<a href=www.canada.com>Calgary Herald - Reuters Saturday, June 14, 2003

Oil prices fell nearly 3 per cent Friday after the International Energy Agency said big consuming countries were more comfortably supplied than it had previously thought.

U.S. light crude tumbled 86 cents to $30.65 a barrel, extending Thursday's sharp losses and pulling prices back from recent 12-week highs above $32.

London August Brent crude fell 83 cents to $26.39 a barrel.

Prices fell as the Paris-based IEA, energy adviser to 26 industrialized nations, said its previous estimate of oil stock levels was 79 million barrels too low. The agency's revised estimate put oil stocks in the industrialized world for the end of April at 2.439 billion barrels,

"Stocks are still below normal and can absorb some surplus in the third quarter, but I think we have entered a stage when more supply is coming on the market and will impact prices," said Geoff Pyne, oil market consultant to Sempra Energy Trading.

The IEA said the revision did not change its view that global markets were tight. Stocks are still 157 million barrels, or 6.5 per cent, below 2002.

"The market is obviously better supplied than we thought as little as two weeks ago, but stocks are still low and fundamentals are still tight, so we need to build more stocks," said Klaus Rehaag, editor of the IEA monthly oil market report.

"The increase in crude stocks may, however, signal some relief for an otherwise tighter heating oil situation later this year," he added.

Oil stocks have been drawn down this year by a harsh northern winter and supply disruptions from a strike in Venezuela, ethnic strife in Nigeria and the war in Iraq.

Iraq on Thursday sold its first oil since the U.S.-led invasion nearly three months ago, but looting and sabotage at oil facilities are expected to keep Iraq's exports well below prewar levels for several months.

The delays in Iraq's postwar export resumption enabled the OPEC producer cartel to postpone fresh supply cuts at Wednesday's meeting in Qatar.

OPEC, which controls about half the world's oil exports, decided to meet again in just seven weeks, on July 31, in case the return of Iraqi shipments undermines high prices.

Fri June 13, 2003 08:08 AM ET By Tom Ashby

LONDON (<a href=reuters.com>Reuters) - The West's energy watchdog, the International Energy Agency (IEA), made on Friday an unprecedented 79-million-barrel upwards revision to its oil inventory data for the industrialized world in March.

The healthier supply picture knocked world oil prices lower, and analysts said the appearance of such a large volume of oil backed up OPEC concerns of oversupply in the third quarter.

The IEA said the timing of the revision was unfortunate, given that the world oil market was seeking direction after the U.S.-led war on Iraq, but that it did not change its view that global markets were tight, especially for gasoline.

"The market is obviously better supplied than we thought as little as two weeks ago, but stocks are still low and fundamentals are still tight, so we need to build more stocks," said Klaus Rehaag, editor of the IEA monthly oil market report.

Benchmark Brent crude oil fell 41 cents to $27.42 per barrel, while U.S. crude futures lost 47 cents at $31.04.

Geoff Pyne, oil market consultant to Sempra Energy Trading, said the revision showed that the OPEC exporting cartel, which stayed its hand on output cuts earlier this week, was right to be concerned by surplus supply.

"All the signs from OPEC were that they knew that U.S. oil prices should not be at $31 a barrel. I thoroughly agree," Pyne said. "Stocks are still below normal and can absorb some surplus in the third quarter, but I think we have entered a stage when more supply is coming on the market and will impact prices."

STOCKS ROSE IN APRIL

After the revision, the IEA said inventories fell at a rate of 570,000 barrels per day (bpd) on average in the first three months of the year. Stocks switched to a rising trend in April, building by an average 720,000 bpd in that month.

The agency said industry stocks in the industrialized world at the end of April at 2.439 billion barrels were still 157 million barrels below the previous year.

OPEC crude output in May rose by 220,000 bpd in May to 26.4 million bpd, the IEA said, due to a recovery in Venezuela and Nigeria where production was crippled earlier this year by strikes and ethnic clashes. Iraqi output was also rising.

OPEC ministers at this week's meeting in Qatar agreed to leave their output ceiling of 25.4 million bpd unchanged, though the group had earlier contemplated a cut to accommodate rising Iraqi volumes.

OPEC signaled instead that it could cut supplies when it meets again in Vienna on July 31.

The IEA forecast for oil demand growth this year was unchanged at 1.0 million bpd, the strongest rate for four years, taking average demand for the 12-month period to 77.9 million bpd.

The agency revised downwards its estimate for demand in the second quarter, but raised forecast demand for the second half of the year.

"Fuel substitution into oil will remain a key driver of demand growth in the third quarter, spurred by extended nuclear power plant shutdowns in Japan and sustained high natural gas prices in the U.S.," the IEA said.

