abcnews.go.com March 7

— SINGAPORE (Reuters) - Oil prices held strong on Friday after President Bush accused Baghdad of playing a "willful charade" and said he would push for a U.N. vote on a new resolution authorizing the use of force to disarm Iraq.

U.S. light crude for April delivery climbed nine cents to $37.09 a barrel.

Traders said steeper futures price gains for later months delivery reflected uncertainty over the timing of any war.

May crude rose 19 cents to $35.73, while June was up 27 cents at $34.03.

"Market sentiment is bullish but confused about the timing of a military strike. There may be two to three weeks delay as governments try to find some common ground for action," said Sydney-based independent oil analyst Simon Games-Thomas.

At a news conference, Bush said he would within days force a vote seeking U.N. authorization to invade Iraq.

"We're days away from resolving this issue at the security Council," Bush said. "It's time for people to show their cards, to let the world know where they stand when it comes to Saddam Hussein."

Washington, backed by Britain, has met stiff opposition for a new U.N. resolution paving the way for war from Russia, France and China, which hold veto powers on the Security Council and have called for more time for weapons inspections to continue.

The United States and Britain have moved about 300,000 troops into the Gulf region ready to launch an invasion of Iraq, which they allege has stocked biological, chemical and nuclear weapons.

Chief U.N. weapons inspector Hans Blix is due to deliver later on Friday his latest assessment of the inspections mission and Iraq's cooperation with the searches.

Bush needs nine votes of the 15-members of the U.N. Security Council, but to date has only three certain backers -- Britain Spain and Bulgaria.

VENEZUELA LIFTS FORCE MAJEURE

Iraq is the world's eighth biggest oil exporter, selling roughly two million barrels per day overseas, and traders worry that a military strike may stop supplies.

In addition, they fear oil flows may be disrupted from other producers in the Middle East, which pumps about 40 percent of globally traded crude.

The threat of war comes as world fuel stocks are running below normal levels, partly due to an continuing anti-government strike in Venezuela, which slashed the country's oil exports at one point to a trickle.

Venezuela is the world's fifth biggest exporter of crude and refined oil products, supplying 13 percent of imports into the United States.

President Hugo Chavez on Thursday lifted a force majeure -- invoked when a supplier cannot meet its contractual obligations -- on Venezuela's exports, the strongest signal yet that South America's biggest producer was restoring petroleum operations.

The force majeure has been in operation since soon after the strike to topple Chavez began on December 2.

"We have decided to suspend the force majeure on all of (state oil company) PDVSA's operational activities...we guarantee operations to the entire world," Chavez said.

He said crude production had been restored to 2.658 million bpd plus an additional 150,000 bpd of condensate, or super light crude. Rebel PDVSA workers on Wednesday pegged production at 1.1 million bpd.

Venezuela pumped 3.1 million bpd in November before the strike, with oil shipments abroad running at 2.7 million bpd.

Before the strike, Venezuela was the third largest producer in the Organisation of the Petroleum Exporting Countries, which raised its production limits in January by 1.5 million bpd to largely offset the loss of Venezuelan supplies.

OPEC, which is dominated by Middle East producers, has pledged to make up for any losses in Iraqi supplies due to war. The cartel will meet in Vienna on Tuesday.

www.businessweek.com MARCH 7, 2003 NEWS ANALYSIS

More than the impending conflict with Iraq is driving up prices. A quick victory might bring them down, but a lot could go wrong   Oil shock. That's the worry of executives, consumers, and world political leaders alike as the Bush Administration prepares to launch a military campaign to depose Iraqi President Saddam Hussein. For the moment, the energy markets show every sign of giving in to such dread. With global inventories reaching dangerously low levels, crude oil approached the feared $40-per-barrel mark in the trading week of Feb. 24-28, while futures markets gyrated in some of the wildest action traders had ever seen. Heating-oil, gasoline, and natural-gas prices in the U.S. also hit near-record highs before falling back a bit. "There has been genuine chaos," says Peter A. Gignoux, head of the oil desk at Citigroup (C ) in London.

