www.newindpress.com REUTERS

NEW YORK: Oil prices pulled back from 29-month highs on Thursday as a modest rebound in US crude stocks prompted profit-taking from six straight days of gains. Fears of war in Iraq and over 11 weeks of disruption to oil exports from strike-bound Venezuela have pushed oil prices up around 45 per cent since November, strengthening concern over the potential fallout on the world economy. US light crude for March delivery fell 37 cents to $36.79 a barrel, sliding from a peak of $37.55 struck early on Thursday, which was its highest level since September 2000. Prices are less than $5 below an all-time peak of $41.15 posted in the run-up to the 1990-91 Gulf war. In London, benchmark Brent crude was 77 cents lower at $31.56 a barrel, off a 26-month-high of $33.10 touched last week. Dealers took the chance to reap profits from strong recent gains after government figures showed a 3.1million-barrel rise last week in US crude stocks, which had fallen to their lowest level since 1975. The scope for more price losses is limited, analysts said. Cold weather and reduced production from US refiners hurt from higher crude feedstock costs have slashed inventories of gasoline and heating fuel. "Continued strong demand related to the snowstorm that hit the Northeast over the past weekend may show up in next week's statistics and maintain bullish pressure," Washington-based PFC Energy said in a report. Shortage fears Concerns are growing that the scramble to meet winter heating fuel needs will leave the United States short of gasoline for the summer vacation driving season. Pump prices are already above $2 a gallon in some West Coast cities. Higher energy costs threaten further damage to an economy already in the doldrums. Wholesale inflation surged, while Americans bought foreign goods rather than stimulating domestic output, economic reports showed on Thursday. Oil dealers fear war in Iraq could disrupt supplies from the Middle East, which pumps a third of the world's oil. Iraq exports a little less than two million barrels daily, some four per cent of world oil exports. A senior Bush administration official said on Thursday that the United States will submit a new resolution to the divided UN Security Council next week seeking authorisation for military force against Iraq. UN diplomats have said the Bush administration was not likely to push the resolution to a vote until the first week of March, after another report from UN weapons inspectors. In Venezuela, rebel oil workers said they will stage protests on Thursday outside offices and installations of state-oil firm PDVSA, following the overnight arrest of a strike leader on rebellion charges. The workers pegged output at 1.4 million barrels per day, compared with 3.1 million barrels before they launched a crippling strike on December 2 meant to force President Hugo Chavez from power. The government says output stands at more than two million bpd. A six-day strike by oil workers in Nigeria, which had threatened to affect exports from Africa's biggest producer, was called off on Thursday following talks between unions and the government.

sg.biz.yahoo.com Friday February 21, 10:20 PM

LONDON (Dow Jones)--The Organization of Petroleum Countries won't activate its price-band mechanism and hike output under current conditions if its basket price remains above $28.00 a barrel for 20 consecutive trading days, OPEC sources said Friday.

Feb. 28 would be the 20th straight trading day since the clock started ticking on the group's price mechanism.

But an OPEC official said "the mechanism will only be used as a (price) reference at this time."

Thursday, OPEC's basket price was $31.48/bbl, above the group's preferred $22.00-$28.00/bbl price range.

Under the terms of OPEC's price band mechanism, the group has pledged to raise output by 500,000 b/d if its basket price stays above $28.00/bbl for 20 consecutive days.

The group has also said it will slash output by 500,000 b/d if the oil price stays under $22.00/bbl for 10 straight trading days.

But OPEC sources say there is little the group can do now to take the heat out of high oil prices which, they say, are mainly due to a political premium based on a possible U.S.-led military attack on Iraq.

"There is not a lot we (OPEC) can do now to bring prices down...by putting more oil into the market in January this didn't bring prices back into the range, " one senior OPEC source said.

At an emergency meeting in January, OPEC, excluding Iraq, pledged to raise its output ceiling by 1.5 million b/d to 24.5 million b/d, effective Feb. 1, in an attempt to lower high crude prices.

But oil prices have remained high as an attack on Iraq has become more probable and a nationwide strike in Venezuela paralyzed the country's oil output.

-By Sally Jones, Dow Jones Newswires; 44-20-7842-9347; sally.jones@dowjones.com

www.online.ie Business & Finance 21 Feb 2003

Brent crude oil continued to gain in afternoon trade after US Defence Secretary Donald Rumsfeld said US forces are ready to attack Iraq. At 1430, Brent was trading up 48c at USD32.04.

Brent crude has gained around USD9.00 in the three months since mid-November as investors priced in the risk that any war with Iraq could jeopardise supplies from the country and possibly the wider region.

Analysts said that the sharply higher move this morning followed a slump in late trade yesterday, prompted by a collapse in oil products after recent 23 year highs on NYMEX heating oil.

Observers also noted that yesterday's slump was also prompted by weekly inventory data from the US Department of Energy which revealed a surprise rise in crude levels, lifting stocks from recent 28 year lows.

One dealer said that the market would not have recovered sufficiently from the Venezuelan stoppage before Iraq became a serious issue.

However, the fact that Venezuela is partially back up is much better than the fears a few weeks ago that both Venezuela and Iraq would be off line together, he added.

reuters.com Fri February 21, 2003 09:46 AM ET By Neil Chatterjee

LONDON (Reuters) - World oil prices now near two-year highs are set to slide 30 percent in the second half of the year after any U.S.-led war on Iraq, a Reuters poll found.

The survey of 14 oil analysts and consultants, undertaken on February 10-21, projects prices dropping nearly $10 to $22.46 a barrel in the second half of 2003, from $32 a barrel now.