Fri June 13, 2003 07:24 AM ET LONDON (<a href=asia.reuters.com>Reuters) - World oil prices fell on Friday after the West's energy watchdog, the International Energy Agency (IEA) made an unprecedented upwards revision to its oil inventory data, although it said stock levels were still low.

Benchmark Brent crude LCOc1 fell 38 cents to $27.45 a barrel, while U.S. light crude CLc1 fell 46 cents to $31.05.

Analysts said that fundamentally the situation was still bullish, with crude stocks in the United States more than 12 percent lower than a year ago and the peak demand U.S. driving season well under way.

"Obviously the IEA news is fairly bearish," said Paul Bednarczyk, analyst at 4CAST. "But I should imagine it's not going to make a huge difference in the longer term. The concentration is on U.S. stocks."

On Friday, the IEA said it had made an unprecedented 79 million-barrel upwards revision to its oil inventory data for the industry stocks in the Organization for Economic Cooperation and Development (OECD) at the end of March.

The agency said the timing of the revision was unfortunate, given that the world oil market was seeking direction after the U.S.-led war on Iraq, but that it did not change its view that global markets were tight, especially for gasoline.

"The magnitude of the stock revisions does little to ease the tight U.S. gasoline situation heading into the peak summer driving season," the IEA said in its monthly oil market report.

"The increase in crude stocks may, however, signal some relief for an otherwise tighter heating oil situation later this year."

The IEA also said that the Organization of the Petroleum Exporting Countries produced 26.43 million barrels per day (bpd) in May, 220,000 bpd more than in April.

The increase was due to the continuing recovery of production in Venezuela and Nigeria where production was crippled earlier this year by strikes and ethnic clashes, and also due to higher Iraqi output.

Iraq on Thursday awarded its first crude sell tender after the war to sell 10 million barrels of oil from storage. Senior oil executives said they were still targeting one million bpd exports in July.

The IEA said Iraq's latest crude export targets looked overly ambitious, given the state of production facilities and the security situation in the country.

OPEC ministers at a meeting in Qatar this week decided to leave their official output ceiling unchanged at 25.4 million bpd, but would meet again on July 31 to reconsider production levels in case the return of Iraqi shipments undermined prices.

Stanley A. Weiss IHT Friday, June 13, 2003 A blessing and a curse   LONDON Like a neighborhood drug pusher, Washington dangles the promise of billions in untapped petrodollars before the eyes of desperate Iraqis. Vice President Dick Cheney calls Iraq's oil reserves, the world's second largest, one of its "significant advantages." Secretary of State Colin Powell calls it a "marvelous treasure." Iraqis may see their black gold as a gift from God. But history shows why others have called oil "the devil's excrement." Around the world, oil states that should be economic powerhouses are basket cases. How can the blessing of oil become a curse? Like any narcotic, oil lets you forget about tomorrow. The immediate gratification of huge oil revenues may feel good at first, but after the high comes the crash. The irresistible lure of oil profits sucks capital and labor from other sectors like agriculture and manufacturing, afflicting countries with "Dutch Disease," as when the Netherlands' discovery of oil and natural gas in the 1950s wreaked havoc on the rest of the economy. Indeed, a truism of economic development is that the more a country relies on natural resources, the lower its growth rate. Bad economics also makes for bad politics. Easy oil money means petro-states can avoid hard choices, like painful economic reforms. And little or no economic progress outside the oil sector means no growing and prosperous middle class to clamor for more political freedom. It's no surprise that nine of the world's top ten oil exporters - countries like Saudi Arabia, Russia, Iran and Nigeria - are ranked as having little or no political rights and liberties by the nonprofit Freedom House. The one exception? Norway, a democracy long before it discovered oil in the 1960s. In Iraq's case, however, just saying no to oil won't work. Just as oil profits fueled Saddam Hussein's brutal regime, oil will be indispensable to Iraq's economic recovery. So how to keep Baghdad from getting hooked and becoming another oil junkie? First, separate the new rulers from the natural resources. Getting a future Iraqi government out of the oil business will help end the corruption that plagues most state-controlled oil economies. Only when open books and rule of law are in place should a new Iraqi government exercise a limited role in the oil industry. Second, ensure the petroleum benefits the people. From Venezuela to Angola to Indonesia, citizens of resource-rich countries tend to be worse off by every measure - income, jobs, education, health - than people in resource-poor countries. No wonder a former Saudi oil minister once lamented, "I wish we had discovered water." The new American-run, internationally monitored Development Fund for Iraq is a good start to rebuilding Iraq's devastated infrastructure with oil funds. Washington should also learn from other models. Norway's petroleum fund, now worth more than $100 billion, helps cushion hard economic times. From its oil revenues, Alaska cuts a check to every citizen every year. Revenues from a new pipeline in Chad are designated for health care, electricity and roads. Iraq's universities, hospitals, farms and entrepreneurial middle class were once the envy of the Arab world. They can be again. Iraq should follow the lead of Japan and the "four little dragons" (South Korea, Taiwan, Hong Kong, and Singapore), countries that achieved high growth by investing in the education and health of its people. Third, diversify. According to the World Bank, the entire Arab world, with its 300 million people, exports fewer non-oil goods than does Finland, with just five million people. In contrast, countries like Malaysia and Ireland have enjoyed economic growth through robust manufacturing exports. Mexico deliberately reduced its dependence on oil, spurring other industries and non-oil exports. Industrial parks in Iraq could be the seeds of a future Middle East manufacturing sector and help lay the foundation for regional peace and stability. That's the vision of Israeli entrepreneur Stef Wertheimer, who imagines a "New Marshall Plan" for the region, beginning with industrial parks in oil-free Jordan, Turkey and a future Palestinian state, modeled after his similar ventures in Israel. "When Arabs and Israelis have to meet delivery times for their orders from Japan" he tells me, "they will have neither the will nor the time to fight each other." Finally, deploy Iraq's secret weapon of mass construction - the world-wide diaspora of 4 million Iraqis, many of whom are highly-skilled and successful entrepreneurs. With Washington's help, some have already returned to Baghdad to play political roles. But Iraqi exiles I met with here seemed aware of their latent economic potential. These expatriates could serve as the bridge for vital foreign investment in their homeland. Can Iraq defy history as the only oil state to become a prosperous democracy? It won't be easy. But if used wisely over the long-term, revenues from Iraq's "marvelous treasure" can foster a more developed and economically diversified economy able to kick the dangerous habit of oil dependence. The future of the neighborhood will depend on it. The writer is founder and chairman of Business Executives for National Security and former chairman of American Premier, a mining and chemicals company. This is a personal comment.

