OPEC's magical oil supplies

Venezuelan President Hugo Chavez stopped oil exports to ExxonMobil, escalating a multi-billion dollar fight with the U.S. company two days after threatening to cut off all supplies to America. Venezuelan oil minister Rafael Ramirez said fellow OPEC members had expressed solidarity with the South American nation. SOUNDBITE: Venezuelan oil minister Rafael Ramirez, saying (Spanish): "We met with the OPEC legal team and we are counting on their assessment on how to confront this situation and immediately, a situation of solidarity was created because once again, an oil-producing nation exercising sovereign activities finds itself being assaulted by companies like Exxon Mobil." The State oil company said it broke off commercial ties and halted the supply of crude and petroleum products to America's largest company in a fight over Exxon's demand for compensation after Chavez seized a crude project last year. Venezuela is the No. 4 energy supplier to the United States, which is its biggest customer. Some analysts believe it was unlikely Chavez will cut off oil supplies to the US. Daniel Restrepo of the Center for American Progress. SOUNDBITE: Daniel Restrepo of the Center for American Progress, saying (English): "Venezuela can't afford top cut off oil supplies to the US hoe's playing with a small amount. At the end of the day it wold be economic suicide for him to cut off oil." The Exxon battle pits Chavez, a leading proponent of resource nationalism who calls capitalism an evil, against one of the world's largest companies seeking access to increasingly restricted oil deposits around the globe. So far, the State Department has said it backed ExxonMobil in its efforts to get quote "fair and just" compensation from Venezuela for its assets, but was not involved in the case. SOUNDBITE: Daniel Restrepo of the Center for American Progress, saying (English): "I think the appropriate response is to have very little response. It is largely best to treat this as a dispute between an oil company and Venezuela and something that is showmanship on behalf of the Hugo Chavez. Responding to it, reacting to it, is playing into his distractions." Chavez, a self-styled socialist revolutionary who clashes with Washington over everything from oil prices to democracy, says Exxon is a proxy in a U.S. economic war against him. Deborah Lutterbeck, Reuters

US oil supplies could be 15 billion barrels more today if Chevron Texaco is right. It says a test well in the Gulf of Mexico could hold that much oil. - could and does? - 28-thousand foot deep well - drill a second appraisal well next year - length of time to yield results Now that summer if unofficially over and the driving season hits the brakes, is the pressure off pump prices? - no - demand remains strong: +2% before Labor Day weekend - refinery utilization: 93%, highest in a year - maintenance, blends 9/11 this year is the 5th anniversary of the terrorist attacks. It's also the date OPEC meets to talk about oil production. Is OPEC gearing for cut? Market impact? - has stated it would like oil prices to move lower so as not to hurt global demand - Indonesia: lowest production in 35 years Final Round: what OPEC country am I? I am the 4th biggest supplier of oil to the US. Half of my government's revenues come from oil. My president calls President Bush the Devil. - Venezuela Phil Flynn, Alaron Trading

The price of a barrel of oil closed at an all-time high of $104.52 on Wednesday as supply concerns, border tensions in South America, and speculative buying all combined to give traders a powerful "buy" signal. U.S. crude supplies fell for the first time in eight weeks in a sign demand may not be waning as much as was thought. Ira Eckstein is president of Area International Trading. SOUNDBITE: Ira Eckstein, president, Area International Trading "When we had that surprise draw that really surprised a lot of traders and that's what took us above the $104 to $104.25 level and that's a huge breakout. If we could settle just above $103.50 that would indicate that it is really bullish to $107." And oil never fell back to the $103 range as some thought it would. OPEC's decision to keep production steady, despite calls for a rise from President Bush, added to upward pressure. The group said the market was well supplied and it should not be blamed for record prices. Instead it blamed the White House, saying "economic mismanagement" had pushed the dollar lower and fueled speculative buying in the oil markets. But the Bush Administration quickly shot back. U.S. Energy Secretary Sam Bodman said tight global supplies was a bigger factor in record oil prices - than a weaker dollar. And while OPEC and the White House seemed locked in the blame game, real tensions were mounting elsewhere. In South America's Andean region, Venezuela, the third biggest exporter of oil to the U.S., beefed-up its military presence on the border with Colombia following that country's raid on Marxist rebels inside Ecuador -- the escalating crisis adding yet another reason for oil prices to climb further. Conway Gittens, Reuters COMPANIES MENTIONED: SYMBOLS:

