www.thescotsman.co.uk

BILL JAMIESON AND JOHN BOWKER MEMBERS of the OPEC oil cartel agreed yesterday to boost their oil production target by 6.5 per cent to 24.5 million barrels per day to prevent oil prices soaring out of control and plunging the world into recession.

The Organisation of Petroleum Exporting Countries announced the increase at an emergency meeting in Vienna yesterday, in the hope of calming fears of a supply crunch caused by the continuing strike in Venezuela and looming war in the Middle East. The increase will take effect on 1 February. The Venezuela strike, launched early last month by political opponents seeking to oust President Hugo Chavez, has slashed the country’s exports by about two million barrels per day. Venezuela is normally OPEC’s third largest producer and a major oil supplier to the US.

OPEC’s president, Abdullah bin Hamad Al Attiyah, is trying to send a very strong message that it will do its utmost to stabilise demand and supply. OPEC pumps about one-third of the world’s crude supplies, which total 79 million barrels per day.

Leading cartel producer Saudi Arabia, in control of most of the world’s spare capacity, said it was already pumping more to fill the two million barrels-per-day hole in markets. Riyadh is trying to prevent oil prices soaring to heights that might harm already fragile world economic growth.

US oil prices recently rose above $33 per barrel for the first time in two years. It was valued at $31.58 on Friday.

With no end in sight to the Venezuela strike, Ali Rodriguez, president of state Petroleos de Venezuela, blamed sabotage at oil fields and refineries for the prevention of a swift return to production.

MEANWHILE, North Sea oil and gas giant BP is expected to announce early this week that some of its underperforming assets will be put up for sale.

The move will kickstart a radical review of the firm’s core business, as promised to investors by chief executive John Browne following three production growth forecast downgrades in as many months. A BP spokeswoman said details would be revealed at the group’s official strategy review on 11 February.

She confirmed that the energy giant was looking to streamline its exploration and production business, which accounts for 80 per cent of operating profits. And she added that "the sooner we know how that will happen, the better".

Assets to be put up for sale are expected to come from the North Sea and the US as well as South America. BP said it would be reviewing the sector after November’s growth forecast downgrade.

www.themoscowtimes.com, Jan. 13, 2003. Page 6 By Dmitry Zhdannikov Reuters

The powerful head of state pipeline monopoly Transneft, Semyon Vainshtok, is under mounting pressure from private oil companies, which believe he is not expanding capacity fast enough to match surging production.

Analysts said Friday that the position of Vainshtok, who turned Transneft into a power in the land from an obedient arm of private business after his appointment in 1999, was still safe due to Kremlin support and an impressive financial record.

Transneft's ability to further expand its massive pipeline system in 2003, when new export routes are needed as never before to ship booming output, could be decisive for Vainshtok's future.

"His position is still incredibly strong. He is one of the most effective managers in the business. His key task now is to quickly match demand from the oil firms for new export routes," said Steven Dashevsky from Aton brokerage.

"The demand for new routes is higher than ever. And if Transneft fails to build them quickly, forcing oil firms to curb output growth, Vainshtok could face problems," said Valery Nesterov from Troika Dialog.

Vainshtok, 55, a former employee of Russia's largest oil firm LUKoil, literally stormed the world's biggest pipeline firm in 1999, when after a battle between influential Kremlin groups he sent in police to throw out his predecessor. Despite having no experience in the pipeline business, Vainshtok managed in less than three years to build two major pipelines and a port at Primorsk.

These were the first oil infrastructure projects to be completed since the collapse of the Soviet Union.

Under Vainshtok, a previously timid Transneft started to flex its muscles. In 2001, the firm abruptly halted oil exports of LUKoil, after receiving a complaint backed by a court ruling from a shareholder with a tiny stake in LUKoil.

But private majors were willing to accommodate Vainshtok's behavior as long as he was building new routes.

"The situation is getting tougher for Vainshtok. ... The monopoly is not being flexible enough and is not expanding the system as quickly as they want," said Nesterov.

The first serious sign of discontent surfaced in late 2002, when the four biggest private oil majors took an unprecedented decision to join forces to build a huge Arctic export port at Murmansk on the Barents Sea. They invited Transneft but Vainshtok said he was not convinced by the plan and preferred a Pacific route.

This week five majors have asked the state to persuade Transneft to reopen a pipeline to the Latvian port of Ventspils and cut oil shipments from neighboring Kazakhstan. The move follows a call from OPEC for Russia to increase supplies together with the cartel to take the heat out of prices driven higher by fears of war in Iraq and a long-running oil strike in Venezuela.

