Washington - The State Department is making private appeals to members of the world oil cartel to increase crude production to offset a dwindling output from Venezuela.

Department spokesman Richard Boucher said several members of the Organization of Petroleum Exporting Countries had been approached.

A boost in output "would be a positive development," he said.

Boucher did not identify which members of the cartel had been solicited in advance of an emergency meeting this weekend.

The oil-producing countries are expected to discuss boosting the cartel's production by up to 6.5 per cent.

Oil prices have surged in recent weeks amid concerns over deepening turmoil in Venezuela and a possible war against Iraq.

OPEC is weighing proposals to increase output by as much as 1.5 million barrels a day in an effort to subdue prices.

An increase in production would represent an abrupt reversal in OPEC policy. OPEC's 11 members decided less than a month ago to slash output by up to 1.7 million barrels a day in hope of preventing a price decline when seasonal demand dips this spring.

Ministers of all member countries except Algeria have agreed to meet Sunday at the group's headquarters in Vienna, Austria.

A month ago OPEC voted to cut production, and signs of a potential shortage surfaced.

Oil shipments from Venezuela, normally OPEC's third-largest producer, have dwindled by some 80 percent because of a month-old strike aimed at forcing the country's president, Hugo Chavez, from office. A U.S.-led attack on Iraq would halt exports from that country, which has the world's second-biggest crude reserves after Saudi Arabia.

In recent years, Venezuela has ranked fourth — behind Saudi Arabia, Mexico and Canada — as an oil source for the United States.

In 2001, 1.3 million barrels were imported daily from Venezuela, about 13 percent of U.S. imports, the Energy Department said.

A member of the worldwide oil cartel that sets oil prices and production, Venezuela's government-owned oil company also has one of the largest refining systems in the Western Hemisphere. Its gasoline is sold by Tulsa, Oklahoma-based Citgo, the Venezuelan company's U.S. refining and marketing subsidiary.

Tuesday, January 7, 2003

(01-07) 15:57 PST (AP) -- Dow Jones News Service

NEW YORK (Dow Jones/AP) -- Crude oil futures tumbled again Tuesday as global oil producers moved toward increasing production to offset the loss of Venezuelan oil.

On the New York Mercantile Exchange, February crude oil futures hit a low of $30.51 a barrel, before closing at $31.08 a barrel, down $1.02.

February heating oil futures shed 3.91 cents to close at 84.88 cents a gallon, while February gasoline lost 4.02 cents to settle at 84.18 cents a gallon

On London's International Petroleum Exchange, February Brent dropped 87 cents to settle at $29.33 a barrel.

Natural gas for February delivery gained 19.2 cents to settle at $5.127 per 1,000 cubic feet.

The sell-off followed a flurry of news reports that the Organization of Petroleum Exporting Countries is planning a large supply increase to reverse the upsurge in prices caused by the six-week long strike in Venezuela.

Saudi Arabia, OPEC's most influential member, has proposed that the group raise output by 1.5 million barrels a day.

OPEC officials expressed hope that pledges for higher output from some non-OPEC producers such as Russia could lead to total output hike of 2 million barrels a day.

But non-OPEC Norway and Mexico, which have previously coordinated their output policies with OPEC, have said they can't increase this time around.

OPEC ministers plans to convene an emergency meeting Sunday in Vienna, Austria to discuss an output hike.

The increase would come as the price of OPEC's reference basket of crudes topped the $28 a barrel mark Monday, the 14th consecutive trading day above that level.

Under OPEC's price band mechanism, OPEC members are to increase output by 500,000 barrels a day if the price of the group's reference basket of crudes stays above $28 a barrel for 20 consecutive days. OPEC members have said they rely on the price band mechanism as a rough guide for adjusting output to keep prices within a range of $22 a barrel to $28 a barrel.

Indications that oil producers are already rushing extra barrels to the U.S. market also added to the bearish sentiment in the market, analysts said.

Preliminary figures from Lloyd's Marine Intelligence Unit indicated that about 25 very large crude carriers carrying a total of 7.3 million metric tons of oil are expected to discharge in the U.S. Gulf and the Caribbean in January.

At least another four very large crude carriers are expected to discharge in the same region in January which puts it at close to 9 million barrels, according to Andrew Lorimer of Lloyd's.

"The amount of oil being discharged in the U.S./Caribbean area in January is much higher compared with December," Lorimer said.

While the market greeted news of a possible OPEC output increase with a bout of selling, some analysts expressed skepticism over OPEC's ability to pull off a large output increase.

"Personally, I"m not sure they can produce an extra 2 million barrels a day," said Tom Bentz, an analyst at BNP Paribas. "Most members are producing at capacity."

Phil Flynn, an analyst at Alaron Trading Corp. in Chicago, agreed.

"If the market wants to believe that OPEC is going to snap its finger and solve all its problems, it is wrong," Flynn said. "I don't think OPEC has the excess capacity to take for the loss of Venezuelan oil."

     NEW YORK, Jan. 7 (UPI) -- Crude prices on the New York Mercantile Exchange beat a hasty retreat Tuesday amid reports that OPEC was set to increase its exports by up to 2 million barrels per day to offset the loss of production caused by a nagging strike in Venezuela.

     OPEC was working this week to set up a possible meeting as early as this weekend to discuss raising production quotas, a move that could seriously undermine the sturdy moorings crude prices have enjoyed in the past month during Venezuela's strife and the continuing potential for a war in the Persian Gulf region.

