www.middle-east-online.com First Published 2003-01-24, Last Updated 2003-01-24 10:28:25

US Secretary of State says Iraq's oil will be held for country's people in event of US occupation of country.

By Maher Chmaytelli - CAIRO As the United States builds up its forces in the Gulf ahead of a possible strike on Iraq, the oil-related aspect of the crisis over Iraqi disarmament has come to the fore this week.

Britain's Guardian newspaper said the US military has drawn up plans to protect Iraq's oil fields in the event of a war and prevent a repeat of the 1991 Gulf War, when the Iraqi army set Kuwait's wells ablaze.

The US State Department and the Pentagon disclosed the preparations during a meeting in Washington last month with members of Iraqi opposition parties, the left-wing newspaper reported Thursday.

One of those at the meeting said a plan to protect the oil wells was "already in place," hinting special forces will secure key installations at the start of any ground campaign to topple the Iraqi regime, it said.

US Secretary of State Colin Powell said in remarks released on Wednesday that Iraq's oil would be held for the country's people in the event of a US occupation of the country.

Powell told reporters from major US regional newspapers that Washington was studying what to do with the Iraqi oil industry in the event of occupation but said no conclusions had yet been reached.

"If there is a conflict with Iraq and we and the leadership of the coalition take control of Iraq, the oil of Iraq belongs to the Iraqi people," he said.

Washington and London have insisted that oil was not a factor in the confrontation with Iraq, which has the second largest oil reserves in the world after Saudi Arabia.

But an influential US senator warned France and Russia on Thursday that if they wanted access to Iraqi oil fields in a post-Saddam Iraq, they must be ready to stand shoulder-to-shoulder in any US-led military intervention.

The comment was reported by a spokesperson for Senator Richard Lugar, the Republican chairman of the Senate foreign relations committee.

"The case he (Lugar) made is that the Russians and the French, if they want to have access to the oil operations or concessions or whatever afterward, they need to be involved in the effort to depose Saddam as well," spokesman said.

Baghdad in the 1990s signed agreements with French, Russian and Chinese companies to develop giant fields as part of a long-term plan to raise production capacity to six million barrel per days (bpd).

Iraq currently produces some 2.5 million bpd, and its loss in the event of war has prompted fears of an oil price shock.

Algerian Oil Minister warned this week that OPEC may not be able to compensate an expected shortfall of supplies of around five million bpd if a war on Iraq breaks out before the end of the strike crippling Venezuela's production.

"There is a question over OPEC capability to supply the market needs because the maximum available (extra) capacity is only three million bpd ... from Saudi Arabia and UAE," Khelil told the Saudi newspaper Al-Watan.

Although OPEC agreed on January 12 to increase oil production by 1.5 million bpd as of February 1, prices have remained above the 30 dollars per barrel mark.

Experts said the OPEC increase covers only the amount which the cartel was already pumping in excess of its previous production ceiling.

A former Saudi oil minister and one of OPEC's founders, Sheikh Ahmed Zaki Yamani, warned Monday in Doha the price of crude may soar to 100 dollars a barrel if Iraq sets oil fields ablaze in the event of a US-led war.

In other energy-related news in the region, the Financial Times reported that Saudi Oil Minister Ali al-Nuaimi, who has held the post since 1995, wanted to retire if the government is reshuffled in May.

Analysts said that Western energy majors companies were pressing for the replacement of Nuaimi, who was seen as a main obstacle to foreign investment in mega gas projects in Saudi Arabia worth 25 billion dollars.

In other economic news, the World Bank's executive directors have endorsed a new country assistance strategy and 305-million-dollar lending package for the fiscal years 2003-2005 to fight poverty and unemployment in Jordan.

A World Bank official said that Jordan could receive additional assistance during this period if the pace of ongoing reforms is accelerated.

abcnews.go.com

— LONDON (Reuters) - Oil prices posted slight gains on Friday after two days of sharp declines following evidence that strike-bound Venezuelan production is beginning to recover.

U.S. light crude added seven cents to $32.32 a barrel and London Brent gained four cents to $29.76. U.S. crude hit a two-year high of $35.20 earlier this week.

