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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: John Carpenter who wrote (38252)	2/24/1999 10:19:00 PM
From: Captain James T. Kirk	Respond to of 95453

Oil up +.07 in the after market.

To: John Carpenter who wrote (38252)	2/24/1999 10:21:00 PM
From: Captain James T. Kirk	Respond to of 95453

9:22 pm Eastern Time: Oil price weakness sounds warning bell for Mexico By Caroline Brothers MEXICO CITY, Feb 24 (Reuters) - The specter of painful budget cuts is starting to haunt oil-exporting Mexico once again as prices for its crude oil mix sit stubbornly below this year's budgeted estimates, economists say. The Mexican government, which in 1998 derived 32 percent of its revenues from oil, was forced to slash its budget three times last year as oil prices sank $5 below initial average forecasts, to safeguard strict fiscal targets. For this year, with a world oil market glut persisting, it set an average forecast of $9.25 per barrel. But already prices have slipped about one dollar below that, to $8.21 a barrel, alerting economists to possible trouble ahead. ''As we're in the early months of the year, the government can hold out a bit longer, but it is a yellow light,'' said Eligio San Juan, economist with BBV-Probursa in Mexico City. ''If (the oil price) slips well below estimates over a reasonably long period, it will be necessary for the government to correct the reduction in income, doing something similar to last year.'' Finance Minister Jose Angel Gurria on Wednesday ruled out any changes to spending plans in the near future, saying he was confident oil prices would reach the average forecast. San Juan, however, saw a possible April deadline for government action if prices fall about $2 below target. Neil Dougall, chief economist for Latin America with Dresdner Kleinwort Benson in London, said the government had seen the benefits of adhering to strict fiscal policies and would want to hold to that again this year. ''One thing is clear: the Mexican government would not be prepared to let things go for too long if oil prices underperform,'' Dougall said. ''They will keep sending messages that they will carry out adjustments, though what form that will take and when is not certain.'' Some analysts say oil prices are already being boosted by the cold northern winter, and they note last year's glut has not yet dissipated, suggesting prices may fall further. Others are pinning their hopes on the chance of further production cuts at the March 23 meeting of the OPEC oil cartel, and to an incipient recovery in Asia to help prices recover. San Juan said, by April, the government would be in a position to decide whether to cut spending. ''By March and April, they will have the average oil price for the first three to four months,'' he said. ''They will have the result of the OPEC meeting and a new view of the state of inventories, plus of what will happen in (oil producers) Iraq and Venezuela.'' Angel O'Dogherty, economist with GEA in Mexico City, said that if the gap between official estimates and actual prices for Mexican crude were between $1 and $2, officials would probably move to cut spending. ''However, if the difference is very small, the government will not announce spending cuts because that is very costly politically -- they may accept a larger deficit, perhaps 1.3 percent of gross domestic product (GDP),'' he said. Although the government's 1999 oil-price estimate is closer to reality now than it was this time last year, the budget is also the most austere ever, leaving less room for maneuver. Officials are steering the economy toward a fiscal deficit of 1.25 percent of GDP, unchanged from last year's target. After the triple round of cuts and with windfall revenues, it emerged last year at 1.24 percent. Plugging any oil-derived budget hole via tax increases and fuel and electricity price rises looks unlikely, due to their high political cost in a pre-election year, economists say. Public-sector price hikes also would have an undesirable inflationary impact in a year when the central bank has staked its credibility on bringing the consumer price index down. Meanwhile, income from this year's airport privatizations is likely to be too little too late. That leaves investment in the energy sector among the most vulnerable to the budget ax. --------------------------------------------------------------------------------