<a href=www.nzherald.co.nz>New Zeland Herald05.06.2003 8.30 am

NEW YORK - World oil prices dipped on Wednesday (New York time) as an increase in petroleum inventories in the United States, the world's largest energy consumer, eased fears of a summer supply crunch.

Prices were also pressured by comments from Opec member Indonesia that the producer cartel would not need to further curtail supplies at a meeting next week to counter an expected resumption in exports from Iraq.

US light crude oil futures dropped 62 cents to US$30.05 a barrel, while internationally traded London Brent crude dipped 47 cents to US$26.80 a barrel.

US crude oil supplies jumped 2.8 million barrels in the week ended May 30, with petrol supplies up 2.3 million barrels, the US Energy Information Administration (EIA) said on Wednesday.

The increase in petroleum supplies in the US, which comprises about a quarter of the world oil market, comes at a critical time of the year when petrol demand typically surges due to warmer weather and heavy vacation planning.

Despite the increase in stock levels, oil and petrol supplies in the US remain below year-ago levels in the aftermath of a series of supply interruptions over the winter from Venezuela, Nigeria and Iraq.

Adding selling interest to world oil markets, Indonesian Energy Minister Purnomo Yusgiantoro said Wednesday Opec did not need to consider cuts in oil output while prices were inside Opec's US$22-US$28 per barrel band.

"Our interest is the price stays above US$22 per barrel. If prices stay above that, then there is no need for Opec to cut quotas," Yusgiantoro said.

CONTINUED WEAKENING

Some Opec ministers had hinted that a cut might be on the cards at next week's meeting in Qatar as a resumption in Iraqi oil exports looms, but prices have risen strongly toward the upper end of Opec's target range.

Opec's reference export price stood at US$27.09 on Tuesday.

"Now that a consensus appears to be emerging within Opec that a production cut at its meeting next week is not necessary, we expect crude oil prices to continue weakening over the next few days," Barclays Capital Research said in a report.

War-torn Iraq has suspended exports since the US-led war began in March and the authorities expect the first tankers to lift crude from storage tanks in the middle of June.

Previous targets for resuming exports have been put back because of unexpected problems with looting and sabotage.

The head of Iraq's southern oil company, which produced most of Iraq's crude before the war, said on Wednesday output there was just a fraction of pre-war levels because of the security problems.

Total Iraqi output now stands at 750,000 barrels per day, about a quarter of pre-war levels, although Iraqi authorities in Baghdad expect it to double by the middle of the month.

Paul Stevens, professor of petroleum policy at Britain's University of Dundee said the looting and sabotage indicated that current forecasts for Iraqi exports were far too high.

"People are grossly underestimating the time it will take to restore pre-war capacity in Iraq," he said. "The US and Britain don't have the troops on the ground or the administration to do it."

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Wednesday, June 04, 2003 By: Andrew McKillop

WASHINGTON, Sept., 2002 - Africa, the neglected stepchild of American diplomacy, is rising in strategic importance to Washington policy makers, and one word sums up the reason: oil. Within the next decade, recently discovered offshore reserves are expected to enable West Africa to outproduce the North Sea's oil rigs and capture as much as 25 percent of America's oil-import market. Source/ New York Times, 19 Sept 2002 « In Quietly Courting Africa, U.S. Likes the Dowry: Oil » By James Dao

VHeadline.com petroleum industry commentarist Andrew McKillop writes: Through 2001 and 2002 a flurry of initiatives, state visits, studies, projects and actions have underlined the growing importance of Africa especially for the US, but also for European and Asian oil and gas importers. Now that Baghdad is occupied by US troops, and with luck Iraqi oil production may be able to satisfy domestic needs of the country (about 0.7 Mbd) within a few months, it is possible that US interest in Africa, and concern for its plight can be ‘back-burnered’ again, as it was right through the Cheap Oil interval of 1986-99. But this is unlikely ... if only to assure some distribution of risk away from rising risk of supply interruptions from the Middle East all of the major powers have a new found interest in and concern for Africa. Or at least for its oil.

