www.timesofmalta.com Tom Ashby in Vienna, Reuters

The United States may have a vested interest in Opec opening up the oil taps but Washington and other industrialised powers will have to rely on the cartel's self-interest to prevent an oil price shock, analysts said yesteday.

Arab-dominated Opec does not openly welcome US calls for extra supply, but producers are expected at an emergency meeting on Sunday to raise output to stop prices going much above $30 a barrel.

"The idea that the United States can bang the table and tell Opec or Saudi Arabia what to do is divorced from reality," said Paul Stevens, professor of petroleum policy at Britain's Dundee University.

"Having said that, it is clearly in Saudi Arabia's interest to mitigate high prices."

Opec kingpin Saudi Arabia wants the group to lift output by as much as two million barrels per day from 23 million bpd now to cover for losses from a strike in Venezuela.

With others in Opec unwilling to add that much, Riyadh is likely to compromise on about a 1.5 million bpd, or seven per cent, addition and leave the door open to more if war breaks out in Iraq.

US-Saudi diplomatic relations are still cool after the September 11 attacks, perpetrated by mostly Saudi nationals, but their mutual interest in the oil sector remains strong.

Riyadh, with the lion's share of spare capacity, has as much interest in moderating prices as the West, because previous spikes in the 1970s and during the 1990-1991 Gulf War were followed by economic downturns, hitting demand and prices.

And with several decades' worth of reserves, Opec wants to ensure a growing market for oil against competition from natural gas and other fuel sources.

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

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

Oil prices soared by 25 per cent in the last two months to touch two-year highs at $33.60 for US crude, well above Opec's preferred range of $22-$28, because of the export halt in Venezuela and fears of further shortages in an Iraq war.

Fears are that prices could soar if a cornered Iraqi President Saddam Hussein lashes out and tries to damage oil facilities in neighbouring Kuwait and Saudi.

The US State Department said earlier this week that a substantial Opec increase would be a "positive development".

A spokesman said officials had been in contact with some of the Organisation of the Petroleum Exporting Countries ahead of tomorrow's meeting in Vienna.

The head of the US Energy Information Administration said an output increase of 1.5 million bpd "would certainly make a big dent" in the shortfall from Venezuela, where a strike has reduced oil exports by about two million bpd.

"Obviously, if they want to make a big impact, (they would increase output by) more than that," said EIA Administrator Guy Caruso.

Washington in 2000 made a very public plea to Opec and Saudi Arabia in particular when oil prices last surpassed $30 per barrel, creating huge tensions in the cartel which controls two-thirds of world exports.

Iran walked out of an Opec meeting in that year, denouncing outside interference in the group's decision making.

Since George W. Bush took the US presidency, the world's biggest energy consumer has concentrated more on encouraging Western investors to lift output outside Opec, especially in Russia, Central Asia and Africa.

Stevens said Saudi Arabia had already put its oil industry on a war footing, despite tight Opec limits, by pumping extra oil in October and November.

This oil is still either slow-steaming in tankers towards its markets in the West or kept in storage close to markets for release in case of a crisis, he said.

Shippers and traders say Riyadh is already preparing to raise production from the end of January, with customers told to expect more crude and extra tankers on charter.

The danger is that the Venezuelan stoppage, nearly six weeks old, could require that oil before any war on Iraq starts.

www.globeandmail.com Saturday, January 11, 2003 – Page B7

The West's energy watchdog, the International Energy Agency, could begin preliminary discussions on a possible emergency oil release in a week's time, the agency's acting executive director William Ramsay said yesterday. War in Iraq, if an oil strike in Venezuela were still running, could trigger deliveries from the IEA, he said. "But we don't need to wait for a war, if there is one, because we've already lost three million barrels a day from Venezuela," he added.

www.globeandmail.com By LILY NGUYEN With files from Reuters and Bloomberg

Saturday, January 11, 2003 – Page B1

CALGARY -- Motorists will endure a year of ups and downs in the price of driving as geopolitical tensions send crude oil -- the key driver of retail gasoline prices -- swinging to extremes, a Toronto-Dominion Bank economist said yesterday.

In a topic paper, TD senior economist Craig Alexander predicted retail gasoline prices in the country could hit 84 cents a litre on average and go even higher if the United States and its supporters decide to go to war against Iraq.

Conversely, the easing of political tensions could push pump prices down to 66 cents or lower.

"Geopolitical events are likely to produce considerable volatility in crude oil prices in 2003, which will translate into large swings in prices at the gas pumps," Mr. Alexander wrote.

The average pump price across Canada today is about 76 cents, he said.

The possibility of impending war with Iraq, an interruption of oil exports from Venezuela because of a general strike and low U.S. crude inventories have already combined to send crude prices well into the range of $30-plus (U.S.) a barrel.

Yesterday, light sweet oil for February delivery slipped 31 cents on the New York Mercantile Exchange to close at $31.68 a barrel on expectations the Organization of Petroleum Exporting Countries would boost production to make up for the shortfall from Venezuela.

Analysts predicted the oil cartel would raise its output quota by between one million and 1.5 million barrels a day at its emergency meeting tomorrow.

"OPEC's going to lift production, it's just a question of how much," said Juha Laiho, a crude oil trader in Houston for Finnish oil company Fortum Oyj.

But Mr. Alexander said an output change may not have a big effect.

"It is important to note that commodity markets have already priced in an increase in production, so unless the increase is significantly larger than one million barrels, the impact on prices will be limited."

Mr. Alexander said that while OPEC is moving to limit some of the effects of the Venezuelan strike, it has only limited capacity to absorb a war-related supply crunch.

If Venezuelan exports are not back on track in the event a war breaks out, a price jump would be more pronounced, he said.