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Is the chaos justified? Not if you believe this optimistic scenario: After the U.S. delivers a quick knockout blow to Saddam, prices decline swiftly and uncertainty evaporates. A U.S. victory in Iraq would instantly wipe away a war premium of at least $5 per barrel, analysts figure, and prices would drift down further not long after that. "I personally feel that the price is going to fall," says Leo P. Drollas, deputy executive director and chief economist of the Center for Global Energy Studies, a London think tank. "The war is going to be short and won't have much impact in terms of the oil market unless Saddam goes for some outrageously bizarre self-sacrificial act." "A LOT OF IFS."  There's more roiling the oil markets and driving up prices than the prospect of war, however, which is why the outcome may not unfold quite as smoothly or swiftly as the optimists hope. Supplies are tight, and may get tighter still, for a host of reasons investors may only be dimly aware of. Claude Mandil, director of the International Energy Agency in Paris, which is responsible for making sure consuming countries have adequate energy supplies, ticks them off. First is Venezuela. After a devastating strike, it's still producing far below its previous output, and it may not come back for months or years, if ever. No. 2 is Nigeria. It's facing turbulent elections, and violence could spread to the oil fields. Then there's Japan. The country has shut down some reactors for safety checks and may soon need a lot more oil. "There are a lot of ifs," says Mandil. O.K., but what about the Saudis and Russians? Aren't they pumping as fast as they can? They are -- but the OPEC members in particular have only been at full speed for about two months, and it's going to take a while for the crude to work its way through the system. That's especially true in the U.S., because inventories of crude oil as well as refined products such as heating oil and gasoline are near historic lows. A devastating two-month strike by oil workers in Venezuela and a fiercely cold winter in the U.S. have drained American crude stocks to 270 million bbl. -- the lowest level since 1975. Refineries in the U.S. are operating at just 89% of capacity, below seasonal averages. LITTLE EXCESS.  Even in the best circumstances, with the world's big producers in high gear, it will take months to replenish stocks. And in less-than-ideal circumstances? Well, the global system can't take too many more shocks. If the war lasts more than a few days, Iraq's current 2.4 million bbl. per day in oil production is likely to evaporate. "There is spare capacity but not much more than Iraqi production," says Mandil. Edward L. Morse, executive adviser at Hess Energy Trading Co. LLC, a New York-based energy-trading firm, is more pessimistic. He estimates that the OPEC cartel can only produce 1.1 million bbl. more per day than it is already, outside of Iraq and Venezuela. In contrast, OPEC's spare capacity in July, 1990, before the Iraqis invaded Kuwait, was 5.2 million bbl. per day. "Systems with limited capacity have reduced levels of cushion in case of emergency," says Morse. Because of the tight supply conditions, prices are unlikely to fall as precipitously as they did in January, 1991, when they sank to $18 shortly after the U.S. attacked Iraq. If the war takes unexpected turns, prices could rocket. No wonder the recent market gyrations have commanded attention from Washington to Riyadh. On Feb. 25, Energy Secretary Spencer Abraham announced that the U.S. "can act quickly" to use the Strategic Petroleum Reserve (SPR) of 599 million bbl. "to offset any severe disruptions if it's needed." Some analysts expect President Bush to tap the SPR in the early days of a war. "My guess is that when the order comes for the tanks to move, the order will also come to start the oil flowing," says W. David Montgomery, an energy expert at Charles River Associates Inc. in Washington. But even that may not happen if the war is over quickly and there's no major supply disruption. Abraham has refused to speculate on the timing of any release. "NOT JUST PROPAGANDA."  