europe.cnn.com Monday, January 27, 2003 Posted: 1117 GMT SPECIAL REPORT

SINGAPORE (Reuters) -- Oil prices stayed on an upward track on Monday, awaiting a key report from U.N. weapons inspectors for a signal of the likelihood of war in Iraq.

Just hours before chief weapons inspector Hans Blix was due to brief the U.N. Security Council, Washington made it clear it was ready to attack Iraq alone if needed, while Britain said Baghdad was hiding banned weapons, spying on arms inspectors and hindering their movements.

U.S. light crude rose 21 cents to $33.49 a barrel, extending Friday's gains of more than $1 in New York.

Brokers said oil markets were likely to be volatile with several potential price-moving events diaried in the next five days.

Blix, in charge of chemical, biological and ballistic weapons teams, and Mohamed ElBaradei, in charge of nuclear arms teams, will submit on Monday their first full report to the U.N. Security Council on Baghdad's 12,000-page weapons declaration and Iraq's cooperation with arms inspectors.

U.S. President George W. Bush will to make a State of Union address on Tuesday and is due to meet key ally Britain's Prime Minister Tony Blair later this week. Britain has sent thousands of troops to join a U.S. military build-up in the Gulf.

"Each of these stages will provide further clarity and we can expect a timetable to war to become a little clearer," said Sydney-based independent oil analyst Simon Games-Thomas.

"It's a busy week and all it will take is a couple of words of moderation and we could see prices really come off, it's that volatile," said Games-Thomas.

U.S. secretary of State Colin Powell said at the weekend that time was running out for Baghdad to disarm voluntarily.

"We will not shrink from war if that is the only way to rid Iraq of its weapons of mass destruction," Powell said at the World Economic Forum (WEF) in Davos, Switzerland.

Saudi Arabia sees no oil shortage

The world's biggest oil producer, Saudi Arabia, signalled at the weekend that it was not planning to raise supplies any further despite fears that war in the oil-rich Middle East could lead to a supply crunch and a spike in crude prices.

Benchmark oil prices are running close to two-year highs on concerns that an attack on Iraq might coincide with the ongoing strike in Venezuela, which has strangled oil exports from the world's fifth-biggest exporter.

"There is no shortage in the market and there should be no reason for prices where they are today," Saudi Oil Minister Ali al-Naimi told a panel at the WEF.

The Organisation of the Petroleum Exporting Countries agreed in December to raise output by 1.5 million barrels per day to counter some of the shortfall due to the opposition-led strike in Venezuela.

"What can we do more? I do not agree there is a lack of oil," OPEC Secretary-General Alvaro Silva also said at the forum. "The problem of the price is the threat of war."

Venezuela's President Hugo Chavez hinted at the weekend that he may be forced to take up arms if he were defeated by the opposition movement, which is calling for Chavez to step down.

Venezuelan crude output has recovered from lows in December when it was running at a trickle of about 150,000 bpd against more than three million bpd before the strike, which started on December 2.

Strikers said on Sunday that crude output was about 986,000 bpd, 30 percent of pre-strike levels, while Chavez claimed production had reached 1.32 million bpd.

asia.cnn.com Monday, January 27, 2003 Posted: 2:49 PM HKT (0649 GMT)

Blix is due to brief the U.N. Security Council Monday

SINGAPORE (Reuters) -- Oil prices stayed on an upward track on Monday, awaiting a key report from U.N. weapons inspectors for a signal of the likelihood of war in Iraq.

U.S. light crude rose 21 cents to $33.49 a barrel, extending Friday's gains of more than $1 in New York.

Brokers said oil markets were likely to be volatile with several potential price-moving events in the next five days.

Just hours before chief weapons inspector Hans Blix was due to brief the U.N. Security Council, Washington made it clear it was ready to attack Iraq alone if needed, while Britain said Baghdad was hiding banned weapons, spying on arms inspectors and hindering their movements.

Blix, in charge of chemical, biological and ballistic weapons teams, and Mohamed ElBaradei, in charge of nuclear arms teams, will submit on Monday their first full report to the U.N. Security Council on Baghdad's 12,000-page weapons declaration and Iraq's cooperation with arms inspectors.