"Oil firms do not want to tolerate losses anymore by seeing Transneft artificially cutting their exports," Nesterov said.

Transneft has slashed oil shipments to Ventspils to zero from around 350,000 bpd at the beginning of 2002, saying oil firms preferred other routes to reach world markets.

Market players say the move is instead designed to put pressure on the port's owners to sell Transneft a stake in the terminal, once the biggest outlet for Russia's crude on its way to northern Europe, at a bargain basement price.

Ventspils is the only easy option for Russia to quickly boost exports -- currently running at 4 million bpd. Other pipelines are pumping at capacity and Russia faces bottlenecks in its main oil ports with total output at a 10-year high of 8 million bpd.

"Oil firms are simply saying that in difficult years, such as 2003, Transneft should put their interests first," Vladislav Metnyov from TIB Bank said.

However, he added that power rested with the Kremlin, which has the last say on whether the monopoly takes more crude from Kazakhstan or cuts supplies to Latvia.

Nesterov said if the government decides to approve this year Transneft's plan to expand Primorsk and build a huge pipeline to the Pacific it would be the best proof yet it still is fully confident in Vainshtok.

asia.reuters.com Sun January 12, 2003 08:09 PM ET

SINGAPORE (Reuters) - NYMEX crude futures rebounded from early losses in off-hours trade on Monday as traders discounted OPEC's weekend decision to raise output as unlikely to boost supplies in the key U.S. market for the next few weeks.

U.S. light crude for February delivery dropped to an early intraday low at $31.20 a barrel, down 48 cents from Friday's settlement in New York.

But the dip was short-lived and the market rallied into positive territory, striking an intraday peak so far at $31.80. At 7:57 p.m. EST Sunday, February crude stood 10 cents off at $31.58.

Brokers said OPEC's decision on Sunday to raise group production by almost seven percent, or 1.5 million barrels per day, had already been priced into the market.

Of more concern was that supplies would take four to six weeks to hit U.S. shores, where crude inventories have fallen to near 26-year lows due to an opposition-led strike in Venezuela, which supplies 13 percent of U.S. oil imports.

The strike has removed about two million bpd of crude from world supplies.

"Whatever barrels OPEC adds to the market, they are going to be some time -- weeks -- in getting to the United States where physical inventory is key and it's pretty tight," said Paul Ashby, oil and gas analyst at ABN Amro in Sydney.

Venezuelan oil normally takes about five days to reach the United States.

"I certainly see oil staying above $30 until the Venezuelan situation is sorted out," Ashby said.

OPEC's agreement at an emergency meeting in Vienna brings the cartel's official production ceiling for the 10 members bound by quotas to 24.5 million barrels per day.

But the increase was divided pro-rata among members, meaning that Venezuela, OPEC's third biggest producer, was also granted its share of the higher output limit despite the ongoing strike, which entered its 43rd day on Monday.

Traders are also concerned that many others in OPEC have little, or no, spare capacity to bump up production.

NYMEX oil futures also rebounded from early losses. February heating oil gained 0.02 cents to 86.55 cents a gallon, while February unleaded gasoline futures gained 0.36 cents to 87.55 cents a gallon.

The Tokyo Commodities Exchange was closed on Monday for a holiday.

00:05 - 13 January 2003

Fears of a hike in the price of petrol receded tonight after members of the oil producers' group OPEC agreed to raise production levels.

The decision by the cartel to lift its target by 6.5% to 24.5 million barrels a day covers a shortfall in oil exports from crisis-hit Venezuela.

The move, announced after an emergency meeting in Vienna today, is aimed at keeping crude oil in the range of 22 US dollars to 28 US dollars a barrel.

Justin Urquhart Stewart of Seven Investment Management, said the decision was good news for motorists and the UK economy, although he believed it was unlikely to result in an immediate reduction in the price of petrol.

He added: "It could have been very unpleasant if they hadn't done anything. particularly if there's going to be further shortages in the event of war in the Middle East. The fact that they are willing to do something is encouraging."

The price of crude oil in London is currently just below the 30 US dollars a barrel mark but there have been fears it could go as high as 40 US dollars as concern grows about the impact of a possible conflict with Iraq.

BP increased the price of petrol at some of its stations by 1p per litre in the New Year, taking the average across the country to about 74.8p per litre.