The Saudis are doing practically all they can to boost supply. They have long railed about the dangers of an attack on Iraq but are now resigned to Saddam's removal. They are positioning themselves to limit the political damage of a war: That includes a big shift in their approach to oil. For three years, Saudi Petroleum & Minerals Minister Ali Al Naimi cajoled producers inside and outside OPEC to stick to production discipline to keep prices at $25 per barrel. No longer. "We're contributing a lot, and this is not just propaganda," says a senior OPEC official in the gulf. "We're using our production capacity, and we're pushing OPEC to increase." Industry sources say the Saudis are producing from 9 million to 9.5 million bbl. per day -- the highest level since the Gulf War. Engineers for Saudi Aramco, the world's largest oil producer, are busily opening up mothballed wells and testing out Saudi oil fields so that the kingdom will be able to sustain output of 10.5 million bbl. per day in the event of a war. Oil-company executives say that while the Saudis are trying to preserve a bit of ammunition for later emergencies, they are willing to sell almost all the oil their customers want. "Anybody who goes and asks for extra barrels will get it," says one crude buyer. All the big producers welcome the opportunity to fill their coffers. The Saudis are raking in $250 million in oil revenues a day. PIPELINES NEEDED.  The Saudis are also loading an estimated 30 million bbl. of crude onto their own fleet of tankers and steaming toward Asia and the Caribbean as a buffer against disruption in their fields. Across the rest of the oil world, from Russia to Norway to Mexico, production is also humming. Outside the kingdom, only a few countries -- chiefly Kuwait and the United Arab Emirates -- have any spare capacity left. Russia could pump more, but a lack of pipelines and other facilities is limiting its exports to just 4 million bbl. per day out of total current production of 7.75 million. "It's important to build new infrastructure -- the more the better," says Eugene Shvidler, president of Russian oil major Sibneft. Venezuela remains a wild card. State-owned oil company Petróleos de Venezuela (PDVSA) is still reeling from the effects of the recent national strike aimed at forcing Venezuelan President Hugo Chávez to resign. PDVSA managers supported the strike, as did many of the company's 38,000 workers. Chávez recently fired over a third of them and split the company into two parts to weaken its clout. Some analysts say the outfit has permanently lost some 400,000 bbl. per day in capacity because of damage to facilities and mature wells. It's now pumping an estimated 1.55 million bbl. per day, vs. 2.66 million before the work stoppage -- and Venezuela's turmoil may not be over. As a result, Caracas might not be able to supply the U.S. with oil in an emergency. " Venezuela is going from being a part of the solution to being a part of the problem," says José Toro Hardy, an ex-director of PDVSA who is now an independent oil analyst in Caracas. EXTENDED CONFUSION.  How the markets play out in the short-to-medium term may depend on the release of oil from the SPR and similar stocks in Japan, South Korea, and Germany. Oil-industry sources say the U.S. and other countries could tap worldwide reserves to the tune of 8 million bbl. a day -- close to all U.S. imports -- for three months. But there may be delays in actually marketing the SPR oil, and refineries may have difficulty matching substituted crude to what it is replacing. Lee R. Raymond, chairman and CEO of Exxon Mobil Corp. (XOM ), told analysts on Mar. 5 that he expects a period of extended confusion in the oil markets after fighting starts, no matter what happens with the SPR. "I wouldn't suspect there will be clarity on this at all," he says. "There'll be a lot of what-ifs and whens." Then there's the danger that war poses to the fields of the Persian Gulf. Alarmists say Kuwait and Saudi Arabia are exposed to an attack from Saddam. Not likely. Anthony H. Cordesman, a gulf military analyst at the Center for Strategic & International Studies in Washington, notes that there are built-in redundancies in the oil installations of the gulf countries. PANIC ATTACK?  If the Iraqis or Osama bin Laden sympathizers, for instance, managed to damage the Saudi Gulf terminal of Ras Tanura, the kingdom could shift oil exports to the safer Red Sea. "Unless Iraq tried a concerted terror attack using virtually all of its remaining missiles and advanced attack aircraft plus large amounts of persistent nerve gas or biological weapons, and had great success, it could not produce a serious cut in oil exports in another gulf state," says Cordesman. Still, smaller disruptions are possible. Some tankers may steer clear of the gulf, creating bottlenecks. Or a hit in Kuwait and Saudi Arabia might panic the markets even though no oil is affected. And there's the chance that Saddam could destroy the Iraqi oil patch himself. If so, it could take years and billions in investment to bring the fields back to what they were. The effects of war may linger for a long time.