Bush, Blair to meet

U.S. President George W. Bush will to make a State of Union address on Tuesday and is due to meet key ally Britain's Prime Minister Tony Blair later this week. Britain has sent thousands of troops to join a U.S. military build-up in the Gulf.

"Each of these stages will provide further clarity and we can expect a timetable to war to become a little clearer," said Sydney-based independent oil analyst Simon Games-Thomas.

"It's a busy week and all it will take is a couple of words of moderation and we could see prices really come off, it's that volatile," said Games-Thomas.

U.S. secretary of State Colin Powell said at the weekend that time was running out for Baghdad to disarm voluntarily.

"We will not shrink from war if that is the only way to rid Iraq of its weapons of mass destruction," Powell said at the World Economic Forum in Davos, Switzerland.

The world's biggest oil producer, Saudi Arabia, signalled at the weekend that it was not planning to raise supplies any further despite fears that war in the oil-rich Middle East could lead to a supply crunch and a spike in crude prices.

Near two-year high

Benchmark oil prices are running close to two-year highs on concerns that an attack on Iraq might coincide with the ongoing strike in Venezuela, which has strangled oil exports from the world's fifth-biggest exporter.

"There is no shortage in the market and there should be no reason for prices where they are today," Saudi Oil Minister Ali al-Naimi told a panel at the WEF.

The Organisation of the Petroleum Exporting Countries agreed in December to raise output by 1.5 million barrels per day to counter some of the shortfall due to the opposition-led strike in Venezuela.

"What can we do more? I do not agree there is a lack of oil," OPEC Secretary-General Alvaro Silva also said at the forum. "The problem of the price is the threat of war."

Venezuela's President Hugo Chavez hinted at the weekend that he may be forced to take up arms if he were defeated by the opposition movement, which is calling for Chavez to step down.

Venezuelan crude output has recovered from lows in December when it was running at a trickle of about 150,000 bpd against more than three million bpd before the strike, which started on December 2.

Strikers said on Sunday that crude output was about 986,000 bpd, 30 percent of pre-strike levels, while Chavez claimed production had reached 1.32 million bpd.

www.globeandmail.com By AMANDA LANG

Monday, January 27, 2003 – Page B6

There is a notice posted inside Heathrow airport in London that surely wins a world-class award for subtext. "It is unlawful to strike airport employees," it reads, which raises the question: Do employees face injury on a regular basis? It may as well add, "no matter how annoying they are." The physical abuse isn't funny, of course, it's just that airlines -- like divorce lawyers -- see us at our worst. They are easy marks for humour or scorn because we tend to be overwrought or at least nervous around them.

That may be why it was so easy to make fun of WestJet,beloved Western no-frills airline -- which reports earnings this week -- when it recently implemented a fuel surcharge.

It must have been a painful decision for the company; WestJet vocally opposed such charges in the past.

But the length of time that oil prices have stayed uncomfortably high is taking many by surprise and the airline finally succumbed, saying it would start defraying the additional cost by implementing a surcharge that ranges from $5 per ticket on short-haul flights to $10 on flights more than 1,600 kilometres.

The rationale behind the surcharge is clear: Fuel is one of the biggest costs for an airline, along with labour costs and the planes themselves. Many airlines slapped on the surcharge in the past when oil prices sent fuel costs to levels they hadn't predicted.

But this is where the issue gets a little troublesome. Surely, if one of your top three costs is fuel, predicting its price is an important part of doing business. Hedging prices, or buying contracts in the forward market to ensure price stability -- while it may not guarantee the cheapest rate -- is common practice.

The current combination of events that is keeping oil priced at two-year highs -- the war premium that by some estimates is adding $4 to $6 a barrel, and a strike in top-producing Venezuela -- could hardly have been guessed at a year and a half ago. So for many airlines and other transportation firms, fuel costs have been taking a bite out of margins.

But that still doesn't explain why airlines have been permitted to separate out that cost. After all, when you buy a pizza the price doesn't come with a base rate, plus the prevailing stipend to cover fluctuating cheese prices. It would be shoddy marketing if it did, since we buy our products and services already assembled for a reason, namely to ease the purchasing decision.

While your local pizza place is probably not going to complicate its pricing system any time soon, the chances of the airlines simplifying their methods isn't highly likely.

