Posted on Thu, Jun. 05, 2003 The News Sentinel-Associated Press

NEW YORK - Crude oil and petroleum products futures rallied Thursday as traders covered short positions established following bearish inventory figures released a day earlier.

Wednesday's sell-off came after government and industry data showed across-the-board builds in U.S. petroleum inventories for the week ended May 30.

Crude oil stocks rose by 2.8 million barrels to 289 million barrels, gasoline inventories grew by 2.3 million barrels to 207.3 million barrels, and distillate stocks, which include heating oil and diesel fuel, rose by a larger-than-expected 3 million barrels to 104.5 million barrels, the Energy Department reported.

But despite the builds, inventories remain below year ago levels, just as the high-demand U.S. summer driving season gets under way. Low inventories leave the market exposed to price spikes.

"When you think about it, supplies are still very tight," said Phil Flynn, a trader and analyst at Alaron Trading Corp. in Chicago.

At the New York Mercantile Exchange, nearby July crude oil futures rose 69 cents to close at $30.74 a barrel.

At London's International Petroleum Exchange, July North Sea Brent futures ended the session with a gain of 84 cents at $27.65 a barrel.

July heating oil futures jumped 2.01 cents to 77.23 cents a gallon, while July gasoline futures climbed 2.09 cents to settle at 88.52 cents a gallon.

Natural gas for July delivery rose 14.6 cents to settle at $6.521 per 1,000 cubic feet.

A slew of news reports helped boost the rally, traders and analysts said.

As oil prices were rallying, Venezuela's state news agency reported that the oil ministers of Venezuela, Mexico and Saudi Arabia will meet Monday to discuss cooperation between OPEC and non-OPEC oil producing nations.

Venezuela's oil minister Rafael Ramirez plans to meet his Saudi counterpart Ali Naimi and Mexico's oil minister Ernesto Martens in Madrid, Spain. Ramirez will later meet with the oil minister of Norway, another key non-OPEC oil producer.

"This is a very important meeting because it allows us to study the world oil markets and the oil prices," Ramirez said.

Venezuela and Saudi Arabia belong to the Organization of Petroleum Exporting Countries; Mexico does not. The three countries often meet to coordinate policy ahead of OPEC meetings.

Ramirez also said he would meet with Norwegian officials before the OPEC conference but he did not give a date. Norway, another independent producer, also often collaborates with OPEC's policies.

The meeting of the three oil ministers comes just before the meeting in Doha, Qatar, June 11.

OPEC in April decided to hike the ceiling to 25.4 million barrels a day while at the same time, it pledged to remove 2 million barrels a day from the market.

OPEC officials haven't said whether they intend another round of production cuts, and talk in the market is mostly that the cartel won't reduce output.

Analysts say that the recent price spike has mitigated the need for another OPEC output cut.

Separately, a fire at a Northern Natural Gas Co. natural gas pipeline early Thursday morning destroyed one of two buildings housing a compressor station in an isolated part of far West Texas, officials said Thursday.

The news helped boost natural gas and heating oil futures at the Nymex, traders said.

Reuters, 06.03.03, 1:52 PM ET By Anna Willard WASHINGTON (Reuters) - China's share of world electronics manufacturing will nearly double by 2005, overtaking Western Europe and becoming a new hub for the industry, a new World Bank study said Tuesday. Companies are increasingly moving to emerging markets for cost savings in production, and China offers the added attraction of a market for selling the final product. Electronics production in emerging markets should reach $125 billion by 2005, up from just $65 billion in 2001, the report said. More than three-quarters of that should be in China. "A main driver of this trend is the rising importance of economies such as China as end-user markets for these products, which increases their competitive advantage in the manufacturing process," said Dick Ranken, director of the global manufacturing and services department at the International Finance Corp., the World Bank's private sector arm. The IFC and management consulting firm Booz Allen Hamilton surveyed companies of varying sizes for the study and found that China's share of global electronics production should rise from 8.1 percent currently to 14.3 percent by 2005. China's growing dominance has a cost for other emerging markets. Mexico may face some loss of investment, particularly from car manufacturers as they move closer to the Chinese market. China is by far the most important market for them, the survey participants said, and although they see risks from financial instability and from lack of transparency in government decision making, none of them is "considering serious alternatives to China."