By Stanley Reed in London, with Anthony Bianco in New York, John Carey in Washington, Christopher Palmeri in Los Angeles, and bureau reports

www.dailytelegraph.news.com.au From correspondents in New York 07mar03

OIL prices swung to as war fears escalated ahead of a news conference by President George W. Bush and on the eve of a UN weapons inspectors' report.

"People are concerned about the Bush press conference, it might signal that war is a close," said Refco market analyst Marshall Steeves.

New York's benchmark light sweet crude for April delivery rose 31 cents to $US37 a barrel.

In London, the price of benchmark Brent North Sea crude oil for April delivery advanced 51 cents a barrel to $US33.51.

Traders viewed last week's $US39.99-a-barrel peak on the New York contract as a new ceiling, said Fimat analyst Mike Fitzpatrick.

They "can use the recent high as some kind of psychological resistance until situation with Iraq is clarified," Fitzpatrick said.

President Bush said the UN Security Council was in the final stages of deciding whether to back a war against Iraq and accused Saddam Hussein of making a "willful charade" of disarmament.

"We are days away from resolving this issue at the Security Council," Bush told a press conference at the White House, adding that he would press for a vote soon on a new resolution on Iraq.

It was "the final stages of diplomacy," he declared, highlighting how more than 200,000 US troops are now in place around Iraq ready for a war.

But with many observers saying that the US appeared determined to start a war, Bush said that "diplomacy has not worked, we have tried diplomacy for 12 years."

Traders were waiting nervously for a report on Friday from chief UN arms inspector Hans Blix to the Council, and, perhaps more importantly, the reaction of council members to his findings.

Mr Bush said the US will call for a vote on a new resolution submitted by the US, Britain and Spain whatever the level of support in the Security Council. France, Russia and China, which are also permanent members of the Council, are leading a coalition against the resolution.

"Yes, we will call for a vote, no matter what the whip count is," Mr Bush told the news conference.

"We are calling for the vote, we want to see people stand up and say what their opinion is about Saddam Hussein and the utility of the United Nations Security Council."

Barclays Capital analyst Orrin Middleton in London said prices would be supported at "these high levels" so long as uncertainty over the Iraq crisis persisted.

"The general trend is still 'to buy on dips'," Middleton said.

The low level of US oil stocks also buttressed prices, he said.

A cold snap in the United States and a strike in Venezuela that crippled the South American country's oil exports drained US inventories to low levels.

Analysts warned the oil market was exposed to demand or supply side shocks.

US Energy Secretary Spencer Abraham said in Brussels he expected to meet OPEC ministers in Vienna next week but played down the prospect of an oil crisis linked to Iraq.

Abraham is due to visit Vienna on Tuesday and Wednesday for a conference on tackling "dirty bombs" – such as radiological devices – organised by the International Atomic Energy Agency.

The Organisation of Petroleum Exporting Countries will also be convening at its headquarters in Vienna on Tuesday.

"I won't be attending those (OPEC) meetings but I'm sure I will have a chance to talk to one or more of the OPEC ministers," Abraham said after signing an agreement bolstering US-EU cooperation on research into clean energy and alternative fuels.

www.channelnewsasia.com First created : 07 March 2003 0937 hrs (SST) 0137 hrs (GMT) Last modified : 07 March 2003 0937 hrs (SST) 0137 hrs (GMT)

Oil prices swung higher on Thursday as war fears escalated ahead of a news conference by President George W Bush and on the eve of a UN weapons inspectors' report.

In New York, the benchmark light sweet crude for April delivery rose 31 cents to US$37.00 a barrel.Advertisement In London, the price of benchmark Brent North Sea crude oil for April delivery advanced 51 cents a barrel to US$33.51.

Analysts said the market is viewing last week's US$39.99-a-barrel peak on the New York contract as a new ceiling.

