www.sunherald.com Posted on Sat, Jan. 11, 2003 BY MICHAEL GEORGY AND ANDREW MITCHELL Reuters

VIENNA - OPEC producers prepared on Saturday for emergency talks that will decide how far to open the oil taps to prevent a price shock as war looms in Iraq.

Cartel ministers, meeting at 6:30 a.m. EST on Sunday, must also plug a gap in supplies from the group's third biggest producer Venezuela, hit by a six-week-old general strike.

Arriving in Vienna, influential Saudi Oil Minister Ali al-Naimi sent a strong message to world oil markets, where prices recently hit a two-year high, above $33 a barrel, for U.S. crude.

"There is a shortage. It is significant," said Naimi of the Venezuelan outage. "I can assure you that there will be no shortage." He predicted that oil prices "will be lower" after Sunday's meeting.

OPEC is under pressure from the United States to stop prices running out of control ahead of a possible U.S. attack against Baghdad, that some fear could be just weeks away.

Washington is worried that sluggish economic growth, having failed to respond to a series of interest rate cuts, could be snuffed out by another jump in energy costs.

"With oil stocks in the United States already close to estimated minimum operating levels, OPEC has been forced to act," said Washington's Petroleum Finance Company.

"The combination of the twin disruption scenarios represents a political nightmare of sorts for OPEC, which will be accused of having failed its mission if prices climb above $35 a barrel."

U.S. Energy Secretary Spencer Abraham, who normally avoids making public comment on OPEC, said on Friday he had been in contact with producers. He said they were readying a "substantial increase."

HOW MUCH?

Ministers must judge the volume of additional crude required to contain prices inside their preferred $22-$28 target range.

Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah has said the group is discussing a rise of 1.0-1.5 million barrels a day, up 4-7 percent on limits now of 23 million bpd.

Saudi Arabia, in control of most of the world's spare production capacity, wants an increase at the top end of the range.

Others including the UAE, Iran, Algeria and Libya are fearful that an end to the Venezuelan strike could push prices sharply lower and prefer just one million barrels daily.

Whatever the formal decision, Saudi is likely to raise flows by as much as it thinks is necessary for keeping crude under $30 -- to smooth diplomatic relations with Washington and prevent accusations in the Arab world that it is benefiting from war.

Riyadh sees its long-term interest in keeping prices under control to foster the world economic growth that fuels demand for its oil.

Already Saudi customers and shippers report preparations for extra deliveries, particularly to the United States, which relies on Venezuela for 13 percent of its imports.

Sunday's meeting will have to address the delicate issue of how to divide additional supply allocations.

Some want Venezuela excluded from a new deal, leaving nine members of OPEC to share out the incremental supply, giving those with spare capacity greater license to lift production.

Caracas is sending a powerful delegation headed by Oil Minister Rafael Ramirez and state oil company head Ali Rodriguez to argue against that strategy. It does not want to see its share of the OPEC pie shrink now for fear it fails to recover its full stake in the future.

Venezuela is expected to get backing for a request that new quotas be given temporary status, making it clear that previous limits be restored once its output recovers.

www.irna.com

Tehran, Jan 11, IRNA -- The following economic news headlines appearedin major Tehran dailies on Saturday:

-- ABRAR-E EQTESADI                                               
"CBI to start issuing participation bonds on Sunday"              
The Central Bank of Iran (CBI) on Sunday will start issuing       

participation bonds with an annual interest rate of 17 percent in five denominations ranging between one to 20 million rials.

-- AFARINESH                                                      
"CBI to finance 10,000 billion rials of govt's job-creating plans"
Governor of the Central Bank of Iran (CBI) Mohsen Nourbakhsh      

said that the CBI had agreed to provide as much as 10,000 billion
rials financial support for the government's job-creating projects
through bank credits.