SARS TO HAVE LITTLE IMPACT Severe Acute Respiratory Syndrome (SARS) is unlikely to have much of an impact on the shift toward China. China has over 60 percent of the world's SARS cases, with more than 5,300 people having been infected and 334 deaths. One unnamed major U.S. telecom provider said the SARS outbreak has had "absolutely no impact whatsoever" on investment plans with regard to the country. A major Chinese semiconductor company said so far it has had "no impact" on operations or customer orders. But one Chinese electronics group said if the SARS epidemic lasted for another six months or longer, investors might start to consider alternatives.

ARGENTINA POTENTIALLY INTERESTING Other Asian countries with growth prospects are Malaysia and Thailand and, over the medium term, Vietnam and India. The report identifies Argentina as a potentially interesting producer over the medium term. Venezuela and El Salvador are other growth markets in Latin America, it said. In Europe, companies are expected to take their production further east to lower-cost countries, as moves to join the European Union push up costs. Hungary is currently the regional center for electronics manufacturing in Eastern Europe; but with the country planning EU membership, cheap labor costs are expected to disappear. Romania, Bulgaria and Ukraine should show the highest European growth in electronics manufacturing, with Russia a good bet in the medium to long term, the report said.

Countries anticipating 0.5-1% inflation include Taiwan, Switzerland, Singapore, Germany, Czech Republic, Saudi Arabia. Zeev Klein   3 Jun 03   14:08

A survey of inflation expectations by British journal “The Economist” forecasts that inflation in Israel will be less than 2% in 2003, among the lowest in the world.

”The Economist” predicts great differences in inflation between different countries: deflation in several Far Eastern countries, and double-digit or higher inflation in South America and Africa. The magazine predicts negative 2.5% inflation in Hong Kong, negative 1% in Japan, and negative 0.5% in China.

Countries expecting 0.5-1% inflation include Taiwan, Switzerland, Singapore, Germany, the Czech Republic, and Saudi Arabia.

Zimbabwe heads the 2003 global inflation forecast list with 305%, followed by Angola with 115% and Iraq with 75%. The inflation forecast for a number of other (mostly South American) countries, including Argentina, Uruguay, Venezuela, and Turkey, is 20-40%.

Published by Globes [online] - <a href=www.globes.co.il>www.globes.co.il - on June 3, 2003

ameinfo.com Tuesday, May 27 - 2003 at 09:27

With US economic stimulus plan passed, we reiterate our preference for the pharmaceuticals and energy sectors. Our crude oil price assumptions are towards an average of USD28.50 for this year. And we have added two stocks to our recommendation list that benefit from the weak US dollar.

US equities

Congress on Friday finally passed the hotly debated economic stimulus package worth US$350bn. The centrepiece of the bill is the cut in capital gains and dividend tax to 5% and 15% from the current top rates of 38.6% and 20% for capital gains.

The bill dovetails neatly with our thematic play on stocks offering high and safe dividend yields. Our current dividend plays are Altria (MO, $42.31, CSFB: Outperform) and Carolina Group (CG, $23.66, CSFB: Not Rated). However, it is our belief that the Bill would not necessarily radically change the dividend policy of US corporations as the dividend tax cut only last through to 2009.

Insurance stocks had a pretty rough week, falling 2.96% on average vs. the S&P 500’s 1.17% decline. According to a recent report by the Insurance Services Office (ISO), property/casualty insurers are expected to pay out approximately $1.55 billion in insured losses from the severe thunderstorms and tornadoes that struck 18 states from May 2 through May 11. ISO’s Property Claims Services unit estimates that insurers will receive more than 429,000 claims from these storms.

For example, Travellers Property Casualty Corp. (TAP/A, $16.21, CSFB: Outperform) sees storm loss damages of $78 million in 2Q’03, or about $0.08 per share. All told, estimated insured losses place the storm system as the third worst windstorm event in U.S. history, behind a $2.2 billion catastrophe loss in April 2001, and a $1.7 billion catastrophe loss in April 2002. For the short-term, we remain cautious on property/casualty insurers.