It was a record close for crude oil as US oil prices spiked more than 4 percent , ending the day above $100 a barrel for the first time. The concern: that OPEC nations will not boost output when ministers met in March and the possibility that they may in fact cut production. Fadel Gheit of Oppenheimer. SOUNDBITE: Fadel Gheit, Energy Analyst, Oppenheimer & Co., (English), saying: "OPEC is beginning to change it's tune now. They are saying not only that we are not going to increase production because we believe there is no supply shortage in the marketplace. There is plenty of oil. We are afraid that if we have a global economic slowdown we will develop a glut" Crude prices have been on the rise since Venezuela cut exports to Exxon Mobil amid a bitter legal dispute over seized assets. Now OPEC has stoked new supply concerns. But with crude prices back above triple digits analysts say OPEC's options may be limited. SOUNDBITE: Fadel Gheit, Energy Analyst, Oppenheimer & Co., (English), saying: "Something has to give. Either oil prices will have to come down or the stock market will have to come down. You just can not have a rising stock market and strong oil prices - especially if they are not supported by supply and demand fundamentals." It's not just the oil cartel behind the run-up, other factors include refinery problems in the US and concerns about supplies from Nigeria and Russia. For Reuters I'm Diane King in New York. COMPANIES MENTIONED: SYMBOLS:

The oil market is suppossed to be in its quiet season - the time when American heating oil demand wanes - and the summer driving season has not yet begun. But the oil trading pits at the New York Mercantile Exchange are far from quiet .... as a powerful rally swept prices temporarily above $112 for the first time on record. Supply concerns are back. U.S. crude inventories had a sharp surprise fall last week and gasoline supplies showed a bigger than expected decline - despite record prices at the pump. Oil prices are up more than 10 percent since the month began, but the market is still stuck in a range between $101 to $115, according to Ray Carbone of Paramount Options. SOUNBITE: Ray Carbone, president, Paramount Options (english) saying: "We've had 10 percent down, we've had 10 percent up in one week. The name of the game is volatility. I think we are on the upper end of the range right now- until we break and settle above that and start a new range or fail and go back to the lower end which is around $100." Falling oil exports, not growing demand, caused the supply shortfall. But it is not just American supplies at stake. Diesel supplies in Europe and Asia are waning - sending European energy costs to record highs as well. And few expect OPEC to lend a helping hand. Despite numerous calls for a boost in production, OPEC leaders say global markets are well supplied and recent price spikes are out of their hands. Conway Gittens, Reuters COMPANIES MENTIONED: SYMBOLS:

The biggest oil pipeline supplying America with Canadian crude oil exploded, crippling supplies just as temperatures drop and demand for heating oil increases. MOREINFO: The Enbridge Pipeline system usually supplies the U.S. market with more than 1 million barrels of oil per day. The U.S. Department of Homeland Security said there were no known links to terrorism related to the deadly blast in Minnesota. The cause of the blast was not immediately known. SPEAKER: Ira Eckstein, president, Area International Conway G. Gittens reports from New York. SCRIPT: Part of a major pipeline linking Canadian oil exports to the U.S. went up in smoke. Emergency crews were on the scene of the explosion that killed at least two employees. The Enbridge Pipeline is responsible for 1 million barrels of oil imported into the U.S daily. That loss of supplies comes at a time when cold winter weather is expected to drive-up home heating demand. In a bid to offset that loss, The U.S. Energy Department says it may tap its strategic oil reserve, known as the SPR. A suggestion met with optimism and skepticism at the New York Mercantile Exchange - where Ira Eckstein trades oil for Area International. SOUNDBITE: Ira Eckstein, president, Area International (English) saying: "Putting any more oil on a market that has tight supplies is always a great....something good to do. But this administration has not put any SPR on the market. So you know - yeah - they say they will, but will they?" Word of the explosion sparked a buying frenzy at the NYMEX - one-day after crude oil prices had their sharpest drop in over 3-months, but gains were limited. Traders say OPEC may agree to boost production at next week's meeting in a bid to drive prices even lower. The cause of the explosion was not immediately discovered, but the Department of Homeland Security says there were no known links to terrorism related to the blast. Conway Gittens, Reuters.

