Space war incorporating terawar.com

PARIS (AFP) Apr 04, 2003 Higher crude prices have made the 2003 first quarter a lucrative one for oil companies but their shares continue to fall on markets still jumpy about the situation in Iraq, analysts said on Friday.

The average price of a barrel of benchmark Brent crude rose to 30.59 dollars (28.53 euros) in the first three months of the year, boosted from 26.38 in the previous quarter on the back of concern about weak oil stocks, a national strike in Venezuela and, of course, the Iraq war.

Despite the rich first-quarter pickings this promises for majors such as Royal Dutch/Shell, BP, Eni, TotalFinaElf, ExxonMobil and ChevronTexaco, all have seen their share prices tumble or, at best, stagnate.

"The market is expecting the price of oil to fall again and does not believe it can remain sustainable above 30 dollars a barrel," said one market-watcher who preferred not to be named. "It's looking a bit further ahead."

TotalFinaElf, the French oil giant, has seen its stock value fall almost 15 percent in the first three months of the year, while Italian rival Eni has lost 19 percent and Royal Dutch/Shell 11 percent.

Nevertheless, the increase in prices is expected to have a big impact on company profits, with production costs remaining unchanged at around seven dollars a barrel for the most efficient producers.

"Transport and insurance costs may have increased a little, but that's marginal compared with the extra profit derived from the price increase," the same expert said.

Some companies could expect first-quarter profit to be "double what it was in the first quarter of 2002", he said.

"The first-quarter results will be excellent," agreed Antoine Leurent, an analyst with KBC Securities in Paris. "That's certain now."

Leurent said the improvement in profit would outweigh the negative effect of the weaker dollar on European oil firms' revenues.

Increased profitability from refining operations would also boost their bottom lines.

Leurent added that speculators believed the war would be short but would not be of much benefit to the oil companies, and were selling oil shares in favour of oil futures.

The extreme volatility of oil prices due to the tense international situation was also making it difficult to make predictions for the rest of the year.

The current "anomaly" of rising profit and falling share prices would come to an end if the Iraq conflict shows signs of approaching an outcome, Leurent said, predicting a correction "at both ends" simultaneously.

"Once we're on the way to a resolution we'll have more visibility," he said.

<a href=reuters.com>Reuters Fri April 4, 2003 07:13 AM ET By Tom Ashby

LONDON (Reuters) - Oil prices fell four percent on Friday on expectations that the U.S. advance on Baghdad and capture of the international airport would herald a swift return of Iraqi exports, while Nigerian supplies recovered.

Oil has lost 25 percent of its value in the last month as Western military advances in Iraq brought closer the prospect of extra supply to ease thin stocks in the West.

Benchmark Brent crude oil dropped 96 cents to $24.54 per barrel by early afternoon in London, while U.S. crude futures fell 91 cents to $28.06.

"Every thrust forward suggests an end to the conflict is closer which means a return for Iraqi crude, and that is bearish for prices," said David Thomas of Commerzbank Securities.

U.S. forces said they seized Baghdad international airport, leaving the capital in range of U.S. rockets and artillery which have driven over 300 miles from Kuwait.

A U.S. spokesman said about 2,500 Republican Guards had surrendered. U.S. oil company ChevronTexaco said it was gradually restarting Nigerian production on Friday that it was forced to close down 12 days before because of ethnic clashes in the delta region.

Nigeria had shut about 40 percent of its output because of the political violence ahead of elections later this month.

The surprise Nigerian stoppage had fueled concern about world oil supplies after Iraq, the world's seventh largest exporter, stopped selling oil in the week leading up to the first U.S. attacks on March 20.

Analysts expect Iraqi exports to resume within three months, and any delays in this timetable could still drive prices higher.

Southern fields which pump about half the country's oil are already under control of U.S. and British troops, but the northern oilfields near Kirkuk are still in Iraqi hands.

