cbs.marketwatch.com

By Myra P. Saefong, CBS.MarketWatch.com Last Update: 2:31 PM ET Jan. 12, 2003

NEW YORK (CBS.MW) -- Oil prices are expected to come under pressure Monday after the Organization of Petroleum Exporting Countries agreed Sunday to increase crude production by 1.5 million barrels a day in a bid to lower prices and offset shortages resulting from a strike in Venezuela.

The increase of 6.5 percent to 24.5 million barrels a day will take effect Feb. 1, the oil cartel said, adding that it will review the decision at its next regularly scheduled meeting in March. Read full story.

"The move is good to make up for lost production in Venezuela and will definitely be helpful in relieving anxieties now and help to keep crude prices in the low $30s," said Todd Hultman, president of Dailyfutures.com, a commodity information provider.

Friday's action

Crude futures closed lower Friday with traders confident OPEC will boost production, but unsure of the size of the hike and its impact on a market plagued with problems at two of its major oil producers -- Venezuela and Iraq.

February crude closed at $31.68 a barrel on the New York Mercantile Exchange, down 31 cents.

The contract gained more than a dollar, or 5 percent, Thursday on doubts that OPEC members can pump enough extra oil to replace production lost to Venezuela's oil strike and the potential disruption of supplies from Iraq.

OPEC members agreed to hold an emergency meeting this Sunday to discuss increased production targets, with Saudi Arabia reportedly supporting an output hike of 1.5 million to 2 million barrels per day.

"An increase of more than 1.5 to 2 million barrels per day will cause prices to stabilize and perhaps fall," John Kilduff, an analyst at Fimat USA told clients Friday, while "anything less than 1.5 million barrels per day will be viewed as insufficient and prices will probably continue to rise."

Analysts have said that it takes around five weeks for oil shipments resulting from the hike to show up on U.S. shores, and with OPEC not expecting to implement its increase in quotas until Feb. 1, traders are doubtful of OPEC's ability to help supplies in the near term.

The cartel has also said it plans to cancel the increase in production once the strike in Venezuela, which began on Dec. 2 in opposition to President Hugo Chavez, is resolved.

"Even if the strike is settled today, the Department of Energy estimates that it will take about four months [for Venezuela] to reach production levels attained before the strike," said Kilduff, adding that both the opposition and supporters of Chavez seem far apart and adamant in their demands.

Against this backdrop, "OPEC will probably not increase production enough to make up for that lost from Venezuela," he said. The South American nation produced around 3 million barrels a day and comprised more than 10 percent of U.S. oil imports prior to the strike.

Concerns over OPEC's ability to cover lost oil in the event of a U.S. war with Iraq on top of Venezuela's shortfall have also surfaced. Analysts pegged OPEC's spare capacity at around 3 million barrels, which would fall short covering a total of around 5 million barrels lost from OPEC members Venezuela and Iraq.

Iraqi President Saddam Hussein is "a wild card and there is no telling what he might do," said Kilduff. If a war starts, prices could spike higher, he added.

The latest reports on U.S. crude supplies, both released Wednesday, however, failed to reflect much of an impact from Venezuela's 40-day oil strike.

The American Petroleum Institute said crude supplies fell by only 2 million barrels to total 275 million barrels during the week ended Jan. 3. The Energy Department said crude supplies actually rose by 400,000 barrels to 278.7 million barrels. See full story.

In other Nymex action, February unleaded gasoline declined by 2.06 cents to close at 87.19 cents a gallon. February heating oil also fell by 0.97 cent to 86.53 cents a gallon.

The losses in petroleum futures failed to put a damper on most oil-service stocks. The Oil Service Index ($OSX: news, chart, profile) was up 0.4 percent. See Energy Stocks.

Natural gas slips

Also on Nymex, natural-gas futures fell in delayed reaction to the latest government report on supplies, which revealed a smaller-than-expected decline in last week's stocks.

February natural gas fell by 16.1 cents to close at $5.143 per million British thermal units.

The Energy Department reported early Thursday that natural-gas supplies fell by 86 billion cubic feet to 2.331 trillion cubic feet during the week ended Jan. 3.

Fimat predicted a 109 billion cubic foot decline and estimates ranged between a 60-billion and 110-billion-cubic-foot draw. A year ago, inventories fell by 199 billion cubic feet.

Supplies are now 459 billion cubic feet lower than last year at this time and 2 billion cubic feet below the five-year average, the government said.

Weekly declines of 111 billion cubic feet are needed in the remaining 12 weeks of the withdrawal season for inventories to drop to about 1 trillion cubic feet by March 28, Fimat said.

