New York Times Published Jan. 8, 2003 OPEC08

In an effort to scale back high oil prices, the Organization of the Petroleum Exporting Countries appears likely to meet in Vienna, Austria, as early as this weekend to discuss increasing production by up to 2 million barrels a day, or 8.7 percent, a senior OPEC delegate said Tuesday.

Oil prices, which are about 45 percent higher than they were a year ago, have climbed particularly steeply over the last month because a general strike in Venezuela against President Hugo Chavez has virtually shut down oil production there. The price fell sharply Tuesday on reports of the possibility of an emergency meeting, with crude oil for February delivery declining $1.02 cents, or 3.2 percent, to $31.08 a barrel in New York.

"With regard to the price, there is an agreement from all the countries that the price should not go any higher than $28 a barrel," said one senior OPEC delegate, who spoke on the condition of anonymity. A production increase, he said, is driven by "our strong commitment to have enough oil on the market at all times and not to let a shortage take place."

But oil industry analysts and traders pointed out that any additional oil exported by OPEC would not reach the United States soon. As a result, they said they expected the price of oil in the United States to remain above $30 a barrel. Those high prices, in turn, have pushed up retail prices in the United States of gasoline, heating oil and jet fuel.

"The global oil markets are losing 2 to 3 million barrels a day because of Venezuela, so an increase by OPEC of about 1.5 million barrels a day is still a far cry from what the markets need," said Philip Flynn, senior energy analyst at Alaron, a Chicago futures brokerage. "It's a classic case of OPEC trying to jawbone the market down. And the market is believing it, because the market is a very, very fickle animal right now."

07.01.2003

LONDON - World oil prices pulled back from two-year highs on Monday (GMT) when big producing countries came out in favour of a hefty output hike to cover lost supplies from Venezuela, where a strike entered its sixth week.

Kuwait and Russia said oil powers should release up to 1.5 million barrels per day (bpd) of extra supply to cool the rally that has lifted prices by a quarter in two months.

International benchmark Brent crude oil fell 22 cents to US$30.55 a barrel, while US crude futures dropped 65 cents to US$32.43. Both markers are within US$2 of two-year highs and have already caused pump price hikes in the West.

"Prices are off after a big rise during Christmas and New Year," said Richard Savage of Bank of America. "With uncertainty over the Venezuelan strike and Opec's response, I would expect volatile trade over the next few days."

The strike in Venezuela, aimed at toppling President Hugo Chavez, has withdrawn more than two million barrels per day from world markets and drained US stockpiles to near their lowest levels in 26 years.

Russian Energy Minister Igor Yusufov, in Kuwait on a tour of Gulf oil states, saw the need for one to 1.5 million bpd of extra oil on world markets.

Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah echoed this estimate.

"Opec could do one to 1.5 million (bpd of extra output) and hopefully non-Opec can contribute some of that," Sheikh Ahmad told Reuters.

Russia, Norway and Mexico are the three largest oil exporters outside Opec, which is dominated by Gulf states, but all three are already pumping close to full capacity.

Opec President Abdullah al-Attiyah said that the 11-member group was determined to use an informal mechanism to trigger a supply hike by January 15 if prices stay up.

Attiyah said consultations were continuing about the volume of any output hike.

Opec's mechanism is designed to keep its reference basket of crudes in a range of US$22-US$28 a barrel but the basket stood at US$30.83 on Friday.

Asked if Russia had any spare capacity and whether it would be willing to raise output, Yusufov said: "We would prefer not to because we have certain programmes scheduled, but we are ready to raise production if necessary."

Extra supply from Opec, which controls two-thirds of world exports, would go some way to cooling prices, but traders said markets were unlikely to fall heavily until the threat of war on Iraq subsided.

The Bush administration is putting together a plan for a post-Saddam Hussein Iraq that would involve an extended American military presence and use of oil revenues to feed the people, Washington officials said on Monday. Reuters

• REUTERS

By Chris Baltimore 06 Jan 2003 17:39

WASHINGTON, Jan 6 (Reuters) - The U.S. Energy Department on Monday said it has allowed oil companies to defer delivery of 3.1 million barrels of crude oil to the Strategic Petroleum Reserve until the end of September, citing concerns about an ongoing strike in Venezuela.

On Friday, Energy Secretary Spencer Abraham agreed "to allow companies that owe oil to the SPR due in February to enter into negotiations with the DOE to defer those deliveries until a later date," a department spokesman told Reuters. The deliveries would be due by Sept. 30, which is the end of fiscal 2003, the spokesman said.

Companies that received the deferrals asked not to be identified, the spokesman said.

In a similar move, the DOE last year agreed to allow oil companies to defer deliveries to the SPR due in December and January until the end of September. Oil companies will pay in-kind interest on the deferred deliveries.

The DOE action will "help ensure that the deliveries will not negatively affect the oil market while still providing for the energy security of the United States," the spokesman said.

The DOE said it is is closely monitoring a crippling strike in Venezuela, which extended onto its sixth week, sidelining the fourth-biggest U.S. oil supplier.

The strike in Venezuela, which held exports at one fifth of normal levels last week, has drained U.S. stockpiles to near their lowest levels in 26 years.

But the agency so far has not allowed any releases from the SPR to counter the Venezuela strike. Such an action would only come because of a "imminent and severe supply disruption," he said.

The reserve currently holds 599 million barrels of oil, the highest level in its history, DOE said.

The Joplin Globe - 1/6/03 The Associated Press

WASHINGTON - If the United States invades Iraq, there could be oil shortages and lines at gas stations - or an oil glut and falling prices.

