www.helenair.com By the AP - 01/10/03

WASHINGTON (AP) — Even if war is averted in Iraq, motorists should be ready to pay at least a dime a gallon more for gasoline this spring, the Energy Department says.

Oil and gasoline imports from Venezuela probably won't return to normal before summer — if then.

Despite tight supplies of crude, the Bush administration gave no sign Thursday it was ready to use emergency oil reserves to soften the supply or price impacts, although U.S. officials were lobbying foreign producers to increase oil output.

"There's no change in the decisions that have been made," White House press secretary Ari Fleischer said when asked whether the government's Strategic Petroleum Reserve might be tapped. He said the purpose of the reserve was to respond to emergencies and implied no such situation exists at this time.

The Energy Department in a report forecast that gasoline prices nationwide would increase to an average of $1.54 a gallon by mid-spring, about 10 cents a gallon higher than this week's average, because of rising crude prices and the disruption to oil exports in Venezuela.

The forecast also said steeper price spikes are likely in some areas because of the supply cuts from Venezuela, where oil production has been virtually shut down for a month.

The Energy Information Administration report said Venezuelan production almost certainly will continue to be below normal levels into late spring and into the summer driving season, even if the country's political crisis is resolved in the next few months. It would likely take four months to return to full production after the turmoil subsides, the analysis said.

Last year, Venezuela shipped about 1.5 million barrels a day of crude and refined gasoline into the United States, about 13 percent of U.S. imports. Its refineries, now largely shut down, also are a major source of U.S. gasoline imports.

The EIA projections do not take into account the turmoil over Iraq and assume that oil from that country will continue to be available at about 2.4 million barrels a day. If war erupts in Iraq all bets are off on predicting prices, agreed EIA petroleum analyst David Costello.

Last year, Iraq produced about 2 million barrels a day on average. Economists and energy expert have said serious worldwide crude shortages could develop if war erupts in Iraq and the country's imports disappear while Venezuela's oil fields remain crippled.

EIA director Guy Caruso said that "a positive sign" is that gasoline inventories at this time are on the high end of the comfort range and "in reasonably good shape."

But crude oil inventories have been declining to uncomfortable levels and some analysts fear a winter cold spell might cause refiners to focus more on producing heating oil and then run into problems getting enough crude when they shift to gasoline in the spring.

"The question (on gasoline supplies) is … where are we going to be in the next few months or so," Costello said.

OPEC oil ministers have indicated that they will boost their quotas for crude production by 1.5 million barrels a day when the group meets this weekend to counter the loss of Venezuelan oil.

But analysts have noted that the OPEC countries have been pumping about 2 million barrels a day above their quota anyway as producers sought to take advantage of high oil prices. The actual amount of additional crude flowing into the market may not increase substantially, they suggest.

The Bush administration quietly has been lobbying some OPEC states to boost production more.

Caruso said that additional OPEC oil will not have an immediate impact because it takes at least 45 days for oil from the Middle East to reach the United States. And of course much of the OPEC crude would be destined for markets other than the United States.

"We're watching that very carefully," said Caruso, adding that more Middle East production — as well as relatively high U.S. prices — might result in additional European stocks of refined gasoline being shipped to the United States.

Emphasizing that his agency is not in the business of making policy recommendations, Caruso sought to sidestep questions about tapping the Strategic Petroleum Reserve to make up supply shortages.

"Obviously a lot of factors go into that decision," he said. "I think it's too close of a call right now."

The reserve holds 592 million barrels of oil and can release it at a maximum pace of more than 4 million barrels a day.

On the Web: Energy Information Administration: www.eia.doe.gov

news.ft.com By Nerma Jelacic in London Published: January 10 2003 12:55 | Last Updated: January 10 2003 13:14

Brent crude oil prices reversed early losses in London on Friday as investors reacted to latest developments in Iraq and ahead of an emergency Opec meeting this weekend.

Observers said the threat of war in the Gulf region seemed to have receeded after a mixed report from UN inspectors in Iraq gave ammunition to both the supporters of the US preparation for a possible war and for the peace doves.

Hans Blix, the head of the UN weapons inspections team, said on Thursday his team had yet to find evidence that Iraq had weapons of mass destructin and that the inspections would need more time.

However, in his speech to the United Naitons, he added that Iraq had failed to answer key questions on the weapons issue.

While in the US analysts chose to concentrate on the second part of Mr Blix's speech, their European counterparts found the threat of war diminishing after some comments from British prime minister Tony Blair.

Mr Blair, up to know the key US ally, indicated that the weapons inspectors should get more time to complete their work.

Other European nations, including Germany, argued that there was no reason for a military attack against Iraq at present.

IPE February Brent stood 21 cents higher at $29.85 a barrel having closed at $29.19 a barrel in the previous session.

"Traders will have to balance pre-Opec meeting concerns with fears of weekend developments in the Gulf and Venezuela in determining their positioning today," said Lawrence Eagles, an analyst with GNI Research.

Apart from the situation in the Gulf, investors were awaiting the decision of an emergency Opec meeting on Sunday which is expected to agree an output increase to help compensate for supply losses from the Venezuelan strike which has now entered its 40th day.