President Hugo Chavez raised the stakes in Venezuela's bitter oil industry conflict on Thursday by announcing 3,000 oil company executives were sacked and saying oil output was rising faster than expected.

Chavez is using troops and replacement crews to break a seven-week-old strike aimed at driving him from office. He still faces huge problems restarting refineries and persuading foreign shippers to resume exports.

Anti-government oil workers concede crude output has risen to 812,000 barrels per day (bpd), 25 percent of pre-strike capacity, but say 85 percent of its workforce remain out.

Opposition data lags government estimates, which peg production above one million bpd, but both figures show a steady recovery over the past fortnight.

Oil markets are not betting on any swift increase in Venezuelan output.

"For the oil markets, a definitive end of the strike does not translate into an immediate return to pre-strike output levels," said Michael Rothman of Merrill Lynch.

"Reliable indications suggest it may take 30-45 days to get production back to the 1.5 million barrel a day mark with 45-60 days to necessary to elevate production by an additional million." Pre-strike output was 3.2 million bpd.

OPEC Secretary-General Alvaro Silva said OPEC is already doing all it can to bring world oil prices down and sees no lack of crude on world markets.

"What can we do more? I do not agree there is a lack of oil," Silva told reporters in Davos on the sidelines of the annual World Economic Forum. "The problem of the price is the threat of war (on Iraq)."

He said OPEC producers were "doing our best" to bring crude below $28 a barrel, the top end of the group's targeted price range.

Supply concerns in the United States eased when government figures released on Thursday showed crude oil inventories up 1.5 million barrels to 273.8 million during the week to Friday.

The increase defied predictions that inventories would fall below 270 million barrels for the first time since 1975. Higher shipments from Saudi Arabia have flowed in to blunt the impact of the Venezuelan disruption.

Fresh signs that the United States is willing to face down international opposition to an attack on Iraq made little impact on the oil market.

On Thursday, Washington shrugged off vocal opposition to what some allies see as a rush to war as China and Russia joined France, Germany and Canada in urging the United States to give U.N. weapons inspectors more time in Iraq.

Secretary of State Colin Powell said Washington would find other supporters if it decided to launch military action.

"I don't think we'll have to worry about going it alone," Powell said in Washington after talks with Britain's supportive Foreign Secretary Jack Straw. He said Washington had made no decision on whether to seek an additional U.N. resolution to authorize use of force to disarm Baghdad.

Dealers said a war on Iraq was now priced into the oil market and cited predictions that any stoppage in Iraqi production could prove short-lived.

The Pentagon said it would make no sense for U.S. forces to hit oil facilities and oil companies said they were expecting only a brief stoppage in Iraq's two million barrels daily of exports.

"We are banking on a two- to four-week loss of Iraqi oil and we've covered ourselves," said a senior executive at a major oil company in comments typical of the industry viewamong companies contacted by Reuters.

www.accessatlanta.com [ The Atlanta Journal-Constitution: 01/23/03] By MICHAEL E. KANELL The Atlanta Journal-Constitution

If the United States is going to attack Iraq, timing the assault for mid-February may minimize chances of a spike in oil prices.

Because oil is so critical to world commerce, a dramatic leap in prices -- whether or not supply is curtailed -- could shove vulnerable economies into recession. U.S. planners, of course, want any attack to go smoothly and quickly. Best-case scenarios call for shutting down only Iraqi oil production -- and that temporarily.

But any economic impact would be softest in a time when demand is decreasing and when countries are adding production.

Mid-February is that time.

"From the perspective of countries which rely on imports of crude oil from the region, the timing is optimal," said energy economist James Williams at WTRG Economics.

Demand for crude oil dips in spring by 2 million to 2.5 million barrels per day. The United States generally uses that time to pump up inventories in preparation for summer, when the use of cars and air conditioning zooms.

War's impact on prices, then, could be moderate, assuming all goes smoothly in Iraq. Economic danger rests mostly in the vulnerability of pipelines and shipping to terrorism, Williams said.

"Our concern remains the unintended consequences of war," he said.

