<a href=www.nzherald.co.nz>New Zeland Herald 15.04.2003 8.30 am

NEW YORK - Oil prices rose on Monday (New York time), as the market weighed up the prospect of a return of Iraqi crude exports against possible supply curbs by Opec to avert a potential price crash.

US crude futures for May in New York rose 49 cents to US$28.63 a barrel while benchmark Brent crude oil in London rose 25 cents to US$25.00.

Oil prices have fallen about 30 per cent from pre-war peaks near US$40 as US and British forces quickly secured a majority of Iraq's oil infrastructure in the south of the country and traders predicted a fairly swift end to hostilities.

But any resumption of Iraq's vital crude exports will be up to an interim authority in Baghdad in conjunction with the United Nations

Some analysts forecast that diplomatic wrangling will keep Iraqi barrels off the market for months, but a senior US engineer said on Monday that Iraq's giant Kirkuk oilfields could start pumping within weeks.

The northern fields are capable of producing up to 900,000 barrels per day (bpd) of Iraq's pre-war production of roughly 2.5 million bpd.

"It's a definite possibility that could be just a few weeks away," said Tom Logsdon, a senior member of the US Army Corps of Engineers charged with repairing Iraq's oilfields.

Logsdon said the southern oilfields, where output was up to 2.1 million bpd before the war began on March 20, could be up and running in less than three months.

"Depending how quickly workers come on line, we estimate we will have between 330,000 and 1,000,000 bpd being produced within 12 weeks from now," said Logsdon.

Iraq's crude could hit world markets just as demand wanes in the second quarter, a seasonal slump between winter demand for heating oil and the peak consumption of gasoline during summer.

Compounding the demand downturn, many commercial airlines have slashed routes due to the spread of the flu-like SARS virus around the globe.

At the same time, supplies from Opec producers are running almost two million bpd above the group's self-imposed ceiling, to counter supply disruptions from Venezuela, Nigeria and Iraq.

"The industry is now facing the prospect of too much oil in the months ahead unless Opec reins in some of its recent output increase," the London-based Centre for Global Energy studies said in a report.

The Organisation of the Petroleum Exporting Countries is planning an emergency meeting later this month or in early May to discuss tightening compliance to current output quotas or even possible curbs to formal limits.

The International Energy Agency said last week that a big volume of Opec crude was sitting on the water waiting to hit consumer shores, but warned that it would be imprudent for producers to cut supplies too soon as fuel stockpiles in industrialised nations remain well below normal levels.

Venezuelan President Hugo Chavez said on Friday that South America's biggest oil producer was ready to back any proposed Opec supply cut to support prices in the group's target band of US$22 to US$28 a barrel for Opec's reference basket of seven crudes.

Opec's basket price stood at US$25.40 on Thursday, compared with a monthly average of US$31.54 in February. Reuters

By Bradley Brooks <a href=www.upi.com>UPI Business Correspondent From the Business & Economics Desk Published 4/8/2003 2:35 PM

RIO DE JANEIRO, Brazil, April 8 (UPI) -- Bombs fall in Baghdad, bonds rise in Brazil?

To the surprise of many Latin America watchers, the region's biggest economies -- forecast to be among the globe's hardest hit by a war in the Middle East -- have seen a resurgence in activity.

Spreads on bonds -- a measure of investor confidence -- have narrowed, local currencies are rising against the dollar, and in some cases there have been rallies in equities since the Iraq war began March 20.

Emerging market bond funds took in $948 million -- a record inflow -- in the first quarter of this year, according to a recent report by Emerging Portfolio.com, which tracks 171 dedicated emerging market bond funds globally.

That translates into an 11.4 percent gain in total assets for those funds in the first quarter, and Brazil has been right at the top in attracting investors, analysts say.

"In the inevitable emerging market portfolio manager's search for valuations, Brazil certainly looks compelling," said Brad Durham, research director at Emerging Portfolio.