It forecasts $27.53 a barrel for the first half of the year and gives a 2003 average of $24.30, down from $25.03 in 2002. Brent so far this year has averaged $30.98, forcing many analysts to revise forecasts higher.

Prices are expected to slump in the second half after being boosted in recent months by a strike in Venezuela and fears of an attack on Baghdad.

"Once war is over, it will come down pretty sharpish, and Venezuela will be less of a factor," said Matthew Parry of the Economist Intelligence Unit.

Analysts expect prices to slide after a short war in the next few months, a projection which, if borne out, would provide a welcome stimulus to a world economy struggling for growth as energy costs stay high.

"Most people are working on the basis of a big slide later on -- the economic impact will be beneficial," said John Waterlow of consultants Wood Mackenzie.

"The economy needs something to give it a boost -- the simplest way is an oil price drop."

Finance ministers from the Group of Seven wealthiest nations met in Paris on Friday to discuss what can be done to stop the rot in the global economy, following a poor set of U.S. economic data on Thursday.

Economists estimate every $10-a-barrel rise in oil over a year cuts world growth by 0.5 percentage points.

Oil prices have spiraled on worries that conflict with Iraq could spread in the Middle East, which supplies around one third of the world's oil.

First quarter prices have also been boosted by the prolonged strike in Venezuela, which has slashed oil shipments from the world's fifth biggest exporter.

Analysts have upped their price forecasts for the year by about $1.50 a barrel, over six percent, in the past month as the 11-week-old strike helped reduce U.S. crude inventories to 27-year lows.

"The Venezuela strike has tightened stocks considerably, and there'll be a need for stock building in the second quarter," said analyst Lawrence Eagles of brokers GNI-Man.

The U.S. Energy Information Administration said this month that it expected U.S. crude oil to stay above $30 a barrel for the rest of the year, though most analysts see oversupply by the fourth quarter.

OPEC COMPLIANCE?

Oil demand growth will be too sluggish to cope with the increased supply once Venezuelan production recovers and Iraqi output resumes after a war, they said, while non-OPEC countries' output is also on the up.

Differences in second half price forecasts depended on the extent to which oil cartel OPEC could control its production limits.

"We think there will be a significant fall off because of new capacity from the likes of Algeria and Nigeria, which will put increasing strain on OPEC cohesion," said Richard Savage of Bank of America.

"We think it will be higher for longer -- our view is that OPEC can control prices between $22-$28 in the medium term," said an analyst at another bank, which revised its figures upwards this week.

www.nationalreview.com February 21, 2003, 9:45 a.m. Basic economics. By Peter Ferrara

he American Left and its international comrades are claiming that the impending war with Iraq is not about defanging terrorism. Rather, they say, it's all about oil. They argue that President Bush is really motivated by a desire to seize Iraqi oil for American oil companies (and gas-guzzling American SUV drivers). "No blood for oil!" is their rallying cry.

No basis has ever been cited for this accusation — perhaps because the accusation makes no sense, as a matter of basic economics.

Unless the Iraqis drill and sell their oil, it is worthless to them. They must sell it somewhere on the world oil market to get any gain out of it.

But oil is a fungible commodity, so once they sell it — anywhere — it becomes part of the world oil supply. That increased supply in turn reduces the world oil price, until some equilibrium is reached between supply and demand.

From that point on, it doesn't matter to anyone where the Iraqi oil actually goes. If it goes to Japan, the Japanese will buy less oil from Venezuela and Nigeria. More oil from those countries would then go to the U.S. Indeed, as the oil supply sloshes around on world markets, no one really cares — or keeps track of — where it originated, so long as it meets quality standards. For all anybody knows or cares, every drop of Iraqi oil could end up at southern California gas stations.

Moreover, just who do the "war protesters" think Iraq would sell its oil to, in any event? The Western oil companies, primarily American companies, would be the primary purchasers of Iraqi oil, whether they buy it directly or circuitously through various middlemen. Who else is going to refine, distribute, and sell the stuff to the huge Western (and particularly American) consumer market? Have you ever seen or heard of any Iraqi gas stations?

In short, the oil companies already ultimately get the oil now. They don't need Bush to go to war to get it for them.

The proportion of the world oil supply currently consumed by America will continue to get here one way or another through world oil markets. If oil producers tried to cut off the huge American consumer market, there would effectively be a huge drop in the total world demand for their oil — and, consequently, a huge reduction in the world price.

Who else is going to consume world oil output except American consumers (and those gas-guzzling SUVs)? The truth is that Middle Eastern oil producers — including Iraq — need America and its consumers a lot more than we need them. We can always figure out other ways of powering our transportation and warming our homes, technologically. But has the Middle East ever figured out any way of getting dollars other than pumping and selling oil?

That is why an oil boycott is ultimately no real threat either. Again, Iraq and other oil producers must sell the oil somewhere on the world market to get anything out of it. And once they do, they add to the world oil supply and reduce the price to approach a new supply/demand equilibrium. The world oil market then distributes the available oil supply to wherever the demand is — which means America and the rest of the West.

Indeed, it is the West that has been restraining Iraqi oil supply since the Gulf War, with various restrictions on Iraqi oil sales. And it has been the Iraqis who have been pleading to open up their production and sales. An Iraqi oil boycott is not even remotely an issue today.

So the contention that the impending war is really about oil is senseless as well as being baseless. Which leaves us with this question: Why is the American Left joining with its foreign comrades to defame America with this silly and transparently false accusation? Is it really all just about anti-Americanism? Is it really just rooted in a hatred of American power and an attempt to stop its exercise? Isn't it time they came clean and told the truth?

— Peter Ferrara is director of the International Center for Law and Economics in Fairfax, Va.