OPEC AT FULL STRETCH

Other Middle Eastern oil producers have hiked output sharply to cover for the lost Iraqi supplies, although stocks in the West are still below normal because of earlier disruptions from Nigeria and Venezuela.

"If Iraq's production outage extends beyond the second quarter, OPEC would not be able to meet market requirements," said Mike Rothman of Merrill Lynch.

Most members of the Organization of the Petroleum Exporting Countries are now pumping at full capacity.

"The underlying supply/demand pressures in the global oil balance do not support the notion of prices falling much from recent levels," Rothman said.

"Storage remains well below normal levels and that deficit is expected to persist into the back half of the year, and OPEC's spare capacity remains limited," he added.

Friday April 4, 2:24 PM By Irene Kwek Of DOW JONES NEWSWIRES

SINGAPORE (Dow Jones)--Crude oil futures traded mostly in a tight range during Asian trade Friday, as market participants took a breather after volatility in recent sessions.

At 0610 GMT, May crude futures on the New York Mercantile Exchange stood at $28.85 a barrel, down 12 cents from the floor trade close. In New York Thursday, Nymex May gained a modest 41 cents to $28.97/bbl, as some traders covered short positions on perceptions that the market had deeply oversold in the previous sessions.

"After (the recent) extreme volatility, the market needs some sort of breather to regain the energy. But we do not know when it will resume. Breaking news out of Iraq will be the key factor to look out for," a trader based in Singapore said.

"It's going to be range-bound on a lack of fresh factors, although the tide has changed somewhat. The direction is more biased to further losses," he added. "Oil prices are following renewed perception that the U.S. is making good headway on the war front."

Volume was moderate in after-hours electronic trading, with 1,629 lots traded as at 0545 GMT, with major players keeping to the sidelines, one U.K. broker observed.

"It's been a very quiet night and the majority of the volume is from 'local traders' - people who are trading their own accounts," he said. "I still think we're going to have a down day. (The overnight rally) didn't do it on any fundamental news, and people will be looking to sell into any rallies."

Front-month May crude will likely be supported initially at $28.60/bbl, and at $28.20/bbl below that, the broker said.

"It's going to be day to day developments (in the Iraq war) that the market will be watching. The concern in Nigeria has somewhat been quelled ... now it's just mainly Iraq and whatever comes from there in terms of developments and progress the coalition troops are making," the Singapore-based trader said.

Crude Futures Locked In $26-$32/bbl Range

Looking further ahead, U.S. crude futures could be locked in a tight range in the month ahead.

"After the volatility that we've had in the last two or three weeks, (crude) oil will trade in a relatively narrow range of $26-$32/bbl," said David Thurtell, commodity strategist at Commonwealth Bank based in Sydney.

"On the downside, if prices weaken by another few dollars, there will be talk by the Organization of Petroleum Exporting Countries of cutting back quotas. On the upside, if prices go through $32/bbl, OPEC will start talking about an increase in quotas," he said.

While fluctuations in prices will depend on day-to-day developments from the war in Iraq, low oil stocks around the world may help to keep prices supported.

"In terms of the risks, prices may stay at the high (end of the) range because oil stocks around the world are very, very low," Thurtell said.

"When stocks are low, there is a high risk that there is some sort of outage, from war or civil strife that we've seen in Venezuela and Nigeria. OPEC is producing close to capacity, so there's not much margin for error," he added. "The risks are still skewed for prices to stay in the high-$20s, rather than push down to the mid-$20s."

On the war front, U.S. forces occupied part of Baghdad's airport before dawn Friday, putting them less than 10 miles from the seat of Saddam Hussein's government and closer to gaining control of a key lever of power.

U.S. Special Operations forces raided one of Saddam Hussein's favorite residences - the Tharthar Presidential Palace northwest of Baghdad - seizing documents but failing to find the Iraqi leader or his sons.