On Wednesday, Russian military officials said they have information convincing them the United States intends to move against Iraq sometime around the middle of next month, according to the news agency Interfax.

The United States imports most of its oil. But only two of its top 10 suppliers -- Saudi Arabia and Iraq -- are in the Persian Gulf.

"If war disrupts shipments from the Gulf, it would hurt the Europeans more than it would hurt us," said economist Rod Duncan at Georgia State University. "The U.S. only gets about 12 percent of its oil from the Gulf."

But oil's price is determined by the world market, so any supply disruption would jack up prices for everyone, including the United States. And the U.S. economy is vulnerable.

If oil, now selling for just under $35 per barrel, were to rise to $60 per barrel, economic growth -- about 3 percent last year -- would be dragged down 1 percent. Every $10-per-barrel increase is like a $120 billion tax, according to the Institute for International Economics.

Yet the higher prices of recent months are largely because suppliers are betting that war will mean a price spike -- so they are holding back supplies. As a result, inventories have been depleted, and that makes prices more volatile.

But if the war is over quickly, prices could rapidly fall. Even if Iraqi oil fields do not pump for some time, several big oil producers -- especially Saudi Arabia, the largest -- are raising production. And Venezuela, whose oil industry was paralyzed by political turmoil, may be turning the corner back toward more production.

"I don't think the price of oil will change much at all," Duncan said.

www.kansas.com Posted on Thu, Jan. 23, 2003 Associated Press

NEW YORK - Crude oil futures fell Thursday, as bearish weekly inventory data and hopes for a full resumption of Venezuelan oil output reassured jittery traders.

On the New York Mercantile Exchange, front-month March crude ended down 60 cents at $32.25 a barrel.

"It was a combination of two things," said Phil Flynn, an analyst at Alaron Trading Corp., referring to Thursday's decline in prices. "No. 1, we didn't set a new all-time low in crude inventories. No. 2, 75 percent to 80 percent of Venezuelan oil workers are back at their jobs."

February heating oil rose 0.34 cent to close at 91.53 cents a gallon, while February gasoline slipped 0.12 cent to settle at 89.81 cents a gallon.

On London's International Petroleum Exchange, March Brent settled with a loss of 62 cents at $29.72 a barrel.

Natural gas for February fell 21.5 cents to settle at $5.458 per 1,000 cubic feet.

Crude futures dipped early in the session after data from the Department of Energy and the American Petroleum Institute showed a surprise build in U.S. crude oil inventories.

In the week ended Jan. 17, crude stocks rose by 1.5 million barrels to 273.8 million barrels last week as refinery utilization declined and imports rose by 256,000 barrels a day to 8.745 million daily barrels, the EIA reported.

The API report largely confirmed those figures, showing a build of 181,000 barrels in crude stocks and a surge of 548,000 barrels a day in imports.

"The key to this whole thing is run cuts," said Bill O'Grady, an analyst at A.G. Edwards in St. Louis. "You've got refinery maintenance clearly under way. That reduces demand for crude oil."

Refiners have also been cutting back on operations in response to a shortage of Venezuelan crude oil, a concern that has helped send crude futures soaring.

While there were no signs that the strike in Venezuela, now in its eighth week, is about to end, news reports suggested that the government of President Hugo Chavez is making modest progress in restoring oil operations.

Petroleos de Venezuela SA, or PdVSA, the state oil monopoly, said Thursday that about 80 percent of its hourly workers and half its administrative staff have returned to work.

The news helped send crude prices sharply lower.

Striking oil workers disputed the claim.

PdVSA's comments come after a first crack appeared in the strike after tanker pilots earlier this week ended their strike at Lake Maracaibo, paving the way for an increase in imports.

Meanwhile, Abdullah bin Hamad al-Attiyah, president of the Organization of Petroleum Exporting Countries, said the group is trying to "stabilize" the oil market.

"We don't want to see the world with a shortage of oil," al-Attiyah said in Davos, Switzerland.

ogj.pennnet.com Sam Fletcher OGJ Senior Writer

HOUSTON, Jan. 23 -- Energy futures prices were mixed Wednesday amid signs that the general strike in Venezuela may be weakening and assurances by Saudi Arabia that it will take measures to ensure that oil prices remain within the $22-28/bbl target range of the Organization of Petroleum Exporting Countries.

