www.arabnews.com By a Staff Writer

RIYADH, 6 January 2003 — The world’s top two oil exporters, Saudi Arabia and Russia, agreed yesterday that action was needed to bring down prices after benchmark Brent crude topped $30 a barrel in London.

Minister of Petroleum and Mineral Resources Ali Al-Naimi and Russian Energy Minister Igor Iusufov stressed the “need to restore stability to the markets and make sure they do not rise to a level which could have a negative impact on world economic growth,” the Saudi Press Agency said.

A member of the Russian delegation said the talks were part of Riyadh’s efforts to “bring prices back below $28 a barrel.”

Both sides agreed that new steps would have to be taken to bring prices back within the target range, he said.

The two ministers agreed the situation on world oil markets was “difficult” and required “concerted action by exporters to avoid any supply shortfall,” SPA said.

Iraq war jitters, a long-running strike in Venezuela and a particularly cold winter in the United States have all helped to push world prices higher in recent weeks.

In New York, the price of reference light sweet crude for February delivery rose $1.23 to $33.08 in late deals Friday.

Earlier in London, the price of benchmark Brent North Sea crude oil for February delivery rose to $30.16 a barrel from $29.49 Thursday.

In Abu Dhabi, UAE’s Oil Minister Obeid ibn Seif Al-Nasseri said the OPEC stood ready to increase production if oil prices remained above $28 a barrel in the middle of January.

“If prices stay above $28 a barrel until Jan. 14, OPEC will have to intervene and take the appropriate steps to adjust output,” Nasseri told the official WAM news agency.

The oil production quotas set by OPEC include a provision for a 500,000 barrel per day increase if prices remain above the group’s $25 to $28 target range for 20 straight days.

The mechanism has only been used once before, in October 2000. But the Emirate’s oil minister hinted that this time OPEC ministers might agree to a bigger production increase. It was down to the group’s members to “hold consultations to determine the volume of additional production,” he said.

In Doha, OPEC President Abdullah Al-Attiyah said yesterday that the group was poised to boost crude supplies by up to one million barrels per day (bpd) in a bid to tame oil prices which have rocketed to two-year highs. “An increase could be anywhere between 500,000 bpd to one million bpd...It will depend on consultations,” Attiyah, the oil minister of Qatar, said.

The world's two top oil exporters, Saudi Arabia and Russia, have agreed on the need to bring down prices after benchmark Brent crude topped US$30 a barrel in London.

After a meeting in Riyadh, Saudi Oil Minister Ali al-Nuaimi and Russian Energy Minister Igor Iusufov stressed the "need to restore stability to the markets and make sure they do not rise to a level which could have a negative impact on world economic growth," the official Saudi Press Agency said.Advertisement A member of the Russian delegation also told reporters the talks were part of Riyadh's efforts to "bring prices back below 28 dollars a barrel".

Both sides were agreed that new steps would have to be taken to bring prices back within the target range, he said.

In a separate development, the President of OPEC has said that the oil cartel is ready to increase production by up to one million barrels a day if prices remain above US$28 a barrel by the middle of this month.

Oil prices have rallied sharply on fears that political turmoil in Venezuela will spur a supply crunch in the US and that a war on Iraq will deepen shortages.

Unless there is a sharp price decline, the cartel is on track to lift output after January 14 via its mechanism that stipulates supplies be raised by 500,000 bpd if prices for a basket of OPEC crudes stay over $28 a barrel for 20 days.

BLOOMBERG Sunday, Jan 05, 2003,Page 11

On the up and up

• Crude oil for February delivery gained 3.9 percent to US$33.08 a barrel on the New York Mercantile Exchange

• The near-month oil futures contract climbed 57 percent last year.

• Prices rose 1.1 percent this week, their seventh straight weekly gain.Crude oil prices may rise from a two-year high because violent protests in Venezuela may delay the resumption of normal supply from the fifth-biggest oil exporter.

President Hugo Chavez, who is considering declaring a state of emergency to end a national strike, may fail to make good on a pledge to restore full production in six weeks, analysts said.

Venezuelan soldiers fired tear gas and rubber bullets yesterday to disperse demonstrators near an army base. Two people were killed in protests in the capital, AFP reported.

"Until now, it's been surprisingly peaceful. An emergency may bring the armed forces into control," said Simon Games-Thomas, an independent energy consultant in Sydney. "It will be a while before oil production in the country returns to normal.

We'll be seeing the impact on the US crude inventories for at least several weeks."

Crude oil for February delivery gained 3.9 percent to US$33.08 a barrel yesterday on the New York Mercantile Exchange, its highest closing price since Nov. 30, 2000. Reports this week showed US supplies were 10 percent lower than a year ago as the strike, aimed at ousting Chavez, limited Venezuela's output.

"We finally got the data that proves we have a supply problem," Bill O'Grady, director of fundamental futures research at AG Edwards & Sons Inc in St. Louis said yesterday. "The fields in Venezuela are missing needed maintenance. When the strike is over they are going to have a mess on their hands and it will take a long time for production to recover."