-By Irene Kwek, Dow Jones Newswires; 65-64154062; irene.kwek@dowjones.com

-Edited by Simon Hall

<a href=www.chronwatch.com>Chron watch Posted by the ChronWatch Founder, Jim Sparkman Friday, April 04, 2003

      Somehow, the ''Rogue Editor'' at the Chronicle continues to slip banned material past the scrutiny of Chron editors, Mrs. Robert Scheer and Mr. Sharon Stone.  Admittedly, he has to place the  material in rather inconsequential spots in the paper, but nonetheless it represent a great accomplishment on his part.

Longtime Iraqi Dissident by Anna Badkhem        What's this? A Chron article that actually talks about the evils perpetrated by the anti-war protester's favorite dictator, Saddam Hussein.  Normally, that is of no interest to the protesters or, for that matter, to the Chron editors.

       Ahmed's face lit up with the big, warm smile he reserves for his wife when her spirit is low.  Soon, he reassured her, his struggle against the repressive rule will be over. The U.S.-led air strikes that have been shaking their house nightly are bound to end the dictatorship, he believes, finally setting the country free.

       But as they listened to American B-52 bombers rumble heavily over the rooftop of their rented house in the Kurdish haven in northern Iraq, Ahmed and Afrah knew: Like their family's awful memories, many scars will have to heal before Iraq becomes whole again.

       If nothing else, Ahmed will always have his eight children to remind him of the pain Iraq has endured during the 34 years of Baathist reign.

State Finds No fixing of Gasoline Prices by Verne Kopytoff        Verne writes an article that is anathema to the liberal line of Gray Davis and Barabara Boxer. It seems that a study commissioned by Davis himself shows that the recent increase in gasoline prices are the result of natural market forces. Shock and horror! This is a concept that is foreign to the Chronicle and these two liberal politicians.  For them, there is no law of supply and demand.  It never existed, despite what you were taught in Economics 101.  To these anti-business liberals, all price increases are the direct result of the actions of greedy corporations. What with the ''shock and awe'' pounding of the corporate world by the Chronicle and the liberal politicians, is it any wonder that California is dead last in the ratings of CEOs on business climate.

       An investigation ordered by Gov. Gray Davis into California's escalating gasoline, diesel, and natural-gas prices has found no evidence of illegal manipulation.

       Rather, the probe attributed the higher costs this year primarily to tensions over the war in Iraq, a strike in Venezuela, and an unusually cold winter on the East Coast.

       The conclusion, to be officially released today, is a setback for those who believe that the soaring gas prices and heating bills this year are due to collusion. But it is an obvious victory for the oil and natural-gas industries, which have maintained all along that market forces, not manipulation, were responsible.

<a href=ogj.pennnet.com>Oil&Gas Journal Sam Fletcher Senior Writer

HOUSTON, Apr. 3 -- Energy futures prices continued to plunge Wednesday, as reports of increased US oil inventories triggered additional selling among optimistic traders.

The US Department of Energy reported US crude inventories "built substantially," up 6.8 million bbl to 280.7 million bbl during the week ended Mar. 28, with higher imports "more than offsetting" a 400,000 b/d increase in refinery runs. "Although the (American Petroleum Institute) reported a more substantial build of 9 million bbl, the two reports essentially resulted in the same level of absolute stocks at 281millon bbl," said Matthew Warburton with UBS Warburg LLC, New York.

Oil imports Warburton reported US oil imports surged to a record 10.36 million b/d during the last week of March, primarily due to the arrival of cargoes from Saudi Arabia. But he and other analysts noted that increased shipments of heavy, sour oil from Venezuela and Saudi Arabia can't offset interrupted supplies of light, sweet Nigerian crude.

Moreover, Paul Horsnell, analyst for J.P. Morgan Securities Inc., London, noted, "Current arrivals of crude represent a time of loading when Nigeria and Iraq were at full (export) capacity. Given that, it is by no means clear that imports can be maintained above 10 million b/d throughout (the second quarter), once the cushion of extra oil in the supply chain over the next few weeks begins to abate."

