<a href=www.menafn.com>Middle East Nort Africa • Financial Network--The Atlanta Journal-Constitution NewsStand - Sunday, April 27, 2003 MICHAEL E. KANELL, Staff

The war with Iraq is over, but the uncertainty is not. And one of the biggest unknowns is how much impact the return of Iraqi oil to the market will have on the wobbly U.S. economy --- and how soon. A lot is riding on the answer. Optimists say Iraqi oil holds the promise of keeping global energy prices down, limiting the influence of the Organization of Petroleum Exporting Countries and offering relief to beleaguered American consumers and companies.

"I think the war changed things in a big way," said economist Ujjayant Chakravorty of Emory University.

Few oil wells were torched by Iraqi troops. No missiles hit Saudi oil fields. No suicide bombers blocked oil ports. As those fears evaporated, the price for oil came down dramatically.

From a prewar flirtation with $40 a barrel, oil prices fell into the mid-$20s.

For a struggling U.S. economy that stumbled again in recent months, the higher prices had threatened a renewed recession, said Rajeev Dhawan, director of the economic forecasting center at Georgia State University

"We definitely dodged the oil bullet," he said.

Still, the ripple from the halt of Iraqi oil production when the war started has yet to even reach U.S. shores.

Oil from Iraq, which had been the fifth-largest supplier to the United States, stopped flowing shortly after the bombs started falling on March 19. Since it takes more than a month for oil to wend its way from the Middle East to the United States, it is too early to assess the effects of the shutdown, said Matt Simmons, chairman and chief executive of Simmons & Company International, a Houston-based energy investment bank.

Oil production in Nigeria has also been disrupted, by political violence.

If the cutbacks in those countries are going to mean higher prices, we should start to see them in the coming days, he said.

Most analysts expect a slow return of Iraqi production and relatively stable oil prices for a few months. And as the flow of Iraqi oil swells, that added supply should nudge prices down.

But there are other possibilities. Many analysts expect the Bush administration to dismantle Iraq's state-run economy in favor of a free market.

Privatization would be a tremendous shock and might delay full production, said Lewis Snider, professor of political science at Claremont University in California, who has lived in the Middle East.

"The politics of this could get really nasty," he said.

The issue is important because timing matters. America's need for gasoline peaks in midsummer.

With most of the world's producers pumping near capacity and the stream from Iraq slowly resuming, gas this year will be available at surprisingly reasonable prices, Snider predicted.

"I don't see too much reason to be anxious about the tightness of supply this summer," he said.

Still, inventories are at historically low levels. With so much oil coming from unreliable places, and with OPEC planning to cut production about 7 percent, an increase in energy needs will leave precious little room between supply and demand, said Jay Hakes, former administrator of the Energy Information Administration.

"I still think we are in the tightest market since the Persian Gulf War. Saudi Arabia helped, but it hasn't offset the oil lost from Iraq."

And other losses are possible. Balance shifts

Crunch time is from Memorial Day to Labor Day. If all goes right, which includes Iraq starting to export oil and Venezuela and Nigeria staying placid, then there will be enough modestly priced gas for Americans.

Unfortunately, that means depending on a lot of coins to come up heads, Simmons said. "The odds are really low that we will have an easy time."

"This market is very vulnerable to any little disruption," Hakes said. "I think OPEC may be misreading the world market. There is not a good supply of oil out there. That could make for fireworks in the next few months. If gas goes to $2 a gallon, that has an impact on the economy."

Short-term questions aside, the war has shifted the balance of oil power.

Iraq's oil reserves are second only to those in Saudi Arabia. While Iraq's decaying industry struggled in recent months to pump 2 million barrels a day, its capacity could be three times that.

As some war-backers argued, a U.S.-friendly Iraq would erode Saudi Arabia's power to shape prices.

The 2001 Cheney Report on energy argued that America must diversify sources for oil and make sure those sources are dependable. "The policy-makers want to move away from the Middle East --- to the Caspian Sea, to West Africa and Latin America," said Daphne Wyshan, a fellow at the Institute for Policy Studies.

A pro-U.S. Iraq would provide one more dependable source. But significant production needs to be resumed first.

Vice President Dick Cheney recently predicted that Iraq will be pumping 2.5 million to 3 million barrels of crude a day by year's end --- better than its production has been for years.

The experts are split on that projection.

First is the problem of legality: Will the United States win United Nations approval to sell Iraqi oil? Would the United States go ahead without an OK?

Niceties of international law aside, dilapidated equipment and transportation bottlenecks could throttle a return to full production, Simmons said. "But it's like a patient who needs an MRI and CAT scan. We just don't know yet."

Even the much-touted estimates of Iraqi reserves are unreliable, he said. "How much oil is there? Nobody has any idea." Politics plays a role

Iraqi oil's impact may depend more on politics than engineering, said Ken Miller, vice president of Purvin & Gertz, an international energy consulting company in Houston.

With the world's large economies weak, Miller said the supply will overwhelm demand and prices will come down.

For American drivers, the idea of cheaper gasoline sounds delightful. But that could spell political disaster.