On Thursday, President Bush was to field questions in the White House's ornate East Room for just the second time since he took office, officials said.

The US leader hoped to lend momentum to efforts to secure the elusive nine votes needed to win passage by the UN Security Council of a new Iraq resolution paving the way for war while averting a veto by Russia, France, or China.

Traders were also waiting nervously for a report on Friday from chief UN arms inspector Hans Blix to the Council, and, perhaps more importantly, the reaction of council members to his findings.

A cold snap in the US and a strike in Venezuela that crippled the South American country's oil exports have drained US inventories to low levels.

Analysts warned the oil market was exposed to demand or supply side shocks.

US Energy Secretary Spencer Abraham said in Brussels he expected to meet OPEC ministers in Vienna next week but played down the prospect of an oil crisis linked to Iraq.

www.timesdaily.com The Associated Press March 06. 2003 6:25PM

Crude oil futures rose moderately Thursday as traders braced for a potential war in Iraq. But trading was volatile, reflecting market uncertainty ahead of a news conference Thursday night by President Bush. The president is expected to be questioned extensively on the administration's plans for Iraq. The market is also awaiting a key report by U.N. weapons inspector Hans Blix. White House officials said they will decide after Blix's report to the Security Council on Friday whether to call for a vote on a resolution authorizing the use of force against Iraq. Blix's report is expected to be a mixed bag, praising Iraq for its destruction of Al Samoud missiles but also saying that gaps remain in Iraqi cooperation. Supporters and opponents of war are likely to seize on the report to press their case as the showdown over Iraq comes to a head. Russia, France and Germany say they won't allow passage of a war resolution, while the United States and Britain insist time is running out for Iraq. "Until they know that it's going to happen or it ain't going to happen, the market's going to be choppy," said Bill O'Grady, an analyst at A. G. Edwards. At the New York Mercantile Exchange, the front-month April crude oil futures contract rose 31 cents to $37 a barrel but failed to breach key technical resistance at $37.20 a barrel. The May crude contract posted large gains, ending up 58 cents at $35.54 a barrel. The session's key feature was the tightening of the April-May crude futures spread, trader said. The spread narrowed to $1.46 from $1.95 Wednesday. Analysts said the selling reflected easing short-term concerns about supplies and the likelihood that a war in Iraq could be delayed in the face of growing opposition. "There is a realization that that there may be a little bit of relief in the short term," said John Kilduff, senior vice president for risk management at Fimat Futures Inc. Kilduff noted that the Department of Energy predicted that U.S. crude oil inventories, now standing at a quarter-century low, are likely to grow by more than 8 million barrels in March. Historically low inventories have helped boost oil prices in recent months. Inventories have been drained by a two-month strike in Venezuela and a cold snap in the Northeast. O'Grady said the market's focus on May and other deferred contracts may "handicap a delayed war or a realization that the sunshine scenario of oil prices tanking after a war in Iraq may not happen." Many industry analysts believe that oil prices could fall sharply if a war goes well for the United States. But O'Grady said prices would drop only if Bush decides to release oil from the nation's Strategic Petroleum Reserve. He said the White House can engineer a sharp fall in oil prices by releasing 25 million to 30 million barrels of oil from the reserve. Energy Secretary Spencer Abraham said Wednesday the SPR should not be used to "address prices," noting that the reserve was built only for "severe supply disruption." Prices earlier took a boost from rumors that Iraq had bombed its own oil fields. But Iraq's ambassador to Russia dismissed the report, according to the BBC. Meanwhile, heating oil futures rallied late in the session, drawing support from persistent cold weather in the Northeast and a decline in inventories. April heating oil rose 1.17 cent to $1.0556 a gallon. April gasoline futures gained .51 cent to close at $1.1060 a gallon. On London's International Petroleum Exchange, the gains were bigger. April Brent futures jumped 53 cents to close at $33.53 a barrel. Natural gas for April delivery fell 17.7 cents to settle at $6.844 per 1,000 cubic feet.