The fact that Venezuelan President Hugo Chávez has remained in office through 53 days of a nationwide general strike aimed at ousting him "suggests that (his) hold on power is not as tenuous as the opposition had hoped," said analysts Wednesday at Fitch Ratings Ltd., New York. "Whereas at the beginning of the strike every day that passed appeared to weaken Mr. Chávez's position, now every day that he retains power seems to strengthen his hand," they reported.

"At the same time, the (Venezuelan) government is contending with an unprecedented opponent," added Fitch analysts. "The opposition's ability to maintain an adherence rate of more than 75% among (both blue- and white-collar) oil strikers, coupled with its emphasis on nonviolence and an electoral solution to the crisis, has infused (strike) supporters with a sense of civic-mindedness not seen in Venezuelan politics in 50 years."

Fitch analysts said they expect the strike to continue "at least through mid-February."

In one major turn of events, Venezuela's Finance Ministry and the Central Bank of Venezuela jointly announced Wednesday that foreign exchange trading in that country is being suspended for 5 business days to halt the flight of capital out of that country and to defend its dwindling international monetary reserves. Chávez said his government is preparing to establish new exchange controls.

Meanwhile, the US Department of Energy reported US oil inventories increased by 1.5 million bbl to 273.8 million bbl last week, with gasoline stocks up 700,000 bbl to 216.3 million bbl and distillate inventories falling 3.1 million bbl to 129.2 million bbl. However, total US commercial petroleum inventories were 44.1 million bbl below the 5-year average for the week.

"In other words, relative to a normal pattern, the US market tightened at a rate of 1 million b/d (last week)," said Paul Horsnell, head of energy research for JP Morgan Chase & Co., London.

"The impact of the Venezuelan crisis does then seem to be entering a new phase," Horsnell reported Thursday. "(US) crude oil inventories can't fall much further; refinery runs are being cut more aggressively than the normal seasonal cuts; and the first flush of easy-to-find oil product imports has passed."

As a result, he said, "We are left in a situation where refinery utilization is little changed from last year, even though demand is running 354,000 b/d higher, and where US Gulf Coast crude imports are running (on a 4-week average) 720,000 b/d lower than last year." He added, "Most important of all, that impact is not over yet."

The new near-month March contract for benchmark US sweet, light crudes lost 34¢ to $32.85/bbl Wednesday on the New York Mercantile Exchange, while the April position retreated 22¢ to $31.79/bbl. Heating oil for February delivery gained 1.72¢ to 91.19¢/gal. Unleaded gasoline for the same month dipped by 0.17¢ to 89.93¢/gal.

The February natural gas contract jumped by 24¢ to $5.67/Mcf Wednesday on NYMEX.

"The market breached 22-month highs on the way to a peak of $5.74(/Mcf during Wednesday's trading session), driven higher by continued cold weather forecasts and deliverability problems in the Northeast (US)," analysts at Enerfax Daily reported Thursday.

"Prices as high as $22.50(/Mcf ) on major Northeast pipelines boosted cash prices elsewhere. Power prices also soared, and key utilities were reported forcing penalties on pipelines that under-delivered their natural gas," they said.

"Backwardation—the pricing structure in which deliveries in the near term have a higher price than those for more distant delivery and typical for this time of year—sent the Henry Hub cash price to a 70¢(/Mcf) premium over NYMEX. Locals sold down early in the (Wednesday) session after the higher opening, then turned around and covered short positions. With little liquidity in the market, commercial traders and fund buyers joined the buying as the market rose above $5.55(/Mcf)."

Meanwhile, in London, the March North Sea Brent oil contract lost 40¢ to $30.34/bbl on the International Petroleum Exchange. The February natural gas contract plunged 25.7¢ to the equivalent of $3.01/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes slipped by 1¢ to $30.89/bbl Wednesday.

Contact Sam Fletcher at samf@ogjonline.com