Middle East oil producers have built economies around oil dollars. When the price plunges, it can savage the standard of living and undermine the compact between people and rulers.

Some analysts scoff at worries about revolution. Still, the danger is obvious from the numbers, Simmons argued. Saudi Arabia has a burgeoning population and a large royal family that has its own kind of welfare. The nation's income has fallen from about $26,000 per person to $6,500 in less than two decades.

"Do the numbers --- unless they are willing to produce another cash crop, they need an average of 10 million barrels a day at $50 a barrel," Simmons said.

Oil prices didn't get to $50 a barrel last year. But during the winter, higher energy costs were seen as a drain on the finances of consumer and company alike.

Price increases are not as costly to the economy as three decades ago, but America cannot run without oil. When the price goes up, we pay. Only if it stays high for a long time do consumers shift their habits and purchases.

That makes the short-run effect of oil prices potentially painful. So, if OPEC's cut forces oil prices up rapidly, that could put a nasty hole in hopes for a recovery. The price equation

High oil prices have been a factor in --- or the cause of --- most of the U.S. recessions since World War II. On the other side of the coin, low prices have added fuel to several booms.

While the fall from prewar levels is welcome, oil prices are still far higher than in late 2001 and early 2002. Back then, gas prices in metro Atlanta were below $1 a gallon. Still, if prices don't climb again, that is a very modest kind of good news.

With the U.S. economy struggling --- job losses up and business orders down --- oil prices are not helping, said John Silvia, chief economist of Wachovia Securities. "But it won't hold us back --- we're already stuck in the mud."

Hopes for renewed growth have been pegged to a resurgence in business spending. But companies have been unsure about the future and hesitant to spend, just like consumers. Higher-than-average oil prices only add to uncertainty, said Dwight Allen, a partner at Deloitte Research.

"At least we know we are not in for a dire, acute situation," Allen said. "But the future is as cloudy as it was before."

Allen is telling his corporate clients to come up with several backup plans, to consider various scenarios and to hedge their bets. This is not a time for gambling, big spending or padding payrolls.

"For the next 12 months, you make only a limited commitment," Allen said.

<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

The Houston Chronicle.com April 4, 2003, 9:36AM By MICHAEL DAVIS Copyright 2003 Houston Chronicle

As Venezuela's oil production slowly returns to normal, the OPEC member is turning its attention to restoring its battered reputation after strikes shut down its national oil company.

The national strikes, aimed at ousting Venezuelan President Hugo Chavez, have left Venezuela's economy in a shambles and its oil company, Petroleos de Venezuela SA, or PDVSA, with a severely depleted work force.

Venezuelan officials say the country's production is back up to 2.9 million barrels per day, but many in Washington, D.C., and elsewhere are skeptical of those numbers.

"It is tough to pin down exactly what they are producing, but even the political opposition in Venezuela says it's about 2.4 million barrels and possibly a bit higher," said George Beranek, manager of market analysis for PFC Energy in Washington. "I think they have recovered a lot faster than was expected."

To counter such widespread skepticism, PDVSA is mounting a public relations campaign aimed at restoring confidence in the country's oil sector. But it will take more than a slide show to convince the industry that things are back to normal.

Venezuela could make a significant step towards restoring confidence in its ability to be a reliable supplier simply by being more candid, said Michelle Foss, director of the University of Houston Energy Institute.

"They could tell everyone what is really going on, for starters," Foss said. "Nobody really believes those production numbers. We don't know how much of the oil they are shipping out may be coming from storage, for example."

Economy still shaking

Oil is the paramount component of Venezuela's economy, providing the majority of revenues to the government. The shutdown of the oil industry is still shaking up the economy.

The Venezuelan Federation of Chambers of Commerce and Industry, the country's largest business organization, estimates about 15 percent of the country's companies closed in the first quarter. An official with the groups described the country's situation as an "economic disaster."

Officials from PDVSA will be meeting with U.S. lawmakers, investors, financial institutions and think tanks to repair the country's reputation as one of the leading suppliers of crude oil to the United States.

The road show will stop in Houston, Dallas and New York, among other U.S. energy centers, to make its case that Venezuela is a reliable oil supplier.

Houston-based ConocoPhillips is a partner with PDVSA in two major heavy-oil projects in Venezuela. Exxon Mobil and ChevronTexaco are also involved in heavy-oil projects there.

PDVSA officials say the company is working to restore production that was shut down during the strike and are making progress.

"We are already back in our production areas," said Fadi Kabboul, minister counselor for energy affairs at the Venezuelan Embassy in Washington. "We have all of our light and medium wells producing at the same levels before the stoppage, and we are recovering about 80 percent of our heavy crude."

Light and medium wells refer to the weight of the oil produced. Lighter oil is easier to produce, transport and refine. Venezuela produces a broad range of oils, including some of the world's heaviest oil.

Terminals for loading oil for export have been visited recently by officials from companies such as Shell and Exxon Mobil to ensure they comply with international standards, Kabboul said.

During the strike, crews refused to dock their tankers at the oil terminals because of insurance concerns.