"It is the (lowest) valued emerging market in the world, at about five-times the forward looking price to earnings ratios."

The biggest reason Latin America is faring well during a time of conflict is that the expected sharp rise in oil prices briefly came and went once coalition forces secured oil fields in southern Iraq, analysts say.

Brazil and Chile, South America's biggest and its most stable economy, respectively, were thought to be most vulnerable to a spike in crude prices. Both have chugged along nicely since.

Additionally, analysts say that while it might be early to sound the all-clear, risk aversion on the part of emerging-market investors hasn't risen too much since the war began.

"It's related partly to a long period of neglect by investors," said Durham.

The Economic Commission for Latin America and the Caribbean, or ECLAC, a U.N. think-tank, said Tuesday foreign direct investment in the region dropped for the third year running in 2002.

Investment plunged 33 percent of $56.7 billion, down from $84 billion in 2001, ECLAC noted. The net inflow of FDI into Latin America was less than 2 percent of gross domestic product.

ECLAC -- which didn't include in its report a forecast for 2003 -- blamed the weak FDI on a global fall in equities, as well as the political troubles in Argentina, Venezuela and in the run-up to Brazil's election last October.

While unstable equity markets shouldn't necessarily have a damning effect on the region's bonds, when it comes to emerging markets, investors tend to generalize between asset sectors, analysts say.

That plays into the investor neglect Durham notes.

Brazil, he says, is an extremely high-beta country, meaning that when emerging markets are up globally, it outperforms them, and when markets are down, it falls harder than the rest.

"But I think sentiment has been so bad for so long for Brazil that it may be somewhat resilient in the current climate, if the government stays the course," Durham said.

Attractive bond yields have won out over potential turbulence in the eyes of investors socking money into Brazil.

The country's benchmark bond due 2014 has seen its spreads over U.S. Treasurys drop to 900 basis points of late as investors take heart in the new government's austerity.

Which has been a rather quick turnaround for Brazil, which late last year had a higher country-risk rating than Nigeria.

Even in Argentina, still trying to recover from its default in December 2001, bond spreads have dropped by 10 percent since the war began in Iraq.

Investors there have been pushed by apparent progress on salvaging the country's banking sector and signs that Argentina is finally talking about re-scheduling its defaulted debt with foreign bond holders.

Further cheering sentiment in Argentina has been the final lifting of controls that saw citizens' bank accounts locked away from them for more than one year.

That has resulted in a Argentine peso dipping below 3 to the dollar for the first time in a year.

Brazil's Economy Minister Antonio Palocci tried to cool the optimism -- and thus the expectations -- saying Tuesday the new government has far to go before it escapes economic danger.

"What cannot be assumed is that the (austerity) measures we're going to take are no longer necessary, for example the tax and pension reforms," Palocci said.

"This is the risk, that we neglect our agenda."

Brazilian President Luiz Inacio Lula da Silva told citizens in an address on Monday that the austere measures being taken are painful, but ultimately worth it if they lead to economic stability and prosperity.

"We took tough measures which cost me sleep on quite a few nights: increase the interest rate and cutting spending. But the sacrifice so far has not been in vain," Lula said.

Source

Analysis Even with Saddam Hussein's demise, "oil nationalism" could spark terrorism and sabotage if an occupying US does not strike the right notes, writes Valerie Marcel

Oil is important to America's foreign policy in the Middle East and if the outcome of this war is a stable Iraq, friendly to the US, it could benefit American energy security. But the present US-led military campaign against Iraq is not a war for Iraq's oil.

The previous Gulf War had a clear oil incentive. Protecting Middle East oil from Saddam Hussein's control was an important US objective of the Gulf War of 1990-91. By invading Kuwait, Iraq controlled the production of five million barrels of oil a day, doubling its reserves.