-- AFTAB-E YAZD                                                   
"Venezuela to use Iran's help to improve oil industry"            
Venezuelan deputy minister of the interior has called on the      

Iranian Oil Ministry to support the country's requirements in that
sector, expressing hope that the Islamic Republic relying on its
efficient expert knowledge in the area can help improve the oil
industries of the country.

-- ASIA DAILY FINANCIAL NEWS                                      
"Rich prospects for Tehran-Tokyo economic ties"                   
Takekazu Kawamura, the Japanese Ambassador to Tehran on Wednesday  said the Iran-Japan current trade volume was insufficient regarding their rich opportunities and prospects to promote relations, stressing that Tokyo is throwing extraordinary weight on the mobilization of a strong monetary market to support investment by Japanese companies in Iran.                                                                 

-- ENTEKHAB                                                       
"State Organization of Carpet to be established by March"         
Director-General of Iran Farsh (Carpet) Company Mohammad-Ali      

Karimi has said that the Organization of Carpet will be established by the end of the current Iranian calendar year (March 20, 2003),
stressing that the organization will facilitate policy-making in the
industry.

-- IRAN                                                           
"UK BAT, Iran Tobacco Co. sign deal to produce cigarettes"        
Iran's Tobacco Company and the British American Tobacco (BAT) have

recently concluded a deal worth US dollars 30 million for the
production of "Montana" cigarettes in the Islamic Republic.
Iran Tobacco Company under the deal has agreed to prepare one of
its subsidiary plants for the production of Montana cigarettes, while BAT is committed to provide expert work force, as well as the
necessary equipment and facilities to the effect.

-- IRAN DAILY                                                     
"Majlis rectifies aggregate tax bill"                             
Majlis has removed the ambiguities in the bill on aggregate taxes 

which was sent back from the Guardians Council limiting the
authority of rural and city council to collect taxes and duties from
locals and specifying the tax rates on various professions.

-- IRAN NEWS                                                      
"Accidents, disasters damage at $10b"                             
Deputy Minister of Health Mohammad Mohammad Ismail Akbari said the

cost associated with natural disasters, and traffic accidents is
around US dollars 10 billion annually, stressing that there is a need for change of behavior in society to remove those incidents that
threaten the health of the public.

-- KAYHAN INTERNATIONAL                                           
"Export of textile, clothing up by 45 percent"                    
Government spokesman Abdollah Ramezanzadeh said here Wednesday,   

based on the report released by the Ministry of Industries and Mines, a 45 percent rise is observed in the export of textile and clothing
in the first eight months of the current Iranian year (started March
21).

-- SIASAT-E ROOZ                                                  
"Iran hopeful to attract large foreign credit in 2003"            
Iran's Minister of Finance Tahmasb Mazaheri has said that Iran    

hopes to attract four to five billion US dollars of direct foreign
credit over the next year in line with new laws that are meant to
improve the investment climate in the Islamic Republic.

-- TEHRAN TIMES                                                   
"Regional crises push up gold price in domestic market"           
Head of Tehran Gold, Jewels and Coins Guilds Association Kourosh  

Goharbin said here on Wednesday that regional crises and other
external factors have pushed up gold price across the nation, adding
that despite the absence of fluctuations in gold price in the past
week, a probable rise is quite likely in the event of a US attack on
Iraq.
AA/AR
End

www.canada.com Canadian Press Saturday, January 11, 2003

CALGARY -- Canadians should brace for wild price swings at the gasoline pump in the next few months, with a potential average fuel price of 84 cents a litre, says a new report from the TD Bank.

With the cost of gasoline linked closely to world oil prices, the social turmoil in Venezuela and ongoing threat of war in Iraq will likely lead to volatile price fluctuations, said TD senior economist Craig Alexander.

"A war with Iraq could push the national average price of gasoline up to 84 cents a litre or higher depending on how the conflict unfolds," Alexander said in his report.

Across Canada, the average price of regular gasoline this week was 76.3 cents a litre.

In Vancouver, many stations were selling regular fuel for 75.9 cents per litre.