Horsnell said, "More Saudi oil would be a poor quality substitute for Nigerian supplies, especially given the current imperative for refineries to produce higher gasoline yields."

Warburton agreed, "Prolonged reduction in Nigerian export volumes could become increasingly critical to summer production given its gasoline-rich composition." He noted that, in the latest reported period, "Gasoline inventories increased by 1.7 million bbl, driven primarily by high imports and subdued demand, but most of the increase was in other finished gasoline and blending components, offsetting a modest further fall in RFG (reformulated gasoline) inventories."

"The stubbornness of oil product deficits is of some concern," said Horsnell. "For the first time since the inventory deficit first opened up 9 months ago, more than half of that deficit is in oil products."

Therefore, he said, "It will not matter how fast crude oil piles up if the system is having difficulty refining it fast enough. We still believe that the US market will have difficulty in avoiding a significant gasoline price spike this summer, as the task of playing catch up with inventory cover is one that the US refining system has recently proven extremely poor at achieving."

Meanwhile, Horsnell said, "Some traders seem to believe that $20/bbl is the inevitable and immediate result of an outcome in Iraq, and many are still expecting a magic spigot to sharply and swiftly increase Iraqi exports. Our position remains that the fundamentals do not support prices in the low $20s; that significant Iraqi exports are unlikely this quarter and in some doubt for next quarter; and that it would be a supreme achievement to merely stabilize Iraqi production over a 2-year period."

Energy prices The May contract for benchmark US sweet, light crudes plummeted by $1.22 to $28.56/bbl Wednesday on the New York Mercantile Exchange, while the June position fell $1.02 to $27.21/bbl. Unleaded gasoline for May delivery plunged 5.03¢ to 86.39¢/gal. Heating oil for the same month dropped 2.23¢ to 71.86¢/gal.

The May natural gas contract lost 6¢ to $5.07/Mcf on NYMEX. "Limited short-covering pushed the market above key $5(/Mcf) support. Limited short-covering is the only way the market will strengthen for now," gas market analysts said Thursday at Enerfax Daily. "The market still faces near record-low storage inventories."

The US Energy Information Administration reported Thursday a 37 bcf injection of natural gas into US underground storage last week. That compares with an injection of 7 bcf the previous week and the withdrawal of 61 bcf during the same period last year. At the end of the traditional withdrawal season, US storage stands at 680 bcf. That's 820 bcf less than at the same time a year ago, and 506 bcf below the 5-year average.

A recent study by C.H. Guernsey & Co., Oklahoma City, concluded that more than 2.2 tcf of natural gas must be injected into underground storage from now through October to get even close to a 3 tcf "comfort level" by Nov. 1. Net gas injections through the summer of 2002 totaled less than 1.7 tcf.

Such demand is certain to impact US natural gas prices "throughout the summer and into next winter," said Guernsey officials.

"We believe that natural gas prices will regain momentum with the onset of summer as it becomes apparent. . .that significant demand needs to be 'backed out'. . .to attain a reasonable storage level entering next winter," said Robert S. Morris, energy analyst for Banc of America Securities LLC, New York, in a separate report Wednesday. He said an average gas price of $5-5.50/Mcf—"more likely higher than lower" —will be necessary to back out 5 bcfd of gas demand "in order for storage to just reach (2.75 tcf) at the beginning of November."

In London, the May contract for North Sea Brent oil fell $1.17 to $25.21/bbl on the International Petroleum Exchange. Brokers said prices are likely to stabilize around $25/bbl in that market. The May natural gas contract lost 8.8¢ to the equivalent of $2.57/Mcf on IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes dropped $1.04 to $25.76/bbl. With oil prices already near the mid-point of OPEC's targeted $22-28/bbl price range, some analysts doubt that members of the cartel will be as willing to increase production to offset losses from Iraq and Nigeria.

Contact Sam Fletcher at samf@ogjonline.com