Adamant: Hardest metal

Oil prices at 2-year peaks as Britain beefs up Gulf forces

straitstimes.asia1.com.sg

OIL prices continued to track higher yesterday to levels not seen in more than two years as Britain announced it would strengthen its military forces in the Gulf in preparation for possible war in oil-exporting Iraq.

US light crude CLc1 climbed 15 US cents from last Friday's close to US$34.06 a barrel, the highest since December 2000.

The New York Mercantile Exchange was closed on Monday for Martin Luther King Jr Day.

Crude prices continue to gain strength from the ongoing strike in Venezuela and the looming threat of military action in the Middle East, which pumps about a quarter of the world's oil needs.

'The markets are still very edgy with both Venezuela and Iraq remaining the key issues against a backdrop of increasing demand and falling inventory,' said Sydney-based independent oil analyst Simon Games-Thomas.

'Prices appear destined to trade higher, given the current set of drivers and US$35 beckons inexorably in the short term,' he said.

Foes of Venezuelan President Hugo Chavez yesterday extended a nationwide strike into the 51st day, aiming to force the leftist leader to resign and call immediate election.

The strike has strangled oil supplies from the world's fifth-largest exporter, which accounts for about 13 per cent of petroleum imports into the United States.

As Britain prepared to send 30,000 troops and support staff to the Gulf region, chief United Nations (UN) weapons inspector Hans Blix said it was up to Iraq to convince the world it did not have any chemical, biological or nuclear weapons.

'The Iraqis have to create confidence in the world that they don't have weapons of mass destruction,' he said in Athens after a two-day visit in Baghdad.

'We don't say that they're guilty. We are not sure about it.

'There has not been enough evidence for us to report to the council that you can close the dossier. There remains questions to be answered.'

He will deliver a major report by weapons inspectors to the UN on Monday.

US Secretary of State Colin Powell, facing strong opposition in the Security Council against any war in Iraq, warned council members not to shirk responsibility when they meet next week to discuss the report.

'We cannot be shocked into impotence because we are afraid of the difficult choices that are ahead of us,' he said. --Reuters

Saddam seen powerless to hit Saudi, Kuwait oil

NEWSDESK   21 Jan 2003 14:56

By Peg Mackey

DUBAI, Jan 21 (Reuters) - Jittery oil dealers will breathe easier knowing that when the end is near for Saddam Hussein, he is likely to lack the firepower to destroy the oilfields of neighbouring Saudi Arabia and Kuwait, analysts say.

Crude prices have shot well beyond $30 a barrel amid fears that a U.S. assault on Iraq could trigger widespread supply disruptions in the oil-rich Gulf.

Saudi Arabia and Kuwait, which combined export over eight million barrels per day (bpd), are still haunted by the Gulf War when Iraqi troops blew up Kuwaiti oil wells and were seen as a threat to the Saudi oil sector, the world's biggest.

This time round Saddam will still put up a fight but with a substantially reduced arsenal, said Mustafa Alani, of London's Royal United Services Institute.

"Saddam has no spare capacity to destroy the oilfields of Kuwait and Saudi Arabia. A high degree of accuracy would be needed and that cannot be achieved with Scud missiles," Alani said.

"If he is backed into a corner, Saddam will concentrate his very limited military capability on his own survival by defending Baghdad."

Lashing out at his Gulf neighbours would be self-defeating for the Iraqi leader, who is trying to win popular Arab support.

"Saddam has been trying to appeal to the Arab street over the heads of their governments," said Daniel Neep, head of the Royal United Services Institute's Middle East programme.

"Much of his popular appeal would be lost if he were to torch the oilfields which are the bedrock of most Arab economies."

SCORCHED EARTH? Though a remote possibility, if he is going down, the Iraqi leader might be inclined to blow up his own oil facilities to stop Washington from taking control of the country's huge reserves, the world's second biggest after Saudi.

"When his back is against the wall, there is no telling what Saddam will do," said Neep.

"But if he calls for Iraq's oilfields to be set alight and it looks like military action will destroy his grip on power, how loyal will the Iraqi elite be?"

Not very, is the conventional wisdom.

"I find it hard to believe that the Iraqis would willingly destroy their principal natural resource, particularly one they fought so long to gain control of," said Raad Alkadiri of Washington's Petroleum Finance Corp.

And much of Iraq's oil wealth is concentrated in the two no-fly zones, which are under 24-hour supervision by U.S. and British air patrols.

"The attempt to secure the southern fields is a primary objective to prevent him inflicting permanent or temporary damage to the oilfields," said Peter Gignoux, head of the energy desk at Schroder Salomon Smith Barney.

IRAQI OUTAGE Predicting Saddam's reaction to a U.S. assault is impossible, but certain in the minds of oil traders is that war will disrupt Iraq's oil exports -- now running at some two million bpd.