"Conversely, a resumption of oil exports from Venezuela and an avoidance of a conflict with Iraq would likely see gas prices drop to 66 cents a litre or lower."

In a national survey released this week from Calgary-based MJ Ervin & Associates, Yellowknife logged the highest prices for regular gas at 91.9 cents per litre. Winnipeg was the lowest at 67.5 cents per litre.

The TD bank report warns that if the U.S. does attack Iraq before the Venezuela situation is resolved, oil prices go up to $40 to $50 US per barrel.

And using the rough calculation that each $1 US rise in the price of crude increases Canadian gasoline prices by about one cent, crude at $40 US would create an average pump price of 84 cents.

© Copyright  2003 Vancouver Sun

cbs.marketwatch.com By Myra P. Saefong, CBS.MarketWatch.com Last Update: 3:57 AM ET Jan. 11, 2003

VIENNA, Austria (CBS.MW) -- The Organization of Petroleum Exporting Countries will likely agree to boost production at an emergency meeting this Sunday but with little spare capacity, the cartel's decision might not carry much weight if the market loses Iraqi oil, analysts say.

"Spare capacity is not sufficient to offset losses from Iraq and Venezuela," said Thorsten Fischer, an energy economist at Economy.com.

OPEC's untapped output, excluding OPEC members Venezuela and Iraq, is 2.7 million barrels per day, he said. Output from Iraq totals 2.4 million barrels per day and Venezuela's pre-strike output was at around 2.9 million barrels per day.

So in the event of a U.S. war with Iraq and a disruption of oil exports out of the country, the market could lose a total of more than 5 million barrels a day -- only half of which can be made up by other OPEC oil producers, according to Fischer.

The total amount lost would represent about 6 percent of the world's oil demand of 78 million barrels a day.

OPEC agreed earlier in the week to hold the special meeting just a month after members decided to raise their production quota to 23 million barrels a day from 21.7 million, in an effort to lower actual production, which was running well above 24 million. See related story.

But, if OPEC uses 1.5 million barrels per day of spare capacity to make up for Venezuela, "there won't be much available to make up for any loss from Iraq," said Todd Hultman, president of DailyFutures.com, a commodity information provider.

The cartel doesn't expect to implement an output hike until at Feb. 1 and has said it would cancel the move if Venezuela's situation were resolved.

And since shipments take at least five weeks to arrive in the U.S., "there would not be any actual relief in the U.S. until sometime in March," Hultman said.

Output hike range

With that in mind, analysts predict that a number of factors will affect the size of OPEC's ultimate output increase.

Saudi Arabia, the OPEC member with the largest spare capacity -- around 2 million barrels per day -- backs an output hike of around 1.5 million to 2 million barrels. If OPEC uses 1.5 million barrels per day of spare capacity to make up for Venezuela, "there won't be much available to make up for any loss from Iraq."

Todd Hultman, president of Dailyfutures.com     

"OPEC member states currently operating at or near capacity are less likely to vote for a production increase, while Saudi Arabia is more likely to lobby for a more aggressive hike in OPEC's official quota," said Michael Armbruster, an analyst at brokerage house Altavest Worldwide Trading.

The latest data on U.S. supplies failed to reflect much of an impact from the Venezuelan strike, with the U.S. Energy Department even reporting that crude supplies rose by 400,000 barrels during the week ended Jan. 3. The data may tilt oil producers toward favoring a smaller hike. See full story.

Then there's OPEC's price band agreement to consider, said Fischer. It's not clear where that fits into the picture, given that OPEC's start date for its probable output hike isn't until Feb. 1.

The cartel's basket price, or the average price of seven types of crude oil, has been above $28 a barrel for 18 days as of Friday, according to Dow Jones.

OPEC's agreement calls for the addition of 500,000 barrels per day if the price holds above $28 for more than 20 days, making Tuesday the trigger date for a hike.

Quick Iraqi war scenario "Oil prices will likely rise in the run up to a war with Iraq, despite OPEC's commitment to increase production, which will at best dampen price increases."