In fact, the list of add-ons seems to be growing, not shrinking. In part that is because the airlines are labouring under a new tax that most industry analysts want to see abolished or at least reduced dramatically.

The Air Travelers Security Charge shows up as an additional cost after the advertised or listed price of a ticket, although for self-preservation, agents or airline representatives often quote a price that includes the tax. If the tax were a permanent item there would be a strong case that airlines shouldn't separate it. The logic is the same as the fuel surcharge: Airport and airline security is surely an important part of doing business.

But since it is a new tax, many are hoping it will disappear once the perceived risk of terrorism subsides.

But leaving aside how well the money is being deployed by government on security, the ATSC is a real threat to the health of Canadian airlines.

Analysts calculate that on pricier tickets, the tax amounts to 7 per cent of the total. But on cheaper fares, that percentage rises. For tickets in the $400 range, the tax is 10 per cent. It jumps to 14 per cent on fares between $200 and $300, and a whopping 23 per cent on tickets priced between $100 and $200. But the worst aspect of the tax, according to analysts, is that it gets at the high-growth low-cost fares most of all. The tax is more than 40 per cent of the base fare for tickets priced below $100.

The tax should either be abolished or made more progressive. And until there is clarity on its future, airlines will continue to list it as a separate line item -- along with fuel surcharges and who knows, maybe one day soon, peanut costs. Amanda Lang is the host of AM Business on Report on Business Television and CTV. She can be reached at alang@robtv.com

www.forbes.com Reuters, 01.27.03, 1:15 AM ET Latin America  OPEC   By Tanya Pang

SINGAPORE, Jan 27 (Reuters) - Oil prices stayed on an upward track on Monday, awaiting a key report from U.N. weapons inspectors for a signal of the likelihood of war in Iraq.

Just hours before chief weapons inspector Hans Blix was due to brief the U.N. Security Council, Washington made it clear it was ready to attack Iraq alone if needed, while Britain said Baghdad was hiding banned weapons, spying on arms inspectors and hindering their movements.

U.S. light crude rose 21 cents to $33.49 a barrel, extending Friday's gains of more than $1 in New York.

Brokers said oil markets were likely to be volatile with several potential price-moving events diaried in the next five days.

Blix, in charge of chemical, biological and ballistic weapons teams, and Mohamed ElBaradei, in charge of nuclear arms teams, will submit on Monday their first full report to the U.N. Security Council on Baghdad's 12,000-page weapons declaration and Iraq's cooperation with arms inspectors.

U.S. President George W. Bush will to make a State of Union address on Tuesday and is due to meet key ally Britain's Prime Minister Tony Blair later this week. Britain has sent thousands of troops to join a U.S. military build-up in the Gulf.

"Each of these stages will provide further clarity and we can expect a timetable to war to become a little clearer," said Sydney-based independent oil analyst Simon Games-Thomas.

"It's a busy week and all it will take is a couple of words of moderation and we could see prices really come off, it's that volatile," said Games-Thomas.

U.S. secretary of State Colin Powell said at the weekend that time was running out for Baghdad to disarm voluntarily.

"We will not shrink from war if that is the only way to rid Iraq of its weapons of mass destruction," Powell said at the World Economic Forum (WEF) in Davos, Switzerland.

SAUDI ARABIA SAYS NO OIL SHORTAGE The world's biggest oil producer, Saudi Arabia, signalled at the weekend that it was not planning to raise supplies any further despite fears that war in the oil-rich Middle East could lead to a supply crunch and a spike in crude prices.

Benchmark oil prices are running close to two-year highs on concerns that an attack on Iraq might coincide with the ongoing strike in Venezuela, which has strangled oil exports from the world's fifth-biggest exporter.

"There is no shortage in the market and there should be no reason for prices where they are today," Saudi Oil Minister Ali al-Naimi told a panel at the WEF.

The Organisation of the Petroleum Exporting Countries agreed in December to raise output by 1.5 million barrels per day to counter some of the shortfall due to the opposition-led strike in Venezuela. "What can we do more? I do not agree there is a lack of oil," OPEC Secretary-General Alvaro Silva also said at the forum. "The problem of the price is the threat of war."

Venezuela's President Hugo Chavez hinted at the weekend that he may be forced to take up arms if he were defeated by the opposition movement, which is calling for Chavez to step down.