OPEC's decision to call today's meeting follows a month-old strike in Venezuela, where opponents are seeking to oust President Hugo Chavez. It has cut the country's exports by about two million barrels a day.

Venezuela is normally OPEC's third largest producer and a major oil supplier to the United States.

OPEC president Abdullah bin Hamad Al Attiyah said after today's meeting: "OPEC is trying to send a very strong message that it will do its utmost to stabilise demand and supply."

story.news.yahoo.com Sun Jan 12, 5:06 PM ET By BRUCE STANLEY, AP Business Writer

VIENNA, Austria - OPEC (news - web sites) members agreed Sunday to boost the cartel's oil production target by 6.5 percent to stabilize a world market jittery over a crisis in Venezuela and the possibility of war in Iraq.

The increase of 1.5 million barrels a day — to 24.5 million barrels — would take effect Feb. 1, OPEC President Abdullah bin Hamad Al Attiyah told a news conference at the group's headquarters in Vienna.

Al Attiyah confirmed that the Organization of Petroleum Exporting Countries wants to keep prices of its benchmark blend of crudes at $22-$28 per barrel. Friday prices hovered around $30.

Earlier in the day, Saudi Arabian Oil Minister Ali Naimi said the ceiling should remain at 23 million barrels. Saudi Arabia is OPEC's most influential member and has the bulk of the cartel's spare production capacity.

OPEC said it wanted to calm fears of a supply crunch caused by an ongoing strike in Venezuela. The agreed output hike was near the upper end of what analysts expected.

The strike, launched Dec. 2 by political opponents seeking to oust President Hugo Chavez, has slashed Venezuela's exports by about 2 million barrels a day. Venezuela normally is OPEC's third-largest producer and a major oil supplier to the United States.

"OPEC is trying to send a very strong message that it will do its utmost to stabilize demand and supply," Al Attiyah said after delegates reached their decision in informal talks.

"Now we will wait for the market to react."

The United States praised the move, saying the hike would support economic growth and stability.

"It's a global oil market and the more oil on the market the better for all," U.S. Energy Department spokeswoman Jeanne Lopatto said Sunday. "Instability in the oil market hurts producing and consuming countries alike."

However, Al Attiyah said the arrangement would be only temporary. When Venezuela resumes its normal level of exports, the group's members will meet again to reassess its production target, he said.

It appeared the actual increase in output would be somewhat smaller than 1.5 million barrels a day, as Venezuela is unable now to use its higher quota.

The suddenness of OPEC's decision to call the meeting reflects its surprise at the deterioration in market conditions. Oil ministers for four of the group's 11 members could not make it because of prior commitments.

A fifth minister, Libya's Abdulhafid Mahmoud Zlitni, was due to arrive Sunday but canceled his trip because a sandstorm prevented his plane from leaving the Libyan capital, Tripoli.

Crude prices surged in recent weeks but then fell sharply in anticipation of OPEC's boosting production. Fears about a possible U.S.-led war against Iraq have put upward pressure on world prices.

Al Attiyah insisted that OPEC had not been pressured by the United States or other importers to approve a large increase in production.

OPEC's new production ceiling will be shared among 10 members, but not Iraq. Although it is the 11th member, Iraq does not participate in the group's production agreements because the United Nations (news - web sites) oversees its exports under sanctions dating to the 1991 Persian Gulf War (news - web sites).

OPEC pumps about a third of the world's crude supplies, which total 79 million barrels a day.

Venezuela resisted the Saudi plan for fear of losing market share to OPEC partners that have spare capacity, said Ali Rodriguez, head of the state-run Venezuelan oil company Petroleos de Venezuela S.A.

Rodriguez, speaking at a separate news conference, said his company aimed to increase its production by February to 2.5 million barrels a day from its current, constrained level of 700,000 barrels. Other delegates expressed doubt that Venezuela could restore output so quickly.

The main message for the oil market is that "there will be more barrels," said Yasser Elguindi of Medley Global Advisers, a New York consultancy.

But, "I think this is a very confusing and difficult message, and it will take a while for the market to work out the logistics of it," Elguindi added.

Iraq has the second-biggest oil reserves after Saudi Arabia, and there has been a steady buildup of U.S. troops in the Persian Gulf.

On the New York Mercantile Exchange, February contracts of light, sweet crude futures fell 31 cents Friday to close at $31.68. On London's International Petroleum Exchange, February Brent crude ended at $29.67 a barrel, up 3 cents.

OPEC announced its final decision at a hurriedly called news conference after canceling plans for a formal meeting.