Life insurers could face a negative impact from the new dividend tax policy. It appears as if dividends received in variable annuity sub-accounts will not receive the same treatment. Given the fact that variable annuities require a long holding period (roughly 12 years) for their tax advantages to overcome higher fees compared to taxable mutual funds, the new policy would erode the tax advantages that annuities have over taxable mutual funds and cause the holding period to extend to about 15 years (source: JP Morgan).

However, we do not believe this would have a significant negative impact on life insurers’ stock prices. Therefore we maintain our Buy rating on Aflac Inc. (AFL, $32.67, CSFB: Not rated). The company sells complementary insurance, helping to fill gaps in consumer’s primary insurance coverage.

Pfizer has partially recovered from the sell-off after the US Supreme Court decision that the US state of Maine can implement a program to force drug makers to extend discounts to uninsured residents from current 10% to 25%. In Maine around 325,000 people could benefit from such discounts.

The market feared that worse might happen and that this could be a precedent for other states to join in which would hurt the drug industry’s revenues.

But as further legal hurdles could prevent the implementation of this program, the worst-case scenario that the market feared, appears not to be likely at this stage. The program has still to be validated by the District Court and needs approval from the Health Secretary, which means that at this point the US Department of state determines the extent to which states are allowed to give discounts on prescription drugs.

A certain implication will be a rise in tone in the discussion about the drug price inflation and the pharmaceutical industry will be under increased pressure to contribute their part to contain the rise in prescription drug prices. This is an issue that has been on the table for years and still it seems far from conclusion, as the pharmaceutical industry has plenty of clout.

In the meantime the weakness in the share price has offered a good buying opportunity for Pfizer Inc. (PFE, $31.88, CSFB: Outperform), which with its strong growth perspectives for the next two years at least and a forecasted earnings growth of 15-18% per annum, remains a top pick in the industry.

Given the uncertainties surrounding the implementation of the Maine drug program, we estimate our valuation model for Pfizer still to be accurate and also maintain our Buy recommendation and 12-months price target of USD 37.

Our newly recommended integrated oil stock ConocoPhillips (COP, $53.16, CSFB: Outperform) had a strong week, as crude oil prices stabilized at levels above $29 per barrel West Texas Intermediate. Exxon Mobil Corp. (XOM, $35.98, CSFB: Neutral) also saw a positive share price movement. We could see prices for both stocks moving up even further, if crude oil prices stay at these levels, as analysts might have to adjust their earnings models upwards, in order to take into account higher crude oil prices.

So far our crude oil price assumptions are towards an average price of $28.50 per barrel West Texas Intermediate (WTI) for this year. But it could prove too conservative, in so far as during this year the price for the WTI has mostly traded above $28.50, peaking at $37.83 in March.

We feel comfortable with our oil price assumptions and our forecasts for ConocoPhillips and Exxon Mobil. As we had reported earlier, the supply/demand situation could tighten, if disruptions from Nigeria, Venezuela and Iraq persist into the third and fourth quarter of the year, when demand increases due to the winter season in the Northern Hemisphere.

The sector continues to have solid medium- to long-term outlook, which also explains why the two stocks have been resilient to crude oil price volatility. We therefore reiterate our buy recommendation on ConocoPhillips and Exxon Mobil.

Altria Group (MO, $41.05 CSFB: Outperform) is up nearly 18% over the past two days. Two days ago Florida's 3rd District Court of Appeals threw out a $145bn dollar punitive awards damage against the US Tobacco industry.

There are FOUR KEY IMPLICATIONS to this verdict for Altria

• The Company's and the only potential bankrupting legal threat is dead in the water • We believe the verdict should accelerate credit rating agency action with a bias to upgrade. • Altria should regain access to $1.2bn dollars it had placed in an escrow account as a bonding requirement for the duration of the appeal • The ruling should be favourable in terms of other litigation with respect to class certification

We are maintaining our target price of $46 AND raising our stop loss to $35 from 31.

European equities

• The DJ EUR Stoxx 50 closed the week 4% lower at 2246.58 • Koninklijke KPN and Adidas-Salomon added to the recommendation list. The common theme being their relative low exposure to the weakening USD.

Given the continued weak economic environment and the strengthening Euro which hit a high of 1.1832USD on Friday for the first time since the launch of the single European currency in January 1999, we are looking for companies with further cost cutting potential and with less exposure to a depreciating US Dollar.