Thorsten Fischer, economist at Economy.com     

Another scenario to consider: following a successful U.S. and allied attack on Iraq, there's a chance the oil market will see prices collapse and supplies overflow -- a prospect that could scare OPEC into increasing quotas by "substantially less than the 2 million barrels advocated by Saudi Arabia," said Fischer.

Still, it's doubtful any U.S. attack on Iraq will occur before Venezuela is on its way to restore production close to pre-strike levels, he said.

"The strike in Venezuela and the Jan. 27 deadline for weapons inspectors now seem to suggest that the U.S. will strike at the earliest in February," he said.

On Jan. 27, Chief U.N. weapons inspector Hans Blix will provide a detailed assessment of Iraq's compliance with the weapons inspections that began just before Thanksgiving.

"Oil prices will likely rise in the run-up to a war with Iraq, despite OPEC's commitment to increase production, which will at best dampen price increases," Fischer said.

He expects prices to average around $35 per barrel during the first quarter, with prices "substantially" higher ahead of a war and well below that after a successful attack.

Once the war has ended and Iraqi President Saddam Hussein is removed from power, "Iraqi production should increase considerably from current levels," said EnergyTrendAlert.com chief trading strategist, Grady Garrett.

"The speed of Saddam's departure is crucial to getting oil prices down in any meaningful way," he said.

Reserves to the rescue

For now, with the cartel's production hike likely to fall short, the only safety for the U.S., which consumes around 20 million barrels per day, is its Strategic Petroleum Reserve. "The Strategic Petroleum Reserve remains the only source of crude oil that would be available on short notice to consumers in the U.S." Thorsten Fischer      "The Strategic Petroleum Reserve remains the only source of crude oil that would be available on short notice to consumers in the U.S.," said Fischer.

Hultman pointed out that with OPEC showing its willingness to help out at its meeting Sunday, "it would not be unreasonable to expect the president [will] release crude supplies to coincide with an attack on Iraq."

At 600 million barrels, the reserve is currently near its full capacity.

But, President Bush won't likely release the reserve oil immediately upon the outbreak of a war with Iraq, said John Person, head financial analyst at Infinity Brokerage Services.

And it's probably best that he doesn't, Person said, emphasizing that the oil could be of more use in the event that Hussein decides to sabotage his country's oilfields and blame the U.S., and supplies are disrupted from other Arab nations.

"There are lots of doom and gloom prospects out there," he said.

Overall, however, major industrialized countries have the ability to release around 12.9 million barrels per day from reserve stocks for a month, with that amount falling to 9 million barrels per day in the second month, Person said, citing data from the West's energy watchdog, the International Energy Agency.

OPEC fears these stockpiles could be released once members increase production and start shipping more crude, he said. That would cause prices to fall below their ultimate target price of about $25 a barrel.

"The meeting will be a debate to find the balance between increased production and the ramifications on prices if the government stockpiles are released." John Person, head financial analyst at Infinity Brokerage Services      With those concerns, OPEC may decide on a more modest increase in supplies, on the order of 1 million to 1.5 million barrels per day, said Person. Little spare capacity would put a damper on any cheating, he added.

"The meeting will be a debate to find the balance between increased production and the ramifications on prices if the government stockpiles are released," he said.

Then again, said Dailyfutures.com's Hultman, all these concerns could end in just the "twinkle of an eye" if Venezuela's military switches sides, ending the strike and Iraq's Hussein suddenly flees the country.

"Venezuela and Iraq could be back in the oil business and the crude problem would be over," he said. "That is often how these things go."

Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.

europe.cnn.com Friday, January 10, 2003 Posted: 1640 GMT

VIENNA, Austria -- When members of the Organization of Petroleum Exporting Countries meet on Sunday they will be faced with two crucial questions: How much new oil should flow to the West, and how will that decision affect Saudi Arabia, the world's biggest producer, and the United States, the No. 1 importer.