Reuters, 06.12.03, 2:39 PM ET NEW YORK, June 12 (Reuters) - Credit agency Fitch Ratings said on Thursday it expects oil prices to stay around $30 per barrel this year but fall to near $20 per barrel in 2004. In a conference call on Fitch's U.S. oil and natural gas industry outlook, the ratings firm said near-term crude oil prices were likely to remain around the high $20's to low $30's per barrel this year, propped up by low inventory levels. Fitch said the recent surge in natural gas prices was a "double-edged sword," because high prices could result in what Fitch termed "demand destruction." Next year, the return of Iraqi exports and increased output from non-OPEC sources like Russia and Angola "will lead to crude prices in the $20 per barrel area," said Sean Sexton, senior director of the Fitch oil and gas sector. Prices used by Fitch to model sector forecasts were $27 per barrel for oil and $4.50 per thousand cubic feet (mcf) in 2003 and $21 per barrel and $3.50/mcf for 2004. Iraqi exports are not expected to exceed one million barrels per day (bpd) "until August at the earliest," said Sexton. But he added that toward the end of 2004,exports could be "north of a million" and perhaps 2 million. Global demand growth was projected at about 1 percent for 2003. Sexton said the rating outlook for the upstream exploration and production sector was "somewhat positive," citing Burlington Resources Inc. (nyse: BR - news - people), Chesapeake Energy Corp. (nyse: BR - news - people) and Pioneer Natural Resources Co. (nyse: BR - news - people). Oil drilling is up 16 percent from first quarter 2003 and natural gas up 11 percent, said Fitch's Patrick McGeever. He noted that oil rig use was retracting somewhat recently but said the trend remained positive. McGeever said exploration and production companies' expanded capital expenditure budgets for second-half 2003, due to high crude oil prices boosting cash reserves, should help drillers. He also pointed to Mexico's state-run energy firm Petroleos Mexicanos SA's drilling expansion program as supportive to jack-up rig utilization. Pemex is expected to add 15 units this year, half for semisubmersibles and the other half for jackups. Pending royalty relief that could come from the U.S. Minerals Management Service for deep water drilling also may help the drilling sector. Second-half 2003 could find international drillers helped by greater geopolitical stability after the Iraq war, Venezuela's strike and the Nigeria election, Fitch said. Fitch noted that some payments to service companies may have been slow from Nigeria's state-owned firm during the recent election, but companies expect that to cease post-election. While the refining environment has "improved significantly" and the sector is rated stable, Fitch expects margins to remain volatile going forward. Fitch expects refiners to respond to any downturn in margins and cut back production "sooner rather than later" as the sector has quickened its response time. Longer term Fitch looks for gasoline imports to slip as new cleaner-burning gasoline regulations impinge on foreign refiners' ability to send product to the United States. Refiners' need for natural gas in their operations will have their profits hit by higher natural gas prices that are boosting production costs.