A slim resource base

The above extract from the NY Times is a typical, upbeat, distorted and exaggerated report boldly advancing the American ‘expectation’ of West Africa rapidly becoming a major oil exporter region, producing more oil than is currently produced by the North Sea province, which is now falling like a stone and likely to average about 5.8 - 5.9 Mbd in 2003. These and similar articles typically forget to note that only fast depletion of North Sea oil production makes for any possibility of West Africa, with about 2% of the world’s proven reserves of oil, being able to ‘outproduce’ the North Sea province. That is, West Africa has a tiny resource base and restricted geological potentials for oil and gas, and it is only the minuscule oil consumption of West Africa, and the rest of the continent that enables any export surplus to be obtained.

Any additional production from the region in the 2003-2010 period is therefore very unlikely to exceed about 2.5 - 3 Mbd or around 50% of current output from the North Sea.

Further as the above, typically exaggerated article also forgot to mention total African oil production, continent-wide and including established producers such as Algeria, Egypt and Sudan, in North and East Africa, together with Angola, Chad, Equatorial Guinea, Nigeria and Gabon, is only about 7.7 Mbd. This total production, continent wide, was only equivalent to North Sea output in 1999-2000, the peak year of North Sea production. Because oil consumption by all nations of the Dark Continent is so low, increased local consumption is the real short-term priority for African countries: any serious attempt at conventional economic development in Africa will likely lead to reduced oil export surpluses.

Only poverty permits any export surplus

Such facts of course do not worry sensation-seeking editors, and import hungry OECD national leaders will maintain their eyes riveted on the Dark Continent for one reason because it is so dark.

NASA's "earthlights" illustrate power consumption worldwide

As the Light Pollution Institute and International Dark Sky Association web sites at www.darksky.org   and www.lightpollution.it graphically show, so low are the levels of night-time, electricity based artificial lighting in Africa relative to Europe, or N America, or Asia that the continent appears like an inky black hole. A few figures show why this is so: for countries in the Ecowas (West African) group, including Black Africa’s second biggest economy – oil exporting Nigeria ... average electricity consumption per capita is around 35 kWh to 75 kWh per year, compared to annual average European, Japanese or US consumption rates of around 3500 to 5000 kWh/capita. The entire oil consumption of the continent’s 50-plus countries and estimated 900 Million inhabitants was around 2.6 Mbd in 1999, less than is imported and mostly burnt by for example Germany’s 83 Million inhabitants, and well below a third of what either the US, or the EU-15 countries import each day.

With such magnificent economy of consumption ... quite easy to achieve with typical GNP/capita figures around 150 to 250 Euro/year ... Africa can export a large proportion of its small production. This situation could maintain itself, or it may not. As many upbeat articles cheering on new production opportunities from non-OPEC countries will add, much or most of any projected, and very unlikely ‘explosion’ in African oil and gas production, almost exclusively on the western side of the continent, will be heavily oriented to offshore production.

While ignoring the very high costs of this continent-edge exploration, discovery and then production in water depths already attaining 5000 feet (e.g. in the Xikomba field off Angola), these upbeat articles will sometimes note, discreetly, that being offshore these vital installations will or can shelter this lifeline oil supply from the many civil wars that have ravaged Black Africa since the 1980s.

Quite simply, and this is shown in the shallower waters of Nigeria’s delta region, oil installations and output can often feature in civil unrest, simply because they are given prominence by world media and represent small poles of wealth among huge and increasing poverty.

Continental economic meltdown

It would be no exaggeration to state that Africa is more wracked, exploited, and oppressed in the period from around 1985 to now, than it ever was in any heroic time of White slavery or colonial war, either before or after the « Carve up of Africa » through the 1850-1900 period, or in any liberation war that followed.