"Are we going to lose Iraqi exports? Yes," said Gignoux. "But that's already priced into the oil market."

Most major oil refiners, anticipating a February or March strike on Iraq, have bought enough oil to cover themselves through the first quarter.

But supply problems could arise if a military campaign begins before an already seven-week-old strike in oil exporter Venezuela is settled or if a U.S.-led attack drags on.

"We will have a real problem on our hands if we have a combined loss of output from Iraq and Venezuela," said an oil executive.

The Organisation of the Petroleum Exporting Countries has just agreed to raise supplies by 1.5 million bpd to make up for the Venezuelan shortfall.

But, save Saudi Arabia and the United Arab Emirates, that output increase has left the cartel stretched near to capacity.

Others say if a supply crunch develops, Washington and/or the International Energy Agency would probably order a release of strategic stockpiles.

Oils drag FTSE as Venezuela strike shows cracks

www.forbes.com Reuters, 01.21.03, 10:24 AM ET

LONDON, Jan 21 (Reuters) - Weak oil stocks BP <BP.L> and Shell dragged Britain's FTSE index to a fresh three month low on Tuesday amid worries about fuel refining margins and concern the possible ending of the Venezuela strike could hurt prices.

News that oil tanker pilots had ended their strike in a key Venezuelan export area dented crude oil prices, as it threatened to increase the flow of crude oil, especially to America.

"BP and Shell are sliding on the back of that," said Martin Dobson, head dealer at NatWest Stockbrokers. BP, which caused concern about refining profitability earlier this month, lost 1.1 percent while Shell <SHEL.L> dipped 1.8 percent.

By 1511 GMT the FTSE 100 index <.FTSE> was down 29.5 points, or 0.8 percent, at 3,749.8.

The index failed to re-establish a base above the 3,800 level after briefly bouncing to 3,185 earlier and looked set to register a loss for the seventh consecutive session.

Early weakness on Wall Street after Monday's closure for Martin Luther King day further unsettled sentiment.

"There's not an awful lot to get really confident about, especially with the overhang of the Iraqi situation," said NatWest's Dobson. "No-one's prepared to take a long-term view."

But stronger telecoms firms BT <BT.L> and Vodafone <VOD.L> helped take up some slack after investment bank Merrill Lynch issued a positive note on the sector.

Shares in mobile phones group Vodafone climbed 0.6 percent after Merrill Lynch raised its rating on the company to "buy" from "neutral".

BT Group topped the blue-chip risers with a 2.2 percent gain after Merrill Lynch repeated its "buy" rating on the stock, saying it expected BT to benefit from cuts to its operating costs and capital expenditure.

Also on the upside, shares in plumbing merchants Wolseley <WOS.L> rose 1.7 percent, while building materials firm Hanson <HNS.L> gained 1.5 percent, buoyed by a surprise jump in U.S. housing starts in December. Both firms have exposure to U.S. markets.

Suncor Profit Soars on Higher Oil Output

www.morningstar.ca 21 Jan 03(1:31 PM) |  E-mail Article to a Friend

By Jeffrey Jones

CALGARY, Alberta (Reuters) - Suncor Energy Inc. <SU.TO>, Canada's No. 4 oil producer, refiner and marketer, kicked off the industry's fourth-quarter reporting season on Tuesday with a tenfold jump in profit fueled by surging output and prices.

Suncor, best known for its newly expanded oil sands mining and crude processing operation in northern Alberta, said it was concentrating on cutting costs at the operation but warned sky-high prices for natural gas, a fuel for the plant, could hamper its plans.

It earned C$258 million ($168 million), or 56 Canadian cents a share, up from a year-earlier C$26 million, or 4 Canadian cents a share. That beat an average estimate of 50 Canadian cents a share among analysts polled by Thomson First Call.

Cash flow, which gives a glimpse into an oil company's ability to fund pending projects, was C$460 million, or C$1 a share, up from C$133 million, or 27 Canadian cents per share.

Full-year profit rose to C$761 million, or C$1.64 a share, from C$388 million, or 79 Canadian cents a share in 2001.

The oil industry is expected a gusher of hefty earnings for the fourth quarter after crude prices jumped 38 percent on fears of a Middle East war, then a strike in Venezuela that cut shipments from the world's fifth-largest exporter.

Canadian natural gas prices, meanwhile, soared 67 percent from the fourth quarter of 2001 amid cold weather in major U.S. consuming regions and lower-than-average inventories.

Suncor also produces natural gas in western Canada and runs the Sunoco-brand refining and marketing business in Ontario.

It started up a C$3.4-billion addition to its oil sands plant in late 2001, which helped drive production up 40 percent to 261,800 barrels of oil equivalent a day in the fourth quarter. Of that, 227,600 barrels a day was synthetic crude from the oil sands.