Iraq's own oil is much less important. With sustained investment over several years, Iraqi production could be raised to around 6 per cent of the world total, compared with Saudi potential of nearly three times that and Russian potential of nearly double that.

Oil is important, but if energy security - understood as ensuring a steady flow of cheap oil to the market - was the prime driver for current American foreign policy and war, the US would have intervened in Venezuela to bring an end to the strikes against Chavez's regime. Venezuela accounts for 14 per cent of US imports against Iraq's 7 per cent.

Another public concern is that if the US overthrows the Iraqi regime it will open Iraq's oil to exploitation by US oil companies. So far, American foreign policy has not done very much for the oil majors. US sanctions against Iran and Libya have barred access by American companies to those markets, while European and other companies have had a freer hand to invest in these oil rich countries.

More generally, widespread public resentment against American policy in the Middle East (vis-à-vis both Palestine and Iraq) has made it more difficult for US companies to do business in the region. Some are arguing that by invading Iraq and opening up that market to foreign investment, the Bush administration is finally attending to its friends in Houston, making up for past neglect. American companies will clearly have interesting, new opportunities in Iraq, but that's not the end of the story.

There will be a long wait before long-term investment takes off in Iraq. First, oil companies will not make long-term investments until a legitimate government is fully established. Second, oil nationalism could restrict investment.

During the occupation phase, which could last from six months to two years, many foreign companies will not engage in long-term investments because of the risk that their investments would not survive the US occupation. It would also be politically very risky for the US administration or Iraqi political representatives to propose terms that "give away" future oil. As an occupying force, the US and its allies will face intense scrutiny in their management of the oil sector.

For instance, the US may expect to use Iraq's oil revenues to finance its occupation costs. In this case, the domestic political benefits of minimising American expenses in the Iraq venture must be set against the risks of popular resentment of US neo-colonialism in the region.

The dominant view in the region is that oil is a national resource that belongs to the Arab people. Such oil nationalism could lead to terrorism and sabotage.

To minimise resistance from the Middle East, US-led forces may want to involve the UN in their efforts. They will have to secure a UN mandate to access the oil funds or for UN bodies to participate in the humanitarian and reconstruction effort. The recalcitrant Security Council members could make their support conditional on a truly multilateral involvement in Iraq (thus tying America's hands in the management of the oil sector) and a role for their companies in the reconstruction effort.

Following the disarmament and stabilisation of the country, the US and its allies will want to transfer powers to a transition Iraqi government. This transition phase could last between three and five years. During this slow process of political consolidation, the new Iraqi government will be sensitive to domestic and international pressures.

It will face a difficult dilemma: it will be torn between the need for capital to rebuild the country and its need to safeguard its nationalist credentials by protecting its oil from foreign interests. It is likely Iraqis would rather delay their oil boom than open the door too wide to foreign companies.

They will probably find an intermediate solution, where service companies do contracting work on the existing oil fields and oil companies get short-term Iranian-type contracts. There may be sufficient takers of contracts on these terms to achieve production levels up to around 4 million barrels a day, with the development of one or two new fields of intermediate size or the phased development of large fields.

However, it seems important to question any assumption that a legitimate independent regime would maintain the generous contract terms that Saddam Hussein's regime offered under the pressure of international isolation and embargo.

Although the new regime will be desperate to increase its oil revenues to fund reconstruction, this consideration must be set against its need to safeguard its nationalist credentials by protecting its oil from foreign interests.

Dr Valerie Marcel is a senior energy research fellow at the Royal Institute of International Affairs in London

<a href=news.ft.com>Financial Times By Carola Hoyos, Energy Correspondent Published: April 4 2003 5:00 | Last Updated: April 4 2003 5:00

As Baghdad looms larger in the sights of US and British soldiers, the nightmare of oil at $50 or even $100 a barrel is fading.

Although oil prices will remain vulnerable as the battle for Baghdad begins, they are a long way from their March high of $39.99 a barrel.