New data shows an unexpected drop in crude inventories, meanwhile OPEC decided keep supply steady despite President Bush's pleas. Alaron Trading's Phil Flynn discusses oil supplies and what's affecting them. (March 5)

The gas dispute between Russian and Ukraine has been resolved. Russia's Gazprom confirmed it had reached a deal with Ukraine's Naftogaz to restore full gas supplies to Ukraine, two days after cutting back shipments in a debt dispute. (SOUNDBITE) (Russian) GAZPROM SPOKESMAN SERGEI KUPRIYANOV, SAYING: "Today Gazprom chief executive Alexei Miller and Naftogaz chief executive Oleg Dubin spoke on the telephone, which resulted in the settlement of the crisis over delivery of gas to Ukraine." Russian gas monopoly Gazprom had said the Ukraine owed it $600 million. Gazprom said Naftogaz had agreed to pay for gas shipments for the first two months of this year. /// OPEC ignored demands by the US to increase oil output and kept level steady. The US had argued that even a small increase would help tame prices and limit any impact on a fragile economy. But the OPEC president said that supply of oil was not the problem, but the mismanagement of the US economy was to blame for the global slowdown. (SOUNDBITE) (English) OPEC PRESIDENT, ALGERIAN OIL MINISTER CHAKIB KHELIL SAYING: "I am not responding to the U.S. president, I don't think I should be responding, I can give you the facts: and the fact is that supply is more than the demand right now, the stocks are at a very high level for crude, higher than the five year average. Stocks for gasoline even higher and if the prices are high, definitely they are not due to the lack of crude. They are due to what is happening in the U.S., due to the financial crisis and the lowering of the value of the dollar and the speculative activities in the petroleum market and other commodities." /// U.S. crude was trading above $101. European shares rose with hopes for a prompt rescue package for bail-out for U.S. bond insurer Ambac making banks the top-performing sector. The FTSEurofist 300 was up 1.6 percent. The euro continues to hover over $1.50 despite it's recent swing causing alarm among euro zone policymakers. /// But euro zone services growth staged a partial comeback in February, in line with an earlier estimate, though a sharp divide in growth rates within the bloc poses a problem for the European Central Bank. The rebound offers some support to the ECB's stance of resisting calls for interest rate cuts at a time when many leading economic indicators point to slower growth in the euro zone. But there are stark contrasts between countries within the zone such as robust Germany and France and contracting Spain and Italy. Stefanie McIntyre, Reuters COMPANIES MENTIONED: SYMBOLS:

Despite calls to pump more oil, OPEC is expected to decide to hold output levels as they are when it meets on Friday. OPEC's members account for some 40 per cent of the world's oil. The majority of them favour maintaining the status quo as prices are falling over fears of a recession in the United States. EuroNews' Business Editor Annibale Fracasso spoke exclusively to the new president of the cartel, Chakib Khelil, ahead of OPEC's crunch meeting in Vienna. EuroNews: All the world's consumer nations have asked OPEC to increase production volume, which would bring down prices and save the world, probably, from a recession. Will OPEC do this at its meeting next Friday? Chakib Khelil: First, you have to know that the oil price is not only determined by supply and demand, what we call fundamentals. It's really the result of other factors which are due first to a lack of investment, they are due to geopolitical issues - for example, when the Iran-US crisis was happening, the oil price went up; when the dollar was devaluated, when the dollar went down, then the oil price went up. This tells you that the devaluation of the dollar has a big impact on the oil price, and also when you have the subprime crisis and recession, this also could have a very important impact on oil demand and consequently on the oil price. So, the meeting on the 1st of February is going to look at what the market is doing; there are plenty of stocks (reserves) in the market. The problem is that in the second quarter of this year, the demand is going to be lower, so most of the member ministers are not of the opinion that OPEC should increase (output) because there is plenty of oil, the stocks are getting higher. EuroNews: Experts are forecasting for this year a price that is near 120 dollars a barrel, what is OPEC's policy going to be in the next six months, faced with this market confusion? Chakib Khelil: Well, first I don't think the oil price will go to 120 dollars. Right now it is around 89/88, but I'd like to point out that (adjusted for inflation) 88 dollars in 2008 is less than 40 dollars in 1980. So really it's not very high. It would need to go to 120 to become the equivalent of what the oil price was in 1980. Consequently, first of all I don't think the oil price is going to go that go that high, and also because there are expectations that we may have a recession and that recession would have an impact on demand, so consequently there may be less demand this year than last year. This will have an impact on the supply of crude, so consequently if there is a lower demand there is no reason for OPEC to supply more oil and here I would like to point out that actually OPEC does not supply more than 40% of the total production, so 60% really comes from other countries and we expect other countries really to meet the increased supply this year. EuroNews: People going to the petrol stations, in the consumer countries, probably have a different point of view and think that the producers are busy filling their pockets, as a result of this price increase. Chakib Khelil: That's not true, you know that by looking at the oil price in the US, it is very different from the oil price in Europe and basically the difference is that in the US the taxes are much lower. They are about 30% (of the total price at the petrol pump) while in the European countries it is more than 80%. So that tells you that if you want to have reduced petroleum product prices you can do a lot through reducing taxes. EuroNews: Are you in favour of oil being priced and traded in euros? Chakib Khelil: Well, really this is not really an issue, because commodities in the world are traded in dollars. Consequently, changing to another currency is not really going to change things. You still have to count from dollars to euros. It's just like the temperature, which is measured in degrees celsius and it is measured in degrees fahrenheit. It doesn't make a difference to the temperature. The temperature is still warm or it's still cold. EuroNews: Some experts doubt that OPEC can even expand production volume to any significant degree any more. Chakib Khelil: Well, first if you are talking in global terms, the major bottlenecks are the human resources. In 1990s, when the oil price was very low, then most of the human resources left the oil sector. And now that we need more human resources, they are not available. So there is a lot of training to be done to get those human resources. That is one of the major bottlenecks for resources, for development, whether it's within OPEC or non-OPEC countries. The second is really the cost. For example steel has gone up three times, services have gone up twice. A problem also comes from the signals that are being given to oil producing countries from the consuming countries when they say 'We're going to shift to solar, we're going to shift to nuclear, we're going to produce bio-ethanol' so you are giving the wrong signal and people then say 'Why should I increase production if tomorrow that demand is not going to be there?' EuroNews: Russia's President Vladimir Putin last year proposed the idea of setting up a cartel for natural gas. As well as being president of OPEC. you are also the Algerian energy minister and your country is one of the major gas producers. Are you concerned about this gas cartel idea and do you think that it has potential? Chakib Khelil: The gas market is not really like the oil market. Most of our contracts are long term. So basically, we have already sold our gas for the next 15 years, for the next 20 years. Basically it is not our own, we are keeping it and when the oil company takes it next year it will pay a price which is already fixed. Of course the price is already fixed in relation to oil, which means the gas price goes up or down with the oil price. Right now it is not very practical to have an organisation of that type, because I don't see what it could do to help stabilise the oil market because it is already fixed within long term contracts and within prices that are fixed on the basis of oil prices. EuroNews: Mr President, we thank you for this interview. Chakib Khelil: Thank you very much.