The meeting in Vienna was called by the 11-member cartel to deal with a shortage of crude caused by the six-week national strike in Venezuela.

The strike, led by opponents of President Hugo Chavez, has cut oil shipments from the fifth biggest exporter to just a tickle.

And that has squeezed supplies to the United States and other major industrialised countries and helped boost the price of oil to two-year highs. About 25 percent of that increase has come since the strike began on December 2.

Oil has been trading just below $30 a barrel on the International Petroleum Exchange in London and almost $33 on the New York Mercantile Exchange in New York. Both are well above OPEC's preferred range of $22-$28.

With the threat of war in Iraq, which could also curtail shipments from the oil-rich Gulf region, there are real concerns that higher oil prices could soon threaten the global economy.

The decisions made by OPEC will "make a little bit of virtue out of a necessity," Peter Gignoux, an oil analyst at Schroder Salomon Smith Barney, told CNN. "At the moment [pumping more oil]... is good for the consumer and OPEC can take credit for that."

For Saudi Arabia, the meeting on Sunday should also shed some light on how the OPEC kingpin sees itself in relation to cartel members and to the United States.

It wants to lift output by as much as 2 million barrels a day from the current level of 23 million barrels to cover for losses from the strike in Venezuela.

Saudi Arabia has a vested interest in moderating prices, just as the West does, because previous spikes -- like those in the 1970s and during the 1990-1991 Gulf War -- were followed by economic slumps, which in turn reduced demand and sent prices tumbling.

"It is clearly in Saudi Arabia's interest to mitigate high prices," Paul Stevens, professor of petroleum policy at Britain's Dundee University, told Reuters.

Other members of OPEC -- which provides about a third of the 75 millions barrels consumed globally each day -- are keen to expand their markets and not encourage customers to seek out other sources of fuel such as natural gas.

"From a purely commercial point of view, the last time prices went very high it didn't do OPEC any good," John Mitchell, associate fellow at the Royal Institute of International Affairs, told Reuters.

OPEC unlikely to support Saudi request

But Saudi Arabia may find its muscle is not as strong as it once was.

It is unlikely that other OPEC members will go along with Saudi Arabia's request, partly because they see a 2 million barrel increase as unrealistic, and party because they do not want to be seen as bowing to U.S. pressure for much higher output levels.

Instead, Saudi Arabia is expected to compromise and accept an increase of about a 1.5 million extra barrels a day, or 7 percent than what is now being pumped. Members are also expected to agree to leave the door open to more if war breaks out in Iraq.

Saudi Arabia is anxious to show the U.S. that it won't be pushed around by its former ally in the Gulf War. Their relationship has cooled since the September 11 attacks, perpetrated by mostly Saudi nationals. Still, their mutual interest in the oil sector remains strong.

"From a political point of view, I am sure they don't want to be seen to be just doing what the U.S. wants, but on the other hand nor do they want to create enemies,'' says Mitchell.

The U.S. has been quite vocal in urging OPEC and other oil producers -- like Russia, Central Asia and Africa -- to hike output to keep a lid on oil prices as its energy stockpiles decline due to the strike in Venezuela, which supplies the U.S. with 14 percent of its crude oil imports.

Guy Caruso, the head of the U.S. Energy Information Administration (EIA) said on Thursday that a decision by OPEC to increase oil output by up to 1.5 million barrels a day would only make a "dent'' in making up for crude exports lost as a result of the strike.

"Clearly we've lost roughly 2.5 million barrels a day to the world market from Venezuela, so any additional oil [from OPEC] would offset some of that,'' Caruso told Reuters. "Obviously, if they [OPEC members] want to make a big impact, [pump] more than that.''

Those comments has been dismissed a simply posturing by the U.S.

"The whole point of OPEC releasing more oil was to help cover Venezuela, so the statement from the EIA was a little surprising,'' one broker in New York told Reuters.

Stevens, of Dundee University, added: "The idea that the United States can bang the table and tell OPEC and Saudi Arabia what to do is divorced from reality."