The Venezuelan ambassador to the United States, Bernardo Alvarez, met last week with Sen. Jeff Bingaman of New Mexico, the ranking Democrat on the Senate Energy Committee, to assure him the country will be able to meet its obligations to its U.S. customers.

"The ambassador told me that the strike is behind them now and that Venezuela has increased production very substantially," Bingaman said. "He also said that the political situation for President Chavez is moving toward a resolution, and that Venezuela is in a position to meet a substantial amount of our energy needs."

Top managers were fired

Compounding the skepticism over production numbers is the fact that many of the white-collar professionals who dealt with the country's oil production and sales day to day were fired during the strike.

"Some say more than half of PDVSA's employees were lost in the strike," Foss said. "What is clear is that all of the experienced managers that people were accustomed to dealing with are out of the picture."

PDVSA says it reduced its work force by 43 percent because of the strike. The biggest reduction came from the ranks of executives and professionals, which were cut by 55 percent and 59 percent, respectively, according to the company.

The loss of many of midlevel managers has thrown logistics at the company into disarray. Tasks such as billing, accounting, payments and tracking production flows are all in doubt now, Foss said.

As part of its marketing campaign, PDVSA projects that its production will be over 3 million barrels a day by year's end.

During March, Venezuela exported an average of 843,000 barrels of crude oil per day and 247,000 barrels of refined products per day to the United States, according to figures provided by PDVSA.

Before the strike, Venezuelan oil imports to the United States were running at 1.4 million barrels per day, the Energy Information Administration said.

Despite the widespread uncertainty over production volumes, there have been recent indications that the country's oil industry is returning to normal.

Gasoline exports from PDVSA's refinery on the Caribbean island of Curacao resumed last week. The country had halted gasoline exports, using all of what little it was producing or had in storage domestically. Now, Venezuela's refineries are able to produce enough to begin exporting gasoline again.

All of the nation's refineries should be back to normal by mid-May, PDVSA President Ali Rodriguez said last week.

Some heavy oil lost

Some of the country's heavy-oil production was lost permanently after being shut in, but estimates vary on how much. The International Energy Agency in Paris estimates 400,000 barrels of Venezuelan production was lost because of the strikes.

U.S. companies with major heavy-oil projects in the country report operations are back to normal for the most part.

Houston's ConocoPhillips is a partner in two of the largest heavy-oil projects, Petrozuata and Hamaca. Before the strike, Petrozuata was producing 120,000 barrels of oil per day, with about half going to ConocoPhillips, company spokeswoman Linsi Crain said.

Petrozuata's production ceased in December. It resumed in mid-March and is back to to its pre-strike levels, she said.

Hamaca was producing 46,000 barrels per day, 18,000 of which went to ConocoPhillips, and it is producing as it was before the strike. Upgrading facilities for the heavy oil, which must be processed so it can be moved via pipeline and then onto a tanker, are also back in operation, Crain said.

"Hamaca was still being ramped up at the time of the strike," Crain said. Hamaca is projected to hit a peak production of 190,000 barrels per day.

Exxon Mobil is partnered with PDVSA in a heavy-oil project called Cerro Negro. Heavy oil is mixed with naptha and moved to the north where it is upgraded and then exported to the companies' refinery in Chalmette, La.

Operations were closed in Cerro Negro after the strike began because of a lack of a reliable natural gas supply to the plant, said Bob Davis, an Exxon Mobil spokesman in Houston. Now production is back to normal at 120,000 barrels of heavy oil per day, Davis said.

<a href=www.vheadline.com<Venezuela's Electronic News Posted: Thursday, April 03, 2003 By: Patrick J. O'Donoghue

Oil imports to the USA have reached the same levels as last year, US Ambassador Charles Shapiro has told reporters.  Speaking at a forum on Venezuela's Electoral Power and democracy, US Ambassador Charles Shapiro has confirmed that his government does not see eye to eye with Venezuelan President Hugo Chavez Frias on the Anglo-American war on Iraq.

Shapiro says Movimiento Quinta Republica (MVR) deputies have the right to criticize the war because in Venezuela people are free to express any opinion. 

As for a statement by the Iraqi Ambassador that all Venezuelans reject the war, Shapiro begs to differ ... " it doesn't reflect every Venezuelan's opinion." 

Referring to home events, the Ambassador is of the opinion that a new National Electoral College (CNE) board would help solve the problem of governance in Venezuela

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Thursday, April 03, 2003 By: VenAmCham

The government proposal suggests the adoption of a system whereby Venezuela will provide oil in exchange for finished products, infrastructure development projects, and other goods acquired from abroad aiming to strengthen Venezuela's trade and to develop its infrastructure.

Energy & Mines Minister Rafael Ramirez says "these are important investment projects in which he foreign companies will do the work and provide their investment capital, and Venezuela will pay with oil."

During his "Alo Presidente" program last Sunday, President Chavez Frias had proposed exchanging oil and petroleum products for the development of Venezuela's infrastructure and claimed that several countries ... among them Brazil and Italy ... were willing to accept oil and other products in exchange for building prisons, schools, and houses in Venezuela.