18 a barrel in the second half of 2003. Traders in the futures markets aren't so sure, but even they predict price declines. Oil on the New York Mercantile Exchange for August delivery is going for $31 a barrel, vs. $37 for April delivery. August natural gas is $5.50 per million Btus, down from more than $10 for the recently expired March contract. Things look worse for summer gasoline prices because supplies will be tight. Analysts see retail prices averaging from $1.65 to $2 a gallon. HISTORY LESSON.  While none of that is good news, a recession looks unlikely. Leading forecasters such as Waltham (Mass.)-based Global Insight and St. Louis-based Macroeconomic Advisers predict that costlier energy will knock roughly half a percentage point off the first-half growth rate, but cease to be a factor in the second half. That's if per-barrel oil prices get back to the mid-$20s. If they stick at current highs, growth could be suppressed by half a percentage point -- or a bit more -- for the entire year. Those who warn of an oil-induced recession may be misreading history. Merrill Lynch & Co. calculates that when oil prices have moved up 60% over a yearlong period in the postwar era, in all but one instance, 1987, the economy has fallen into a recession. But triggering most past recessions was the Federal Reserve's efforts to stop inflation by raising rates, says James Glassman, an economist at J.P. Morgan Chase & Co. This time, inflation is tame: Consumer prices rose only 2.6% in the year ended in January. Of course, much will depend on how consumers, who buy two-thirds of total output, react to costlier energy. Certainly, higher prices add to the tentativeness many already feel in the face of a sluggish economy and high joblessness. The growth rate of consumer spending slowed sharply in the fourth quarter of last year to 1.5%, from 4.2% in the third quarter. And in January, spending actually fell by 0.3%, according to Macroeconomics Advisers. Global Insight forecasters believe that higher energy costs will notch consumer spending growth in the first quarter down to 1.5%, vs. the 2.2% it would have hit had oil prices remained stable. HARDEST HIT.  Still, presuming energy prices do head down quickly, the hit to consumers should be short-lived. A recent Gallup poll found that 62% of people thought today's high prices were a "temporary fluctuation." So, they may save less or borrow more to preserve their spending patterns. Says Oscar Rivera, 30, an inventory manager at a Texas trucking company: "What are you going to do? Not go out? Not heat your home?" None of which is to say that some sectors aren't getting whacked. Because of high natural-gas prices, 45% of the nation's production of ammonia, a fertilizer ingredient, is shut down. Behlen Manufacturing of Columbus, Neb., says its energy costs have risen 30% recently, but it can't pass them along because retailers won't pay more for its fabricated steel products. Expensive jet fuel is further weakening the airlines. Yet the economy as a whole remains resilient. Although Fed Chairman Alan Greenspan has warned that economists often underestimate the effects of oil shocks, he thinks the economy can withstand this one. As he once said, "forecasts of crises ... more often than not fail to develop, or at least not with the frequency and intensity proclaimed by headline writers." Let's hope the headlines are wrong again.

With Stephanie Anderson Forest in Dallas, Michael Arndt in Chicago, Christine Tierney in Detroit, and bureau reports

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

www.islandpacket.com By H. JOSEF HEBERT, Associated Press Published Friday, February 28th, 2003

WASHINGTON (AP) - Venezuela's oil production has been rebounding, but it's still too early to tell when American refineries will once again be able to rely on the South American country as they have in the past.

Venezuela's energy minister, Rafael Ramirez, gave an optimistic forecast during a visit Thursday, predicting that his country would be producing 2.4 million barrels of crude a day by the end of the month, about what the country's production quota is under guidelines laid down by the Organization of the Petroleum Exporting Countries.

But Bush administration officials did not eagerly embrace the upbeat assessment.

On Wednesday, Energy Secretary Spencer Abraham told a Senate hearing it might be two to three months before Venezuelan imports get back to normal.

"We appreciated their sharing the information with us," Energy Department spokeswoman Jeanne Lopatto said Thursday when asked for comment on Ramirez' forecast.

The loss of Venezuelan oil in December because of the country's political strife has been especially worrisome within a Bush administration preparing for possible war with Iraq.

Energy analysts have questioned whether other producing countries with spare production capacity, mainly Saudi Arabia, could replace both lost Venezuelan and Iraqi oil should war erupt in Iraq and Venezuela's problems not be resolved.

The world's fifth largest oil producer, Venezuela is a major source of oil for the United States, accounting for about 14 percent of U.S. oil imports last year, or about 1.4 million barrels of crude and refined gasoline per day.

In recent months U.S. refiners, purchasing through intermediaries, reportedly have been relying more heavily on Iraqi oil to replace the lost supplies from Venezuela. The two countries produce similar types of oil.

U.S. imports of Iraqi oil doubled to more than 1 million barrels a day in mid-February, The Washington Post reported recently, citing unpublished figures from the United Nations. Working through intermediaries, U.S. companies long have bought Iraqi oil under a U.N. food-for-oil program, but those imports dropped to almost nothing last summer when Iraq for a time tacked on an expensive surcharge.

The political turmoil in Venezuela caught U.S. officials by surprise. Energy analysts have blamed the recent jump in the price of crude, as well as heating oil and gasoline, to the loss of Venezuela's oil and jitters over possible war in Iraq.

Crude prices retreated somewhat Thursday after soaring to the highest level since the Gulf War 12 years ago, closing at $36.35 on the New York Mercantile Exchange spot market.

Analysts speculated that the decline- nearly $1 from Wednesday's close - was more the result of profit taking than a signal of a downward trend. The price for crude to be delivered in April increased to just under $40, the highest since October 1990, shortly before the Gulf War.

The attempt by Ramirez, Venezuela's minister in charge of energy and mines, to reassure U.S. officials of his industry's recovery seemed to have little impact on traders, who have been worried more about Middle East supplies if war erupts in Iraq.

Ramirez said Venezuelan oil production, at a standstill in December and January, recovered significantly in February.

He said production rose from 150,000 barrels a day in early January to just over 2 million barrels a day, with 1.5 million barrels a day being exported. He said production is expected to reach 2.9 million barrels a day by the end of March.

He spoke at the Inter-American Dialogue, a Washington group specializing in Western Hemisphere affairs, and later to reporters.