The near-month oil futures contract climbed 57 percent last year. Prices rose 1.1 percent this week, their seventh straight weekly gain.

Chavez earlier asked Brazilian President Luiz Inacio Lula da Silva to provide technicians and engineers from Brazil's state- controlled oil company to help run Venezuela's oil installations.

Chavez made similar appeals to Mexico and Ecuador.

Brazil's largest oil workers union would oppose sending its engineers to help Chavez break the strike, a union leader said.

It's too dangerous to send Brazilian workers to Venezuela during a potentially violent strike, said Antonio Carrara, national coordinator for the Brazilian Petroleum Workers Federation.

"As part of the international union movement, we don't make it our policy to intervene against unions that are on strike," said Carrara.

Tens of thousands of Chavez opponents marched through Caracas to demand the release of National Guard General Carlos Alfonzo Martinez. The opposition planned to mass hundreds of thousands of protesters in front of the Fuerte Tiuna army base where the dissident general is being held.

Two people died in hospital from gunshot wounds after fighting between pro- and anti-government protesters, Agence France-Presse said, citing Pedro Aristimuno, Caracas head of health services.

A total of six people were injured by bullets during the fighting, AFP said. Police said seven officers had been injured.

Venezuela's output is now 172,000 barrels a day, Horacio Medina, president of the union of management workers, Unapetrol, said. Chavez has said the output by state oil company Petroleos de Venezuela SA was 800,000 barrels.

potentially violent strike, said Antonio Carrara, national coordinator for the Brazilian Petroleum Workers Federation.

"As part of the international union movement, we don't make it our policy to intervene against unions that are on strike," said Carrara.

Tens of thousands of Chavez opponents marched through Caracas to demand the release of National Guard General Carlos Alfonzo Martinez. The opposition planned to mass hundreds of thousands of protesters in front of the Fuerte Tiuna army base where the dissident general is being held.

Two people died in hospital from gunshot wounds after fighting between pro-government and anti-government protesters, AFP said, citing Pedro Aristimuno, Caracas head of health services. A total of six people were injured by bullets during the fighting, AFP said. Police said seven officers had been injured.

Venezuela's output is now 172,000 barrels a day, Horacio Medina, president of the union of management workers, Unapetrol, said. Chavez has said the output by state oil company Petroleos de Venezuela SA was 800,000 barrels.

PetroLogistics Ltd, an industry consultant, said output in Venezuela fell to an average of 1 million barrels a day in December, down from 2.85 million barrels a day in November. The strike began Dec. 1.

Venezuela was the fourth-biggest oil supplier to the US in October, according to the Energy Department. Saudi Arabia, Canada and Mexico were the three leading sources of US imports during the month. The four countries are usually the top suppliers to the US, their position switching monthly.

Oil prices have been bolstered by tensions between the US and Iraq.

OPEC ministers have said theey may raise output later this month to counter rising prices. OPEC has an informal mechanism to boost output by 500,000 barrels a day after the price for its oil holds above US$28 a barrel for 20 trading days.

The OPEC benchmark was at US$30.05 on Thursday, its 12th day above the target.

Venezuela was OPEC's third-biggest producer before the strike.

Possible War in Iraq Could Drive Up Oil Prices Unless U.S. Successful in Securing Oil Fields The Associated Press

If the United States invades Iraq, there could be oil shortages and gas lines 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 "worse case" 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.

January 6 2003

The five-week strike that has paralysed Venezuelan oil shipments is constricting supplies to several Caribbean countries, causing prices to rise and governments to look elsewhere for fuel shipments, officials said.

Venezuela and Trinidad are the main suppliers of refined oil to the region. But as Trinidad and Tobago receives one-third of its crude from Venezuela, it will need to buy crude elsewhere at higher prices if its Venezuelan shipments don't arrive this month.

"Picking it up at a higher price, that is going to affect all of us," Byron Blake, assistant secretary general of the 15-member Caribbean Community, said on Friday.

As Venezuela's general strike affects world oil prices, at least six Caribbean countries, including Guyana and Jamaica, have asked neighbouring Trinidad for help in keeping up reserves of refined oil products, a Trinidadian diplomat in Venezuela said.

"When we receive Venezuelan crude, we first have to take care of our domestic needs and then consider helping our neighbouring countries," Trinidad charge d'affairs Nieves Callender said on Friday.

Under the 1980 San Jose Pact, Venezuela and Mexico provide oil at preferential rates to 11 other Caribbean and Central American countries, including Guatemala, Dominican Republic, Haiti, Honduras, Belize, Nicaragua, Barbados, Costa Rica, El Salvador, Jamaica and Panama.

Other countries, like Trinidad, have separate deals with Venezuela.

Prior to the Venezuelan opposition strike, Venezuela and Mexico each provided 80,000 barrels a day to countries under the pact. But Venezuelan exports have been reduced to a trickle by the protests against President Hugo Chavez's government.