We added two new stocks to our recommendation list: the telecom operator Koninklijke KPN (KPN NA; EUR 5.76) and Adidas-Salomon (ADS GY; EUR 74.20). The common theme for both of them is their relative low exposure to the weakening USD.

The focus of the telecom sector as a whole is more on Europe itself and therefore makes it less sensitive to EUR strengthening. In addition, KPN underperformed in the current rally as all eyes in the telecom sector were on Deutsche Telecom (DTE GR; EUR 12.12) and France Telecom (FTE FP; EUR 19.98).

We believe going forward this gap should narrow as KPN’s management is very committed to further cost cutting and their efficient operating structure should enable them to improve their competitive position. Their strategy is to focus on free cash flow and in fact KPN has one of the highest free cash flow yield in the sector. As the end demand remains weak, an investment in KPN has to be seen as a cost-cutting and restructuring story. We assigned a target price of EUR 6.50 and a stop-loss level of EUR 5.30.

Adidas has a net USD exposure of over USD 1bn (substantial part of production is outsourced to Asia denominated in USD and major part of sales is in Europe), which makes it actually a beneficiary of a depreciating USD. A

According to a study by Deutsche Bank, a 10% depreciation of the US Dollar would have a positive 20% effect on Adidas’ EBIT. Adidas has a strong brand, diversified product portfolio, low beta to the DAX and is attractively valued compared to its peers (in the last 5 years Adidas traded on a PER of 17.2x, PER for 03 stands at 13.11x; current discount to Nike 23%, which is in line with its 5-year average); current premium to Reebook 4.5% (less than its 5-year average of a 26% premium). In addition, Adidas manages to keep its margins rising on the back of an improving product mix and selective price increases. We assigned a target price of EUR 85 and a stop loss level of EUR 70.

As there are few companies, which actually benefit by a depreciating US Dollar it is also worth mentioning Arcelor (LOR FP; EUR 9.03). The positive impact of a 10% weaker US Dollar on Arcelor’s EBIT is estimated to be 10.8%. Arcelor remains a cost cutting and restructuring story as well. Created by a merger only a little over a year ago, the cost cutting achieved so far is impressive.

Besides this ‘currency theme’ we would continue to focus on defensives such as pharmaceuticals. Our favourites remain Sanofi-Synthelabo (SAN FP; EUR 51.40), Aventis (AVE FP; EUR 44.5) and Roche (ROG VX; CHF 97.7). Roche showed a particularly strong performance during the last week increasing by over 12%.

Several developments such as the successful US launch of the hepatitis C drug Pegasys, the FDA approval of the HIV drug Fuzeon, a positive FDA advisory committee vote for the anti- allergy antibody Xolair, and the announcement earlier in the week of the Phase III success of Avastin in colorectal cancer. This should lead to better visibility as the stock enjoys EPS and rating upgrades by several brokers.

Furthermore, we would continue to focus on the energy sector. According to a study by Deutsche Bank the sector with the most positive earnings revision ratio is clearly energy with upgrades for 66% of the companies.

In fact, the 2003E index earnings were upgraded by 3.2% over the last month. Other sectors with upgrades in their 2003E earnings include food & beverages, financial services and telecoms. Our favourite plays in the energy sector remain Total (FP FP; EUR 121.70) and ENI (ENI IM; EUR 13.524).

Reuters, 05.21.03, 9:34 AM ET

WASHINGTON, May 21 (Reuters) - Following is the full text of Federal Reserve Chairman Alan Greenspan's prepared testimony on Wednesday before the Joint Economic Committee on the state of the U.S. economy and future economic policy:

"Mr. Chairman, I appreciate the opportunity to testify before the Joint Economic Committee. As you will recall, when I appeared here last November, I emphasized the extraordinary resilience manifested by the United States economy in recent years--the cumulative result of increased flexibility over the past quarter century. Since the middle of 2000, our economy has withstood serious blows: a significant decline in equity prices, a substantial fall in capital spending, the terrorist attacks of September 11, confidence-debilitating revelations of corporate malfeasance, and wars in Afghanistan and Iraq. Any combination of these shocks would arguably have induced a severe economic contraction two or three decades ago. Yet remarkably, over the past three years, activity has expanded, on balance--an outcome offering clear evidence of a flexible, more resilient, economic system.