Yet this onslaught is by free market forces, and tied loans supplied under strict conditions, by the World Bank and International Monetary Fund, following Africa’s brief day in the sun, during the hike in primary product prices that was triggered by the first Oil Shock, and lasting through about 1975-83. During this period international lenders fell over themselves to finance huge projects for minerals, metals and agrocommodity development, throughout Africa.

When the Reagan-Thatcher recession and slump of 1980-83 ‘brought the world back to its senses,’ these loans became close-to impossible to repay because African commodity export prices fell through the floor. Africa’s debts then only grew, much like ... for example ... the US National Debt which just in the time you take to read this article (or 30 minutes if that is longer) will rise by several dozens of millions of dollars.

The US trade deficit, running at about $50 million per hour as you read this article, is however in sharp contrast to harsh ‘structural adjustment’ conditions for their trade accounts that are imposed on African debtors. Squeaky clean balanced budgets are policed to the last dollar, to the last kilo of food not imported, and not fed to tens of thousands of undernourished children, when it concerns conditions for new loans to African countries to pay interest due on existing loans.

Black Africa’s outstanding loans continue to this day to be topped-up with interests amounts arising from variable rate loan schedules, set during the long years of extreme real interest rates through the 1980s. At the same time, some principal, the original loan amount, is occasionally ‘forgiven’ in well-publicized acts of generosity by Club of Paris lenders ... that is the main G-8 powers and a few others.

By 1985 Africa counted a string of countries where more than 25% of total export receipts for their agricultural and mineral or primary product exports, whose price levels had fallen far and fast from their 1975-82 highs, were needed simply to pay interest due on ‘sovereign’ or State-guaranteed loans.

This situation has continued and the crisis has deepened, to the point where ‘reverse development’, that is snowballing poverty in Africa is now at last recognized as a danger to any kind of foreign investment ... even in oil prospecting and development ... because of the raging, coalescing civil and international wars that have been generated by ‘benign’ neglect to ever rising poverty.

Yet still today the price for bailing out poverty-wracked African borrowers whose Sunset Commodity exports command such low prices they are unable to pay back their loans, called ‘structural adjustment,’ first demands huge cuts in the number of public sector jobs to bring unemployment levels to at least 30%-40%. National assets, in the form of state companies, are immediately privatized.

More often than not, these privatized companies are asset stripped by US, European, Japanese, Chinese or Indian companies, and are often simply abandoned, like tuna fishing canneries and equipment of some West African countries ... now that fish stocks have been decimated.

• Huge rises in the price of food, fuel, medicines and schooling are always featured in ‘structural adjustment.’

This general impoverishment of already poor countries is always nicely defended by various aseptic policy speeches and documents, but the applicability of or reason for free market pricing in countries where often 50%-75% of the population, still today, is outside the cash economy is hard to fathom.

This reverse development policy is laughably described as making its victims ‘lean, mean and competitive’, but starving children, with unemployed and undernourished adults deprived of public services are hard to see as complying with this Neoliberal fantasy, or nightmare for its victims.

‘Blood oil and gas’ or international cooperation?

Unsurprisingly, the forced and additional impoverishment of countries and communities already among the poorest in the world not only transformed Black Africa’s few oil and gas exporting countries into the most pliable price takers any yuppie economics guru will wax eloquent about, but it also prepared conditions for large-area, multi-country rebellions, massacres and wars. These last, when they concern oil current or emerging exporters such as Angola, Chad or Sudan, are receiving some determined attention to stop the killing, if only in the interest of cheap oil supplies, but continuing, generalized, mass poverty in Africa is unlikely to rapidly lever more oil supplies, even outside the free-fire zones of these long-running mass killing sprees.

After ‘blood diamonds’ we are unlikely to see any large increments to current supplies of ‘blood oil and gas’ ... a change of tactic and strategy is very much needed.