Suncor mines oil-laden sands and extracts the tar-like bitumen, which is processed into refinery-ready oil.

Suncor chief executive Rick George said his goal is to shave operating costs from C$12.50 a barrel in the fourth quarter, down from year-earlier C$17.45. Its oil sales price averaged C$39.02 a barrel.

"We still plan to exit 2003 in the C$10 to C$11 barrel range. That means, of course, we have to get another dollar a barrel out (and) we'll be working hard on that," George told analysts in a conference call. "The only exception is natural gas prices. If we see a spike on that, that will have an impact on us."

Suncor expects costs in 2003 to average C$12.50-C$13.20 a barrel on projected oil sands output of 215,000 bpd, a figure that includes a month-long maintenance shutdown starting late late April.

The next expansion project is called Firebag, where oil sands will be extracted using steam pumped into the earth to allow the thick crude to flow in wells instead of mining. That development and new processing equipment at the plant are expected to boost synthetic crude output to 260,000 barrels a day by 2005.

Shares in Suncor were up 26 Canadian cents at C$25.35 in Toronto on Tuesday. The stock is down about 6 percent since the start of the fourth quarter, compared with a relatively flat performance by the Toronto Stock Exchange energy group.

($1=$1.54 Canadian)

Oil briefly tops $35 a barrel on Iraq war fever

www.usatoday.com Posted 1/21/2003 2:55 PM     Updated 1/21/2003 3:52 PM

NEW YORK (Reuters) — World oil prices set new two-year highs Tuesday amid growing fear of war in Iraq, holding strong though cracks started to appear in a Venezuelan strike that has cut deep into exports to the United States.

U.S. light crude on the New York Mercantile Exchange settled up 70 cents from Tuesday's close at $34.61 a barrel after hitting a peak of $35.20, the highest level since November 2000. London Brent blend rose 9 cents to $30.73 a barrel.

News from Venezuela that tanker pilots in Lake Maracaibo, a strategic export route, had ended their part in the nationwide strike briefly pulled prices lower; but the market bounced back, surging on fears that war in Iraq could disrupt Middle East oil flows.

With Venezuelan exports running at just 500,000 barrels a day, a fifth of normal levels, crude stockpiles in the United States have slid close to 26-year lows just as a fierce cold snap in the U.S. Northeast has boosted heating oil demand.

While an end to the tanker pilots' action in Venezuela could be expected to lift exports, shippers said deliveries were not likely to rise rapidly until foreign ship operators began using Venezuelan ports again.

Most of those in opposition to President Hugo Chavez extended their strike, aiming to force the leftist leader to resign and call immediate elections.

A spokeswoman for striking oil workers said they intended to send a senior representative to Maracaibo later Tuesday to try to persuade the pilots not to abandon their action.

"We still have 90% of oil workers on strike," she said.

Even an end to the strike might not bring immediate relief from a price spike that has deepened fears that rising energy costs could derail economic recovery.

"It will be a long, hard road for Venezuela even back to 75% of previous production capacity," said Geoff Pyne, consultant to Sempra Energy.

"There is still the threat of war in Iraq and stocks are very low. Traders are going to see it as dangerous to sell at this point."

Fears of war in Iraq, the world's eighth largest oil exporter, rose as President Bush said it was now clear to him that Iraqi leader Saddam Hussein was failing to comply with U.N. disarmament demands.

"He's delaying. He's deceiving. He's playing hide and seek with inspectors," Bush told reporters at the White House. "It's clear to me now that he is not disarming ... Time is running out."

Oil traders said the remarks appeared to leave little doubt that Washington was close to authorizing the use of military force against Baghdad.

Dealers are counting down toward a major report due Jan. 27 from U.N. weapons inspectors on whether Iraq has met its disarmament commitments. The 15-member Security Council is to evaluate the report Jan. 29.

OPEC's biggest producer, Saudi Arabia, already is tapping into the world's only significant spare capacity. Industry sources told Reuters over the weekend that Riyadh could be pumping 9 million barrels daily by February, up a million barrels a day from December flows.

"OPEC alone does not have sufficient, readily available spare capacity to replace both Venezuela's and Iraq's oil exports, much less to cope with any supply disruptions from other Gulf producers that might result from any prolonged conflict in Iraq," said London's Centre for Global Energy Studies

"A lack of adequate commercial oil stocks in the U.S. and no nearby replacement for lost short-haul crude from Venezuela has left the oil supply chain stretched almost to breaking point," it said in a report to clients.

If OPEC were unable to cover a dual outage from Iraq and Venezuela, the Paris-based International Energy Agency would be expected to release some of its emergency strategic reserves for the first time since Jan. 1991 during the Gulf War.

"Were an attack to be launched on Iraq, consuming country governments would have to utilize quickly their abundant strategic oil stocks to ensure adequate supplies," said the Centre.

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