Once again this year, our economy has struggled to surmount new obstacles.

As the tensions with Iraq increased early in 2003, uncertainties surrounding a possible war contributed to a softening in economic activity. Oil prices moved up close to $40 a barrel in February, stock prices tested their lows of last fall, and consumer and business confidence ebbed. Although in January there were some signs of a post-holiday pickup in retail sales other than motor vehicles, spending was little changed, on balance, over the following three months as a gasoline price surge drained consumer purchasing power and severe winter weather kept many shoppers at home.

Businesses, too, were reluctant to initiate new projects in such a highly uncertain environment. Hiring slumped, capital spending plans were put on hold, and inventories were held to very lean levels. Collectively, households and businesses hesitated to make decisions, pending news about the timing, success, and cost of military action--factors that could significantly alter the outcomes of those decisions.

The start of the war and its early successes, especially the safeguarding of the Iraqi oilfields, were greeted positively by financial and commodities markets. Stock prices rallied, risk spreads narrowed, oil prices dropped sharply, and the dour mood that had gripped consumers started to lift, precursors that historically have led to improved economic activity. The quick conclusion of the conflict subsequently added to financial gains.

We do not yet have sufficient information on economic activity following the end of hostilities to make a firm judgment about the current underlying strength of the real economy. Incoming data on labor markets and production have been disappointing. Payrolls fell further in April, and industrial production declined as well. Because of the normal lags in scheduling production and in making employment decisions, these movements likely reflect business decisions that, for the most part, were made prior to the start of the war, and many more weeks of data will be needed to confidently discern the underlying trends in these areas.

One reassuring development that has been sustained through this extended period of economic weakness has been the performance of productivity. To the surprise of most analysts, labor productivity has continued to post solid gains.

Businesses are apparently continuing to discover unexploited areas of cost reduction that had accumulated during the boom years of 1995 to 2000 when the projected huge returns from market expansion dulled incentives for seemingly mundane cost savings. The ability of business managers to reduce costs, especially labor costs, through investment or restructuring is, of course, one reason that labor markets have been so weak.

Looking ahead, the consensus expectation for a pickup in economic activity is not unreasonable, though the timing and extent of that improvement continue to be uncertain. The stance of monetary policy remains accommodative, and conditions in financial markets appear supportive of an increased pace of activity. Interest rates remain low, and funds seem to be readily available to creditworthy borrowers. These factors, along with the ability of households to tap equity accrued in residential properties, should continue to bolster consumer spending and the purchase of new homes. The recent declines in energy prices are another positive factor in the economic outlook. The price of West Texas intermediate crude oil dropped back to below $26 per barrel by the end of April, but as indications of a delay in the restoration of Iraqi oil exports became evident and geopolitical risks crept back in, prices have risen to near $30 a barrel--a worrisome trend if continued. Nonetheless, the price of crude oil is still about $10 per barrel below its peak in February. This decline has already shown through to the price of gasoline in May. Some modest further declines in gas prices are likely in coming weeks, as marketers' profit margins continue to back off from their elevated levels of March and April to more normal levels.

In contrast, prices for natural gas have increased sharply in response to very tight supplies. Working gas in storage is presently at extremely low levels, and the normal seasonal rebuilding of these inventories seems to be behind the typical schedule. The colder-than-average winter played a role in producing today's tight supply situation as did the inability of heightened gas well drilling to significantly augment net marketed production. Canada, our major source of gas imports, has little room to expand shipments to the United States. Our limited capacity to import liquified natural gas effectively restricts our access to the world's abundant supplies of natural gas. The current tight domestic natural gas market reflects the increases in demand over the past two decades. That demand has been spurred by myriad new uses for natural gas in industry and by the increased use of natural gas as a clean-burning source of electric power.

On balance, recent movements in energy prices seem likely to be a favorable influence on the overall economy. In the short run, lower energy bills should give a boost to the real incomes of households and to business profits. To be sure, world energy markets obviously remain susceptible to politically driven supply disruptions, as has been evident recently from the events in Venezuela and Nigeria. But, even taking account of these risks, futures markets project crude oil prices to fall over the longer run, consistent with the notion that current prices are above the long-term supply price of oil.