In the period 2000-2002, policy and attitudes of the so-called International Community towards Black Africa has rapidly changed, and because of oil and gas. Black Gold from the Dark Continent is a hope, or chimera reinforced by military adventure in the Middle East, with locally-decided regime change through popular action in the region, and fast rising resistance to military occupation of Iraq no longer being far-out and worst case scenarios.

Exactly as with the Caspian region, US and European media and governments feel it is necessary to wantonly exaggerate oil reserve and production potentials for Africa, but this mix of greed for Cheap Oil and fear of supply loss, if accompanied by ‘benign neglect’ to snowballing poverty, will be a straight loser.

Cheap Oil and terms of trade

Black African economies are heavily dominated by primary product exports, ranging through plantation agriculture, specialty and exotic (to temperate climate countries) crops, metals and energy minerals, and the relative price of these exports to prices for imported food, manufactured goods and services sets GNP numbers and human wellbeing, or the lack of it. Benign neglect to coffee prices, for example, that are now at all time lows, spells ruin to many African communities. Yet even a doubling or tripling of the price for bulk coffee would add scarcely 1 or 2 Euro or US cents to prices for a cup of coffee in Europe or the US retailing at around 100-200 Euro or US cents-per-cup.

Just the same applies to oil. Most European consumers happily pay 150-175 Euro/barrel at the retail level. At $30/bbl (around Euro 25.25/bbl) the commodity price is below 16 Euro cents-per-liter.

Economists can wax long on the question of rent split but more wealth for producers of real resources, certainly for African producers, is a dire necessity ... the so-called alternative of benign neglect, and deliberate intensification of poverty through ‘structural adjustment’ are losing strategies ... if more oil is wanted, a higher price should be paid for it.

The richworld may believe it is wise ... or blessed by geology ... through focusing offshore oil and gas development in Africa, far from the land and danger of damage to installations. Africa’s entire existence and survival is in fact threatened by the AIDS epidemic, the certainty of increasing war and civil strife, and crushing poverty itself increased by ‘structural adjustment,’ sometimes known as Belsen Economics.

Imagining that that this « strategy » will enable the richworld to suck out cheap oil and gas supplies, to slow or stall the arrival of Peak Oil, is likely unsure to perform, as well as starkly showing the morality and humanity we can expect from the ‘inspired’ creators of the so-called New World Order.

Andrew McKillop  is a former expert, policy and programming, Divn A - Policy, DG XVII-Energy, European Commission, founder member, Asian Chapter, Intl Assocn of Energy Economists. You may contact Mr. McKillop by email at andrewmckillop@onetel.net.uk

By <a href=ogj.pennnet.com>Oil & Gas Journal editors

HOUSTON, June 3 -- The US refining industry is poised for a good year in 2003 because gasoline stocks are on the rise while refinery throughput and gasoline imports are near record levels.

"With the exception of the West Coast markets, industry margins across the remainder of the country were at record levels in the first quarter," said Bryan Caviness, an analyst with Fitch Ratings Ltd.

West Coast refiners did not receive the benefit from a cold winter or from the uncertainties in global crude supply during late 2002, he explained.

Overall, the US downstream sector experienced "unseasonably strong (first quarter) earnings for most refining and marketing companies. The cold winter, a heavy turnaround season, the general strike in Venezuela, and the looming war in Iraq factored into strong demand for gasoline and distillates, and a sharp drop in inventories," Caviness said.

Summer driving season As the US enters the summer driving season, refiners are running at more than 94% capacity and 15.8 million b/d of throughput to capture the historically strong summer margins, he said.

"The refining sector's ability to control production will again be the key issue to sustaining the strong margins seen in the first quarter," Caviness said.

A run up in throughput during recent weeks has pushed gasoline stocks to more normal levels than seen earlier this year, and margins have reflected that, he said.

Gasoline imports The US imported nearly 460,000 b/d of distillates and a record 767,000 b/d of gasoline during the first quarter.