Gold futures' one week gain at $5

After a slow start, gold futures prices made a fresh attempt at a six-year high Friday, closing near $355 an ounce and logging a gain of $3 for the week. See Metals Stocks.

Grains wilt

On the Chicago Board of Trade, reports from the U.S. Department of Agriculture released early Friday revealed bigger-than-expected stocks of grains, pressuring corn, soybeans and wheat.

March corn fell 8 3/4 cents to 234 3/4 cents a bushel and March soybeans shed 23 cents to 556 3/4 cents a bushel. March wheat fell 9 3/4 cents to 319 1/4 cents a bushel.

The government raised its estimates for stocks at the end of the 2002 to 2003 year for corn by 81 million to 924 million bushels, soybeans by 15 million to 190 million bushels and wheat by 70 million to 418 million bushels, according to Todd Hultman, president of commodity information provider, Dailyfutures.com.

Grain stocks as of Dec. 1 came in higher than expected, he said.

The USDA pegged corn at 7.63 billion bushels, down 8 percent form a year ago. Soybeans were down 7 percent from a year ago at 2.11 billion bushels and wheat was at 1.32 billion bushels, down 19 percent form a year ago.

The Reuters/CRB Index, broad-based measure of the commodity futures market, closed at 240.2, down 0.5 percent. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.

Sunday, 12 January, 2003, 15:44 GMT news.bbc.co.uk

Venezuela's strikes have hit exports very badly

The oil producers' organisation Opec has agreed to increase production to try to stabilise the price of oil.

The cartel made the decision after four hours of talks at a meeting in Vienna in response to a sharp rise in world prices.

The main cause is the continuing strike in Venezuela, which has cut the amount of oil on the market by at least 2 million barrels a day.

The United Arab Emirates' oil minister told reporters that he and fellow ministers had agreed to fill the gap in world oil supplies caused by Venezuela's problems.

But he did not give any details of the size of the increase.

Before the meeting the leading Opec producer, Saudi Arabia, said the cartel was already filling the gap caused by the Venezuelan strike.

"There is no shortage. We never allowed the shortage to take place," said Saudi oil minister Ali al-Naimi.

Since mid-December the price of crude oil in both London and New York has been above Opec's target range of $22 to $28 a barrel.

More soon.

economictimes.indiatimes.com PTI[ SUNDAY, JANUARY 12, 2003 08:50:38 PM ]

VIENNA: Opec energy ministers called on Sunday for an increase in oil production to make up a shortfall of two million barrels per day from strike-hit Venezuela in a bid to stop spiralling oil prices.

The 11-nation Organization of Petroleum Exporting Countries needs to raise oil output by that amount to cover the shortfall from Venezuela, where a six-week old strike has crippled production, Algerian Oil Minister Chakib Khelil said.

"I think we're going to raise" production, he said as Opec began an emergency meeting in Vienna. "We need two million" barrels per day more, he added.

But the exact amount was not clear, particularly since many Opec members are already thought to be producing above their individual output quotas.

The supply squeeze has nevertheless sent prices above Opec's $22-$28 per barrel target price. Crude prices surged above 30 dollars a barrel in London, even reaching $33 in New York recently before easing back slightly.

In addition, traders are worried a US-led war in Iraq might be launched before the strike in Venezuela is resolved, depriving world oil markets of around five million barrels of oil per day from the two producers, or even more if the war were to destabilise other Middle East suppliers.

The United States has strategic oil reserves of 600 million barrels it can dip into if necessary, but so far it has been reluctant to do so.

Saudi Arabian Oil Minister Ali al-Nuaimi said here that Opec would probably leave its overall output quota unchanged at 23 million barrels per day (bpd), while making up the shortfall from Venezuela.

Seeking to calm jittery markets, Nuaimi said Saudi Arabia would ensure there was adequate supply and could raise its own output if needed to 10.5 million bpd within two weeks, from a quota of 7.5 million.

"There is not a shortage (of supply) in the international market, there is only a shortage from Venezuela, probably of two million barrels per day," he said.

"The ceiling of 23 million barrels per day, we will leave it," he added.

Analysts say some Opec members, notably Saudi Arabia which has the most spare production capacity, have in any case already been producing above their individual quotas.

"We believe that production from the Opec members outside of Venezuela has been rising steadily since the start of the strike and that the decision to be reached in Vienna is to make this formal," Deutsche Bank analyst Adam Sieminski in London said ahead of the meeting.

Venezuela sent a beefed-up delegation including Oil Minister Rafael Ramirez and the president of state-owned oil company giant Petroleos de Venezuela (PDVSA), Ali Rodriguez - a former Opec secretary general - to join the talks.