And as long as most of Iraq's oil wells remain intact, analysts say, there is little chance that prices will reach the $41.15 peak prices hit after Iraq invaded Kuwait in 1990.

Two main factors explain why this war with Iraq has had far less impact on oil prices than the last: timing and the fact that Saddam Hussein has not managed to wreak havoc in the oilfields as he did in 1991.

Then his troops damaged 700 Kuwaiti oil wells, leaving the emirate to spend two years rehabilitating its oil sector before it could return to full production.

Since the beginning of the current conflict, the world has lost 2.4m barrels a day of Iraqi production, which has been made up by Saudi Arabia and other Opec members, who increased their output quota to 24.5m barrels a day in January and then suspended restrictions altogether at the start of the conflict.

Spencer Abraham, US energy secretary, yesterday confirmed Opec's key role, saying: "We've seen a substantial increase in Opec-10 production, more than enough to compensate for losses in Iraq and Nigeria."

But perhaps the most important factor was the timing of President George W. Bush's decision to launch his campaign, atatime when Venezuela's exports were recovering from the interruption in December and January caused by the country's national strike.

March also brought the first signs of spring to the northern hemisphere and a reduction in the level of oil required for winter heating.

This helped offset the loss of Iraq's oil and some of Nigeria's production, which was halted by ethnic violence ahead of this month's elections.

Oil refiners have even begun to rebuild their stocks, which earlier this year had fallen to levels not seen since the mid-1970s.

Meanwhile, the governments of US, Japan, Germany and South Korea were able hold on to their strategic stockpiles of oil which they were ready to release in the event of a serious interruption in supplies.

However, the uncertainty over the conflict in Iraq and the loss of Venezuela's exports have left their mark.

UK benchmark Brent crude oil prices averaged $31.47 a barrel during the first quarter of this year, $5 more than the fourth quarter of 2002 and $10 more than a year ago, according to BP's latest trading statement.

The jump in the price of WTI, the US benchmark crude, was even more dramatic. It averaged $34 a barrel, from $28.31 at the end of 2002 and more than $12 above prices a year ago.

News24.com 03/04/2003 14:07  - (SA)   Chip Cummins

Iraq - The US is moving to recruit senior executives to help run Iraq's oil industry after the war, even as US military engineers are reckoning that a resumption of petroleum exports is still months away.

The general commanding the US Army Corps of Engineers also said that a lack of replacement parts for infrastructure in the fields may crimp initial output volumes once production resumes.

The US effort has been further hampered by an unwillingness of Iraqi oil workers and managers to return to the job amid continued fighting in the south.

"We don't know how much it's going to cost and how long it's going to take" to bring exports from southern Iraq back on line, said Brigadier General Robert Crear, commander of the Southwestern Division of the Army Corps of Engineers, which has been tasked with Iraqi oil-rehabilitation efforts.

"It'll be months, but I can't tell you how many," he said.

The resumption of Iraqi exports is crucial for global oil markets, which have tightened in recent months. A strike in Venezuela hobbled exports from that big oil producer for months, while a colder-than-normal winter across the northern hemisphere helped erode stocks of inventory in big consumer countries, particularly the US.

More recently, political violence in Nigeria has sent major oil companies fleeing the region and shutting down oil production there.

Meanwhile, Phillip J Carroll, the former chief executive of Shell Oil, the US operations of the Royal Dutch/Shell Group, will lead Iraq's national oil company, said people familiar with the appointment.

It is unclear whether Carroll, who retired last year as CEO of Fluor Corporation, would formally head the Iraqi company or exercise control by heading an advisory body in charge of Iraqi petroleum in a postwar transition period.

One industry official said the US was also considering an Iraqi-American, whom he couldn't identify, to oversee Iraq's State Oil Marketing Organisation (Somo), which is in charge of exports.

The official also said Rodney Chase, deputy CEO of BP PLC, was being considered as a deputy to whoever runs Somo. Chase, due to retire from BP later this month, couldn't be reached for comment.