Opec members are considering how best to implement the necessary replacement of between 1m and 1.5m barrels a day lost through the strike.

"The Opec ministers are debating how best to accomplish this without worrying the market that the announced increase will be perceived as either under-supplying or over-supplying requirements," said Adam Sieminski, an analyst with Deutsche Bank.

The head of the Energy Information Administration, Guy Caruso said that an Opec increase of up to 1.5m barrels a day would make a dent in offsetting the lost Venezuelan crude, but there was a need for more oil.

"We believe that the world supplies will be insufficient to meet world demand this month and possibly throughout February as well," said Mr Eagles.

He added that the gap would not be huge, but with world oil stocks at low levels this will represent a significant tightening of the world oil market.

"This, coupled with Iraqi war fears, should keep prices above the $28 a barrel Opec basket benchmark, but similarily prices are unlikely to surpass the recent highs," he added.

This was echoed by Mr Sieminski: "Despite the shift toward more negative sentiment on oil, we believe the bullish case remains more persuasive in the near term," he said.

"Inventories are already very low, Venezuela remains in turmoil until August elections, fighting in Iraq is coming in February or March - and recovery from those dynamics will be slow. Inventories stay low and oil prices stay high," Mr Sieminski added.

By Myra P. Saefong, CBS.MarketWatch.com Last Update: 10:39 AM ET Jan. 10, 2003

February crude traded at $31.50 a barrel on the New York Mercantile Exchange, down 49 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 trading, February unleaded gasoline declined by 0.75 cents to 88.5 cents a gallon. February heating oil also fell by 0.6 cent to 86.9 cents a gallon.

The losses in petroleum futures also weighed on most oil-service stocks. The Oil Service Index ($OSX: news, chart, profile) was down 0.3 percent.

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 7.4 cents to stand at $5.23 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.

The Reuters/CRB Index, broad-based measure of the commodity futures market, traded at 241, down 0.1 percent. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.

news.sify.com New Delhi, Jan 10

Prime Minister Atal Behari Vajpayee said Friday India was considering creating strategic oil reserves to counter potential disturbances in supplies of crude oil, particularly from the Middle East.

"Crude oil prices may shoot up if tensions in West Asia(the Middle East) rise, leading to a prolonged shortage of supplies in the world oil market," Vajpayee told an international petroleum conference in the Indian capital.

"This may adversely affect our national economy. Recent developments have already affected oil markets and sent prices upwards.

"Therefore oil security has come to occupy a key position in the present policy matrix of our government. We are examining the feasibility of establishing strategic storage of crude oil and petroleum products in our country to create a buffer for meeting unforeseen disturbances and strengthening India's oil security."

Vajpayee said the "security of supplies has become one of the most important challenges that needs to be carefully addressed".

His remarks come against the backdrop of the possibility of a US-led invasion of Iraq, which has heightened concerns about a disruption in oil supplies as well as a rise in prices of fuel in India.

According to oil ministry officials, India keeps about 10-12 days of crude stocks.

India currently imports 70 per cent of its requirement of oil and petroleum products - most of it from the Middle East and particularly Iraq.

India's state-run oil firms last week were forced to increase the price of petrol and diesel by one rupee a litre following a rise in global oil prices.

The projected requirement in India for the year to March 2003 is 108 million tonnes of crude oil compared with production of 33 million tonnes. Consumption of natural gas is expected to be 55 million tonnes compared with production of 24 million tonnes.

Vajpayee urged the domestic oil sector to increase production, without which he said "the nation would be subject to volatility in crude oil supplies and prices and oil security would be difficult to achieve."

He also urged private domestic and foreign players to cooperate with India in the hydrocarbon technology sector.

Vajpayee said it was important that the existing "energy resource gap between the developing and developed countries" be bridged.

Indian Oil Minister Ram Naik, speaking at the same conference said he hoped that a meeting of the Organisation of Petroleum Exporting Countries(OPEC) in Vienna on Sunday would bring good news for international consumers.

On Wednesday, Naik said he would petition OPEC for an output hike as oil prices have leapt to 32 dollars a barrel this month from 19 dollars last February.

OPEC president Abdulla Bin Hamed Al Attiyah of Qatar, in New Delhi for the petroleum meet, said Thursday that the organisation's meeting in Vienna this weekend would consider India's request for concessional pricing of crude oil for developing countries.

OPEC oil ministers head to Vienna this weekend to discuss proposals spearheaded by Saudi Arabia for the cartel to raise output to help calm a market roiled by a strike in Venezuela and a possible war in Iraq.

Reuters, 01.10.03, 4:47 AM ET By Tom Ashby

VIENNA, Jan 10 (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 on Friday.

Arab-dominated OPEC does not openly welcome U.S. 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 percent, addition and leave the door open to more if war breaks out in Iraq.

U.S.-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 U.S. wants, but on the other hand nor do they want to create enemies."

Oil prices soared by 25 percent in the last two months to touch two-year highs at $33.60 for U.S. 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.

U.S. CONTACT The U.S. 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 Sunday's meeting in Vienna.

The head of the U.S. 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 U.S. 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.