"Compared with full year 2002, Canada and the Netherlands showed the most notable increases in refined product exports to the US in January and February. Argentina, Norway, and the UAE have also significantly increased refined product sales into the US markets," he said.

In the short term, gasoline imports averaged more than 1 million b/d through April, a 23% increase compared with April 2002.

"Looking forward to 2004, gasoline imports will become a key issue with the ultra-low-sulfur gasoline regulations. With nearly 40% of gasoline imports in the form of blending components and a significant percentage of refiners not required to meet similar specifications domestically, Fitch Ratings expects a significant drop in gasoline imports in 2004," Caviness said.

Refining environment A difficult margin environment last year taught the US refining industry that its record earnings experienced during 2000-01 are not guaranteed and that paying too much for refining assets can strain a company's financial flexibility, he said.

After last year's dismal earnings reports, refiners are more committed to improving and maintaining a stronger balance sheet than they have been in previous years, he said.

"Fitch maintains a stable outlook for the downstream sector, although sharp volatility in margins will remain. The remainder of 2003 is expected to be a midcycle or better as refiners begin investing the capital to meet the low-sulfur gasoline regulations in 2004 and diesel regulations in 2006," Caviness said.

BW5544 JUN 03,2003 6:52 PACIFIC 09:52 EASTERN

( BW)(NY-FITCH-RATINGS/OIL) Fitch Reports U.S. Oil Refining Makes a Comeback in '03

    Business Editors

    NEW YORK--(<a href=www.businesswire.com>BUSINESS WIRE)--June 3, 2003--The downstream sector of the U.S. oil industry rebounded in early 2003 as the cold winter, the general strike in Venezuela, the war in Iraq, and a strong demand for gasoline and distillates, resulted in refined product inventories plummeting during the first quarter of the year, according to an article titled 'U.S. Downstream Rebound in 2003?', published in the latest Fitch Ratings Oil & Gas Insights quarterly newsletter.

    Distillate demand was more than 10% higher than last year, averaging at a record 4.3 million barrels per day (mmbpd) during the first quarter. 'As the U.S. enters the summer driving season, refiners are running at near full throttle (more than 94% capacity and 15.8 mmbpd of throughput) to capture the historically strong summer margins,' says Bryan Caviness, Director, at Fitch. 'The key issue to sustaining the strong margins seen in the first quarter, is the refining sector's ability to control production.'

    In the new article, Fitch notes that sharp volatility continues to affect the downstream sector. 'The 2003 summer driving season will again be a critical period for the refining sector,' says Caviness. The remainder of 2003 is expected to be at mid-cycle or better as refiners begin investing the capital to meet the low-sulfur gasoline regulations in 2004 and diesel regulations in 2006. 'Looking forward into 2004, gasoline imports will be a key issue with the ultra low sulfur gasoline regulations. With nearly 40% of gasoline imports in the form of blending components and a significant percentage of refiners not required to meet similar specifications domestically, we expect a significant drop in gasoline imports in 2004.'

    The Oil & Gas Insights newsletter is published quarterly and can be found on the Fitch Ratings web site at 'www.fitchratings.com'. Other articles published in this issue of the newsletter include, 'Hydrocarbon Prices Remain Firm in 2003,' and 'Drilling and Services Activity Increases in 2003.'

--30--ALX/sf*

CONTACT: Fitch Ratings
         Bryan Caviness, +1-312-368-2056
         Matt Burkhard, +1-212-908-0540 (Media Relations)

KEYWORD: NEW YORK
INDUSTRY KEYWORD: BANKING BOND/STOCK RATINGS
SOURCE: Fitch Ratings

Monica Perin <a href=austin.bizjournals.com>Houston Business Journal

The terrorist bombings in Saudi Arabia and Morocco that killed 70 people in the past two weeks have upped the ante for U.S. companies that operate in high-risk countries.

And federal officials warn that more such attacks against U.S. interests are highly likely in the near future, which prompted the Bush administration to raise the color-coded threat level to orange, or "high," earlier this week.