A BP spokesperson declined to comment.

While the overall US plan for running Iraq's oil industry isn't known yet, it is becoming clear that Washington is seeking to recruit top executives from the largest global oil companies on both sides of the Atlantic.

Their expertise could assist in the resurrection of the Iraqi oil industry, which was nationalised in the 1970s and has suffered amid war and sanctions for more than 20 years.

Oil prices, which soared ahead of the Iraq invasion on worry over export disruptions in the Persian Gulf, have fallen considerably after it became clear that supply routes out of the Gulf and Iraqi oil infrastructure remained relatively unscathed by war.

Wells set on fire

Retreating Iraqi soldiers appear to have torched just nine wells in the oil-rich south, a far cry from fears of a repetition of what happened in Kuwait in 1991, when Iraqi troops set more than 700 wells ablaze. All but two of the Iraqi fires have been extinguished.

In late trading on the New York Mercantile Exchange, the benchmark US futures contract was down $1.33 to $28.45.

Last week, a British commander in charge of UK forces in the region estimated it would take about three months and $1bn to restart exports from Iraq's massive southern fields, now largely held by US and British forces.

That estimate, by Air Marshal Brian Burridge, commander of British forces in the theatre, surprised some oil-industry analysts who had been expecting exports to resume in weeks, since damage to the fields appeared minimal.

Crear - whose engineers are in their second week of probing the fields - said on Wednesday that he didn't know what the British estimate was based on, and said he won't have a firm timeline of his own until initial assessments of the fields are complete.

But he suggested it was possible repairs might take even longer than three months. "I would hope that it's three months, instead of six months," he said.

The Army Corps of Engineers is working with Kellogg Brown & Root, a subsidiary of Halliburton Company, to assess the fields and return them to "prehostility" production levels.

Before the war, Iraq was exporting some two million barrels of oil per day. Iraq's southern fields contribute about 60% of the country's output, with most of the remainder coming from Iraq's northern fields around the city of Kirkuk, still under Baghdad control.

Army officials said they have so far inspected more than 200 wellheads, out of an estimated 800 wellheads in the south. Military ordnance experts are combing each wellhead for signs of sabotage or booby traps, which they say they have found at some wells.

The general condition of wellheads - typically a tree-shaped collection of piping and valves jutting up from the ground - has been good, according to officials.

"Over all, they're in good shape," said John Forslund, the Army Corps of Engineers' project manager for the south.

"That's a pleasant surprise."

That isn't the case with some of the gas-oil separation plants, pumping stations and other critical infrastructure that dot the fields.

Crear said that many of the parts in the plants and in other equipment in the field are mismatched, perhaps the result of cannibalisation by Iraqi engineers looking to keep the fields running.

He said that many replacement parts ? from dozens of different manufacturers - may take a long time to order, and the delays could affect the amount of oil the fields can pump initially.

"Our ability to get in there and get parts, it might be challenging," he said.

At Gas Oil Separation Plant #6 - a collection of pipes, pumps and manifolds enclosed in a sand wall - hand wheels are encrusted with dust, pressure gauges are broken or missing and heavy corrosion cakes fittings. Dried oil stains piping around seals, suggesting widespread leaking when the plant was operational.

Army officials here said maintenance and operational procedures appear to have been poor. But Iraqi workers haven't been showing up in sufficient numbers to provide hands-on guidance to the Americans.

The Pentagon was counting on meeting managers and field hands to keep Iraqi oil flowing. Continued fighting in large population centres, including the nearby town of Az Zubayr and the main southern city of Basra, has complicated that effort.

Military officials have said in recent days that some Iraqis have been showing up eager to get back to work in the fields, but Crear and other officials here said the process is moving slowly.

US and British civil-affairs specialists are making contact with some Iraqis, but "people are very reluctant to expose themselves", said Crear.