http://www.allamericangold.com/Oil Advances to Record $105.97 as Dollar Drops to All-Time LowMarch 6 (Bloomberg) -- Crude oil rose to $105.97 a barrel, the third day this week New York prices have reached a record, as the U.S. dollar fell to its lowest ever against the euro. Gold and copper also advanced to all-time highs as the sinking dollar made commodities priced in the U.S. currency cheaper. Oil closed at a record yesterday after U.S. crude inventories fell for the first time in eight weeks and OPEC refrained from raising production. ``The reason we've gone above $105 is that the market is still focused on the weakness of the dollar,'' Olivier Jakob, managing director of Petromatrix Gmbh in Zug, Switzerland, said. ``It's going to take more signs of demand destruction around the world before oil stops gaining on the dollar.'' Crude oil for April delivery rose as much as $1.45, or 1.4 percent, to a $105.97 a barrel on the New York Mercantile Exchange, the highest since futures began trading in 1983. The contract traded for $105.08 at 1:52 p.m. in London Brent crude for April settlement rose as much as $1.31, or 1.3 percent, to match the $102.95 a barrel record previously set on March 3. The contract was at $101.91 on London's ICE Futures Europe exchange at 1:52 p.m. local time. The euro climbed to $1.5358, the highest level since the single currency's debut in 1999, as the European Central Bank held its key interest rate at a more than six-year high as the Federal Reserve keeps cutting its benchmark rate. ``If you think the dollar will weaken then you may choose to sell the dollar and go long commodities,'' said Harry Tchilinguirian, senior analyst at BNP Paribas SA in London. ``Robust fundamental outlooks, as in the case for oil, present potential to strongly offset the decline in the nominal value of the dollar.'' Colombian Rebels Besides dollar-led buying, oil rose after Colombian rebels bombed the Transandino Pipeline yesterday, escalating a cross- border dispute with Ecuador. Tensions in the region flared up after a Colombian military strike at the weekend prompted Venezuelan President Hugo Chavez to order tanks to move to the Colombian border. In the U.S., crude oil supplies fell 3.06 million barrels to 305.4 million in the week ended Feb. 29, according to the Energy Department. A 2.4 million-barrel gain was forecast, according to the median of responses by 15 analysts surveyed by Bloomberg. The 13 members of the Organization of Petroleum Exporting Countries, which supplies over 40 percent of the world's oil, decided at a meeting in Vienna yesterday to maintain quotas at 29.67 million barrels a day, on the grounds that supply and demand are balanced.