Security specialists in the private sector are advising clients who operate in such places to upgrade their emergency preparedness plans.

"They need to assess their physical security and counter-terrorism mechanisms and beef them up," says Jim Francis of Kroll International, a global security firm based in New York.

But oil industry and security experts in Houston doubt that even these latest events will cause major changes in business operations in the oil patch.

"Companies will incur security premiums, but these concerns have been baked in the cake since 9/11," says Greg Barnes, managing partner in the Houston office of Korn Ferry International executive recruiting firm.

"Definitely it's going to get harder to recruit" people to take assignments in places like Saudi Arabia, says Ralph Stevens of Houston-based Preng & Associates, a global energy search firm.

"I would guess that taking family there will be less likely than before, and that only essential personnel will be there," says Stevens.

John Griffin, who heads the Houston-based upstream and oilfields services practice of Korn Ferry, predicts three things will happen:

• Companies will expand their expatriate base to other groups of less targeted people, such as Asians or other foreign nationals, and decrease recruiting of Westerners.
• People who are close to their goals of making a certain amount of money, retiring and getting another job will stay in Saudi Arabia but send their families home.
• Companies will pay more and heighten security to get people to stay there or go there.

"At the end of the day, it will be a matter of money, whether in direct salaries or increased security," Griffin says.

Premium pay

Oil companies have traditionally paid premiums to employees working in difficult or inconvenient places. Executives who have been paid $200,000 to $350,000 a year might now get additional premiums of as much as 75 percent to work there.

But a proposed change in tax laws could offset increases in compensation.

David Preng, president of Preng & Associates, says many expatriates are concerned about a Bush administration proposal to remove the current tax exemption on the first $80,000 earned abroad.

"This, coupled with security concerns, may cause some people to re-evaluate their current posting or alter their current thinking about accepting an overseas posting," Preng says.

His colleague Stevens expresses doubts that companies will try to "throw money" at the problem.

"All the money in the world can't buy your life, "Stevens says. "People will either be willing to do it, or not willing -- premiums aside."

In the past, he says, security wasn't an overriding issue for his clients who did business in Saudi Arabia, although the perceived risk level would vary by company from mid-level to high.

Now, he says, "it'll jump all the way to the top."

Although oil industry companies are tight-lipped about what measures they are taking as a result of the Saudi bombings, Stevens says he knows some people have been taken out and sent to England.

Locally, Baker Hughes Inc., Schlumberger and Shell Oil Co. declined to comment. Exxon Mobil, BP and ChevronTexaco also have remained mum in response to media queries.

A U.S. spokesman for the American Business Council of the Gulf Countries told the Associated Press that he has not heard of any foreign companies planning to "pull the plug" on operations in that region.

And a Philadelphia-based firm that manages travel for companies told AP there has been a spike in departures from Saudi Arabia by family members of Western executives, but not a lot of employees have left.

The U.S. Bureau of Consular Affairs estimates that about 150,000 Americans live in the Middle East.

Other hot spots

In recent months Shell and ChevronTexaco have evacuated employees from Nigeria, while other companies have followed suit in Venezuela and Indonesia because of local uprisings. Companies such as Schlumberger evacuated employees from Kuwait before the start of the Iraq war, but they have since returned.

Houston security expert Kevin Swailes, president of Swailes & Associates, points out that kidnappings and terrorist attacks have been going on for years in counties such as Colombia, Nigeria, the Ivory Coast and elsewhere.

"Companies that operate in these environments understand the risks and they are very proactive," Swailes says. "They have to be out in front of it."

Companies active in Saudi Arabia will be "reassessing what they have in place, the nature of their business operations in-country, and whether they still feel comfortable with those protocols after the recent acts," he says.

In the long run, he says, organizations that are better-equipped for handling the risk will stay put.

"You won't see a huge shift," Swailes says.