Venezuelan crude output has recovered from lows in December when it was running at a trickle of about 150,000 bpd against more than three million bpd before the strike, which started on December 2.

Strikers said on Sunday that crude output was about 986,000 bpd, 30 percent of pre-strike levels, while Chavez claimed production had reached 1.32 million bpd.

www.globeandmail.com By BRIAN MILNER

Monday, January 27, 2003 – Page B2

There's nothing like a deepening threat of war in the Middle East and an eight-week strike by oil workers in Venezuela to frighten the bejeebers out of investors and send the price of crude skyrocketing on world markets. And it doesn't help when pundits paint pictures as bleak as any conjured up by Francisco de Goya.

Warning bells have been going off everywhere in recent days, roiling the markets. Oil and gold both shot up again on Friday after U.S. officials helpfully went public with their concerns that Saddam Hussein is prepared to blow up his own oil fields at the first signs of a U.S. attack on Iraq.

Last week, former Saudi oil minister Sheik Ahmed Zaki Yamani warned that if Mr. Hussein retaliates against an American invasion by blowing up Iraq's wells, crude could soar to as much as $100 (U.S.) a barrel.

"Saddam could resort to the destruction of his oil fields and this means the global strategic stockpiles will sharply decline and the entire world will be pushed toward a horrible abyss," Mr. OPEC himself declared. "I think the U.S. could cause an international catastrophe if it attacks Iraq."

Last fall, he wondered about an Iraqi chemical assault on the oil fields in neighbouring Saudi Arabia and Kuwait driving prices to that magical $100 figure.

But setting aside the alarmist rhetoric, a case can be made that $25 oil is just as plausible -- and a lot more probable -- even if the bombs start falling in Iraq and most of Venezuela's crude stays in the ground. And if the Venezuelan and Iraqi crises are resolved quickly and peacefully, oil will be more plentiful and considerably cheaper.

On the Iraqi front, the markets have been paralyzed by fear that Washington is moving inexorably toward war, with the countdown possibly starting this week.

The United Nation's chief arms inspector, Hans Blix, is scheduled to report today on his team's progress or lack of it; and U.S. President George W. Bush will make what could be an extremely bellicose State of the Union address to Americans tomorrow. But Mr. Blix has already indicated there is no definitive proof yet that Mr. Hussein is hiding those celebrated "weapons of mass destruction." And Washington's allies, including Canada, have been urging Mr. Bush to wait until the inspectors have had a chance to complete their work or else show clear evidence that the Iraqi dictator has such weapons at his disposal.

In Venezuela, there are signs the national strike that has crippled production is running out of steam. The latest shipping data show that Venezuelan oil exports jumped last week to nearly 700,000 barrels a day, about one-quarter of the prestrike output, but considerably higher than the average during the past month.

That doesn't mean the country is any closer to resuming full production, which would take months, even if all the striking workers returned tomorrow. Or that a political solution to the crisis is imminent.

So let's assume the worst -- or nearly the worst -- in both cases.

Mr. Bush unleashes his military firepower on Iraq, remembering to dispatch enough troops to safeguard the oil supply. Meanwhile, the impasse in Venezuela between embattled President Hugo Chavez and opposition business, labour and political groups continues.

That could leave refiners scrambling to replace an estimated 500,000 barrels a day, according to a scenario outlined by the Middle East Economic Digest. But that does not mean we'll be looking at massive shortages, gasoline rationing or freezing homes and offices.

At worst, the business weekly suggests, the West would have to tap strategic reserves, which should be more than enough to cover a prolonged shortfall. Counting the huge U.S. oil stocks, which have yet to be touched, the developed world has enough oil to replace all Venezuelan and Iraqi shipments for at least half a year. Even longer, if the Saudis can crank up more production, as they have long promised.

Current Saudi Oil Minister Ali al-Naimi said at Davos on the weekend: "There is no shortage in the market and there should be no reason for prices where they are today."

There are reports that the Saudis and other Middle East producers are already stockpiling reserves outside the region, in case shipments are disrupted.

If the Venezuelans can get back to pumping at full volume, the global economy remains sluggish, and there is a normal decline in demand of the sort that occurs just about every spring, the phrase we are most likely to be hearing from analysts is "oil glut," rather than more hand-wringing about tight supplies.