Much depends on whether American troops can secure Iraqi oil fields and whether other producers continue the flow of oil uninterrupted.

In the growing drumbeat over war with Iraq, the Bush administration rarely mentions oil, even though Iraq has one-tenth of the world's oil reserves. But a military campaign almost certainly will have a major impact on world markets.

In the event of a war, Secretary of State Colin Powell said recently, "We would want to protect those fields and make sure that they're not destroyed or damaged by a failing regime on the way out the door."

The growing prospect of war, combined with the monthlong political strife in Venezuela that is hamstringing that country's oil production, already has caused unease among energy traders.

Last week, prices for crude to be delivered in February jumped to more than $33 a barrel, 65 percent higher than a year ago. The average price of gasoline has risen steadily to more than $1.40 a gallon. On Dec. 26, pump prices in several cities jumped by as much as 20 cents a gallon overnight.

World oil stocks have been tight and fell sharply last week, the Energy Department says.

"The loss of Venezuelan oil is beginning to hurt," says Robert Ebel of the Center for Strategic and International Studies. "What people are beginning to worry about is, suppose the loss of Venezuelan oil continues when we intervene in Iraq."

Together, Iraq and Venezuela produce about 5 million barrels a day. Ebel and other energy experts wonder whether increased production from other countries will be able to make up such a shortfall.

With global production at about 76 million barrels daily, a loss of several million barrels could cause prices to soar, economists say. U.S. officials emphasize that oil markets have changed dramatically since the 1970s, when Mideast supply disruptions led to fuel rationing, high prices and long lines at gas pumps.

Nearly 4 billion barrels of oil are in emergency stocks worldwide, including nearly 600 million barrels in a U.S. reserve. If withdrawn at 2 million barrels a day, the U.S. stocks could counter a disruption of 286 days, the administration told Congress this past summer.

"It's premature to say we're heading for any price spiral up or down," says Yasser Elguindi, an analyst with Medley Global Advisors in New York. "We have to see what kind of conflict emerges."

Among the scenarios outlined by economists: President Saddam Hussein's government falls quickly, the Iraqi oil fields remain intact and the country's already dwindling oil exports - about 2 million barrels a day - disappear for a few months. Venezuela's exports resume and other countries, led by Saudi Arabia, boost production to make up any losses.

Prices briefly spike, as they did in the onset of the Gulf war in 1991, to more than $40 a barrel, but within three months recede to normal levels or even lower with supplies plentiful.

An invasion meets stiff resistance, Iraqi oil fields are set aflame, production is disrupted elsewhere in the Persian Gulf, global supplies fall by 6 million barrels a day. Emergency stocks cannot close the gap.

In such a case, oil prices could climb to $80 a barrel and stay above $40 well into 2004, halting the U.S. economic recovery and triggering a global recession, according to Ebel, whose group has mapped out a range of scenarios. There is gas rationing and lines at service stations.

George Perry, a Brookings Institution economist, analyzed a similar possibility and forecast a potential loss of 7 million barrels a day, a tripling of crude prices and $3 per gallon gasoline.

From all indications, the administration believes Saddam can be toppled without severe impact to oil flow, and some officials have even suggested clear, long-term economic benefit.

With Saddam gone, "you could add 3 million to 5 million barrels of production to world supplies," Larry Lindsey, then Bush's top economic adviser, said in September, suggesting a successful war "would be good for the economy."

The White House retreated from the comment and Lindsey was later replaced.

Economists agree that a revitalization of Iraq's decimated oil industry in a post-Saddam, more pro-Western atmosphere, could have lasting impact on global markets.

"A quick victory in Iraq followed by relative stability in the region could lead to increases in oil production capacity in Iraq, Iran and other countries, putting downward pressure on oil prices," Yale economist William Nordhaus recently wrote.

Iraqi oil experts maintain production could reach 3 million barrels a day within a year and double that in a decade - claims viewed by many as overly optimistic.

"When people talk about Iraq, there are so many unknowns," says John Felmy, chief economist of the American Petroleum Institute. "We haven't been in the country for years."

It is estimated that it would take billions of dollars to get Iraq's oil industry into shape where production could be expanded significantly.

6 Jan 03(10:24 AM) |  E-mail Article to a Friend

KUWAIT (Reuters) - Russian Energy Minister Igor Yusufov said on Monday that OPEC and independent oil exporters needed to raise output by one to 1.5 million barrels per day (bpd) to cool soaring prices.

Yusufov, in Kuwait on a tour of Gulf oil states, said Saudi Arabian Oil Minister Ali al-Naimi expressed the same opinion when they met in Riyadh on Sunday.

"OPEC and non-OPEC must raise production by one to 1.5 million barrels per day (bpd) to deal with the situation," Yusufov told Reuters before meeting his Kuwaiti counterpart.

"Naimi is of the opinion that there needs to be an OPEC and non-OPEC output increase of one to 1.5 million barrels per day," Yusufov added.

OPEC President Abdullah al-Attiyah, of Qatar, said on Sunday that the cartel planned to raise its formal 23 million bpd target by between 500,000 and one million bpd, and consultations between ministers were ongoing.

Russia, Norway and Mexico are the largest oil exporters outside OPEC, which is dominated by Gulf states, but all three are pumping close to full capacity.

Oil prices have jumped by more than a quarter in the last two months as Venezuela's exports, normally the world's fifth largest, have slowed to a trickle.

Asked if Russia had any spare capacity and would be willing to raise output, Yusufov said: "We would prefer not to because we have certain programs scheduled, but we are ready to raise production if necessary."

Yusufov was due to meet Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah for talks on the oil market.