     February NYMEX crude tumbled $1.02 Tuesday to $31.08 while February gasoline slipped 4.02 cents to 84.18 cents per gallon, and February heating oil fell 3.91 cents to 84.88 cents per gallon. Crude had slipped 98 cents on Monday after OPEC officials began publicly discussing putting more oil on the market.

     Some analysts have predicted that the outbreak of a war in Iraq at the same time Venezuela's oil production was seriously curtailed could cause a major spike in crude prices; however, U.S. government analysts noted Tuesday that OPEC had the capability to ramp-up production quickly and by significant amounts.

     "According to fourth-quarter 2002 estimates, the world (excluding Iraq) holds as much as 4.8 million barrels per day of excess oil production capacity that could be brought online," the Energy Information Administration said. "Nearly all of this 'excess capacity' is located in OPEC member countries."

     OPEC increased its quota by 1.3 million barrels to 23 million barrels per day beginning Jan. 1, and another boost could leave OPEC vulnerable to being caught on the proverbial limb in the form of a saturated market if the political situation in Venezuela is sorted out and the state oil company, PDVSA, resumes full production

     An increase in OPEC production would not be an arbitrary decision on the part of the cartel. OPEC has a mechanism in place that is based on an average price of $22-$28 per barrel for a "basket" of various crude varieties produced by member nations.

     If the price slips below the $22-$28 price band for 20 consecutive days, production is reduced accordingly. If the price goes above the band, production is increased. OPEC said its basket price topped $30 per barrel last week and was $30.71 on Monday.      -0-      (Reported by Hil Anderson, UPI Chief Energy Correspondent)

www.gulf-daily-news.com LONDON:

Oil prices fell heavily yesterday as leading Opec power Saudi Arabia pushed the cartel for a big two-million-barrel-a-day output increase, nine per cent, to fill a gap left by a five-week-old strike in Venezuela.

US light crude slumped $1.02 to $31.08 a barrel, extending Monday's 98-cent loss. London Brent blend shed 85 cents to trade at $29.35 a barrel.

Leading Opec power Saudi Arabia wants to add between 1.5-2m barrels daily to supplies to stop high prices hurting world economic growth, an Opec delegate said.

Dealers said the additional volumes proposed by Saudi were larger than expected. They would come on top of official limits now of 23m bpd.

But several officials in the cartel expressed scepticism over whether the group would do that much, saying the top end of the Saudi plan looked like a negotiating position.

Most expect an agreement in the range 1-1.5m bpd, the volume Kuwait's oil minister, Sheikh Ahmad Al Fahd Al Sabah, says is favoured.

The group is considering an emergency meeting on January 12 to finalise the deal. Otherwise it could seal the deal by telephone.

Oil has retreated from a two-year peak of $33.65 a barrel for US crude since the end of December when it was first revealed that Opec was discussing a substantial output increase.

The group wants to plug the loss from Venezuela, its third largest member, and restrain prices in its favoured $22-$28 a barrel range.

It is also aware that the growing threat of a US assault against oil producer Iraq could cause a price shock harmful to world economic growth.

Meanwhile, the volume of oil exported by Iraq under UN supervision fell slightly last week to 13.1m barrels, about 1.9m barrels a day, the office of the UN oil-for-food programme said yesterday.

UN Secretary General Kofi Annan approved a plan, worth $4.93 billion, for distributing food and other civilian imports in the current 180-day phase of the programme, which began on December 5.

Last week's sales generated an estimated $369m in revenue, compared with $409m the previous week, when Iraq exported $14.3m barrels of crude, the office said.

l The Opec will hold an extraordinary ministerial meeting on Sunday at its headquarters here, an Opec source said yesterday.

Cartel hopes to ease worries of oil shortage Associated Press Last Updated: Jan. 7, 2003

London - Hoping to ease fears of a possible oil shortage, OPEC representatives plan an emergency meeting this weekend to discuss boosting the cartel's crude production by up to 6.5%, an OPEC official said Tuesday.

Oil prices have surged in recent weeks on concerns about deepening turmoil in Venezuela and a possible war against Iraq - two key members of the Organization of Petroleum Exporting Countries. The group is now weighing proposals to increase output by as much as 1.5 million barrels a day in an effort to dampen prices.

An increase in production would represent an abrupt reversal in OPEC policy. OPEC's 11 members decided less than a month ago to slash output by up to 1.7 million barrels a day in the hope of preventing a price decline when seasonal demand dips in spring.

Ministers of each member country except Algeria have agreed to meet Sunday at the group's headquarters in Vienna, Austria, the official said. Algerian minister Chakib Khelil was aboard a plane late Tuesday and could not be reached to confirm if he could attend, said the official, speaking on condition of anonymity.

Since OPEC's decision Dec. 12 to cut production, worrisome signs of a potential shortage have begun to appear.

Oil shipments from Venezuela, normally OPEC's third-largest producer, have dwindled by some 80% because of a month-old strike aimed at forcing the country's president, Hugo Chavez, from office. A U.S.-led attack on Iraq would halt exports from that country, which has the world's second-biggest crude reserves after Saudi Arabia.

OPEC officials have said the group cannot pump enough additional crude to make up for a simultaneous loss of exports from Venezuela and Iraq, which together have historically exported roughly 4 million barrels a day. OPEC's remaining members have spare production capacity of 3.3 million barrels a day, according to the Paris-based International Energy Agency, the West's energy watchdog.

Market fears have driven crude prices well above the psychologically important threshold of $30 a barrel as a result.

OPEC supplies about one-third of the world's crude. Iraq is a member but doesn't participate in the group's production agreements because the United Nations oversees the bulk of its exports.

Saudi Arabia, OPEC's most influential member, has proposed that the group raise output by 1.5 million barrels a day.