Asked what Opec could do to help Venezuela, Ramirez said "stabilise the market�, as he arrived for the meeting, without specifying exact measures.

Indonesia, Iraq, Kuwait, Iran and Libya did not send their ministers to the hastily called get-together, although they were still expected to be represented.

abcnews.go.com — By Tom Ashby and Ellie Tzortzi

VIENNA (Reuters) - OPEC Sunday readied extra production to stave off a spike in oil prices threatened by a strike in Venezuela and a possible war in Iraq.

The Organization of Petroleum Exporting Countries is set to respond with a temporary production hike to fill the Venezuelan gap in a bid to bring prices down. Talks that started at 1130 GMT were expected to yield a result by late afternoon or early evening in Vienna.

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 a day hole on world markets. "There is no shortage. We never allowed the shortage to take place," Naimi told reporters before Sunday's emergency OPEC meeting.

Riyadh is trying to prevent oil spiking to heights that might harm world economic growth and hit crude demand. U.S. oil prices recently rose above $33 a barrel for the first time in two years. It was valued at $31.58 Friday.

Naimi said he could open the taps to 10 million barrels daily at just two weeks notice, some two million higher than estimated Saudi output in December.

"We can get to 10.5 right away but to maintain that level we need 90 days to formalize contracts for extra rigs with drilling companies," he added of the kingdom's full capacity.

Fellow cartel members the UAE, Kuwait, Nigeria and Algeria also held spare capacity, the minister said.

23 MILLION

Naimi opposed any increase at Sunday's meeting in formal limits for 10 member countries with quotas, because Venezuela is out of the market.

"At the last (December) meeting we evaluated the market needed 23 million barrels per day. The ceiling is still 23 million barrels a day and we will maintain 23 million barrels a day," he told reporters.

Delegates said ministers are likely to decide how much is missing from Venezuela and make clear they intend to reverse the addition once Venezuelan deliveries are restored.

With no end in sight for the strike, that could be some time. Ali Rodriguez, President of state Petroleos de Venezuela SA blamed sabotage at oilfields, refineries and computer systems for the prevention of a swift return to production.

Ministers from Kuwait and the UAE have said preliminary discussions focused on a 1.0-1.5 million bpd increase. But Saudi wants more. Naimi said that with a Venezuelan outage of two million bpd, an increase of 1.5 million would not be enough.

Delegates said that as a compromise, ministers might decide simply to make clear their intention to make up for the Venezuelan loss without announcing any exact additional volume increase, or individual allocations.

Cartel members discuss how to make up for disruption caused by Venezuela. January 12, 2003: 10:15 AM EST money.cnn.com

VIENNA (Reuters) - OPEC Sunday readied extra production to stave off a spike in oil prices threatened by a strike in Venezuela and a possible war in Iraq.

The Organization of Petroleum Exporting Countries is set to respond with a temporary production hike to fill the Venezuelan gap in a bid to bring prices down. Talks started at 1130 GMT.

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 a day hole on world markets. "There is no shortage. We never allowed the shortage to take place," Naimi told reporters before Sunday's emergency OPEC meeting.

Riyadh is trying to prevent oil spiking to heights that might harm world economic growth and hit crude demand. U.S. oil prices recently rose above $33 a barrel for the first time in two years. It was valued at $31.58 Friday.

Naimi said he could open the taps to 10 million barrels daily at just two weeks notice, some two million higher than estimated Saudi output in December.

"We can get to 10.5 right away but to maintain that level we need 90 days to formalize contracts for extra rigs with drilling companies," he added of the kingdom's full capacity.

Fellow cartel members the UAE, Kuwait, Nigeria and Algeria also held spare capacity, the minister said. 23 million

Naimi opposed any increase at Sunday's meeting in formal limits for 10 member countries with quotas, because Venezuela is out of the market.

"At the last (December) meeting we evaluated the market needed 23 million barrels per day. The ceiling is still 23 million barrels a day and we will maintain 23 million barrels a day," he told reporters.

Delegates said ministers are likely to decide how much is missing from Venezuela and make clear they intend to reverse the addition once Venezuelan deliveries are restored.

With no end in sight for the strike, that could be some time. Ali Rodriguez, President of state Petroleos de Venezuela SA blamed sabotage at oilfields, refineries and computer systems for the prevention of a swift return to production.

Ministers from Kuwait and the UAE have said preliminary discussions focused on a 1.0-1.5 million bpd increase. But Saudi wants more. Naimi said that with a Venezuelan outage of two million bpd, an increase of 1.5 million would not be enough.

Delegates said that as a compromise, ministers might decide simply to make clear their intention to make up for the Venezuelan loss without announcing any exact additional volume increase, or individual allocations.