Mr. Alexander added that such a concern could affect the timing of a move by the United States against Iraq.

"A conflict would likely drive prices temporarily up to $40 to $50 a barrel or higher if Venezuelan oil exports are still disrupted," he said.

A price increase of $1 a barrel translates into a rise of approximately 1 cent (Canadian) a litre at the pumps, he said.

Yesterday, a U.S. official said the United States supports creating a "group of friends" of Venezuela made up of the South American nation's neighbouring countries to end the crisis and get exports flowing again.

www.globeandmail.com Bloomberg News Saturday, January 11, 2003 – Page B15

Crude oil fell, completing its first weekly decline since mid-November, on expectations that the Organization of Petroleum Exporting Countries will boost production to make up for a shortfall from Venezuela.

Tomorrow, OPEC will probably raise its output quota by one million to 1.5 million barrels a day, analysts said. Prices have risen 16 per cent since Dec. 2, when Venezuelan workers went on strike seeking the ouster of President Hugo Chavez. The country's daily output has since dropped by about 2.3 million barrels.

"OPEC, outside of Venezuela, is already increasing production," said Jay Saunders, an analyst at Deutsche Bank Securities in Edinburgh. "OPEC should be worried about all of their increased production hitting the market at the same time Venezuelan oil comes back."

Soybean futures had their biggest drop in 18 months after the government said U.S. farmers harvested a larger crop than expected.

The U.S. Department of Agriculture raised the estimate of last year's harvest by 1.5 per cent to 2.73 billion bushels partly on increased production in Iowa and Minnesota, which escaped the drought conditions that reduced crops in other growing states. The U.S. government also boosted its estimate of the surplus of unsold beans on Aug. 31 by 8.6 per cent from December.

Copper prices fell for the first time in three sessions after the U.S. Labor Department reported an unexpected drop in U.S. payrolls last month, signalling that the economy is too weak to stimulate industrial demand for metals.

Prices slipped from a five-week high on increased concern that the U.S. economic recovery is proceeding too slowly to boost use of the metal by car makers and other manufacturers. The number of employed Americans fell by 101,000 in December, the biggest decline in 10 months, the report showed.

www.globeandmail.com By JUDITH TIMSON

Saturday, January 11, 2003 – Page B2

A friend who is a retired oil company executive noticed last week that gas at his Toronto neighbourhood station was 72.9 cents a litre.

Oh good, he thought, I'll fill up the tank on my way home. By the time he returned, an hour or so later, the price had leaped to 77.9 cents. "That's five whole cents!" he said, sounding momentarily affronted.

At least he had what the rest of us are only painfully acquiring: perspective. Having purchased crude oil from the Middle East in the seventies when prices were also wonky, the former executive sighed and said: "Supply and demand."

The story of a gas price hike these days is easily the plot of an international novel of intrigue.

Start in Venezuela, with a rock thrown by a striking oil worker through a window, which then results in enough political and economic instability to cripple the crude oil output, halt exports to the United States and spike up the price per barrel. (It went to $33 U.S. in the past 10 days before settling down around $30).

Segue to the Middle East, where oil sheiks awaiting a possible war in Iraq have gone into hoard mode, and then, cut to Vienna, where the leaders of the Organization of Petroleum Exporting Countries have convened an emergency meeting tomorrow to try to prevent further oil price shocks.

Finally, cue the local price provocateurs of the North American major oil companies, hunched over their computers, deciding daily or even hourly whether our gas should go up or down.

And voilà, a blockbuster novel -- "Pumps." Or perhaps something more dignified: "A Clear and Present Crude Shortage?"

Whatever the title, one of the characters way down the supply chain could be George, my local Petro-Canada dealer, a man of few words, most of them mumbled.

George, whose price was 77.9 cents (Canadian) a litre yesterday, said he gets an automated message from Petrocan, a female voice advising him of the new price.

"It could be in an hour, it could be tomorrow," said George, whose reaction to all the international goings-on was a big shrug. His customers were not complaining he said, because "you gotta fill the tank."

His guy at the pumps even joked: "This is a bargain compared to Italy."

Not too far from George's station was a gentleman who introduced himself as Bawa.

He was presiding over a Tonka gas stand so small it looked like an ice fishing hut.

Bawa said the price was holding at 72.9 cents, and the stand was selling "5,000 more litres per day" than some of the bigger stations.

The price turnaround is happening faster than it used to, and prices are often higher at the start of the week, according to Spencer Knipping, an oil adviser at the Ontario Ministry of Energy.

Mr. Knipping is so passionate and knowledgeable about oil -- his father was a petroleum engineer in Calgary -- that industry insiders call him for stats because, as one lobbyist said, "Spencer knows everything."

"Ah, now here's an interesting spreadsheet," Mr. Knipping said over the phone as he tracked prices.

He said Canadian drivers have been surprisingly tenacious in pursuing a lower gas price, "even if it's just a few tenths of a cent."

Paradoxically, they'll drive farther, or spend valuable time hunting down a bargain. (There are several Web sites that offer price alerts in each province.)

According to Mr. Knipping, the reason your gas price is so volatile is less Tom Clancy than Economics 101. Yes, supply and demand, and international goings on, but mainly tremendous competition at the local retail level.

If price wars don't provide enough drama, the story of gas has also become a morality play. A series of SUV-bashing ads have surfaced in the United States, reportedly depicting people who drive gas-guzzling vehicles as fuellers of terrorism.

My friend, the former oil company executive, filled his tank at his usual place, absorbing the 5-cent-a-litre hike. Like many others, he had better things to do than search out a bargain.

He writes now, and he once even tried to write a novel about the oil industry. "But it seemed so boring."

He should keep trying. It's a heck of a story. judithtimson@hotmail.com