OPEC urges compliance with
oil cuts
Last Update: 1:47 AM ET Mar 22, 1999
NewsWatch
VIENNA, Austria (AP) -- Iraq Oil Minister Amer
Mohammed Rasheed minced no words in summing up
the goal of OPEC ministers meeting here this week.
"We are here ... to save the situation of the collapsing
prices of oil. That is our main objective," Rasheed said
Sunday.
OPEC ministers expressed hope that
oil-exporting nations would abide by
production cuts designed to slash total
output by more than 2 million barrels a
day.
The new quotas, which are to begin
April 1, would remain in effect for a
full year, Venezuelan Oil Minister Ali
Rodriguez said ahead of Tuesday's
meeting of the Organization of the
Petroleum Exporting Countries.
The meeting is expected to result in
formal approval of production cuts
agreed upon earlier this month.
Excess supply and a weak demand for
winter heating oil sent prices plunging
to 12-year lows late last year.
Although consumers have benefited
from cheaper oil and gasoline, the soft
market has inflicted economic pain on producers,
including Britain, Norway and the oil-patch American
states of Texas and Louisiana.
Prices finally began surging two weeks ago, when
representatives of OPEC's three biggest members -
Saudi Arabia, Iran and Venezuela - along with Algeria
and non-member Mexico agreed at a meeting in The
Hague, Netherlands, to reduce output.
On the New York Mercantile Exchange, crude oil for
April delivery has traded in the $15-range. In
comparison, crude was trading at about $12 a barrel a
month ago.
Under the deal reached at The Hague, Saudi Arabia,
which currently produces more than 8 million barrels a
day, will take the biggest cut - 585,000 barrels. No. 2
producer Iran will pump 264,000 fewer barrels a day,
while Rodriguez confirmed that Venezuela will trim
daily output by 125,000 barrels.
Saudi Arabian Oil Minister Ali Naimi, speaking after
arriving at a hotel, said he expected full compliance
with the new, lower levels of production.
OPEC estimates the current output of its 11 members at
27.66 million barrels a day. At this level, supply
exceeds demand by about 500,000 barrels, according to
the Paris-based International Energy Agency.
The success of OPEC's effort to buoy prices by pumping
less oil depends upon the compliance of each member,
Rodriguez said. Cheating has been a chronic problem
for the group.
Libya, one of the last OPEC members to confirm the
size of its planned production cut, will pump 96,000
fewer barrels a day beginning April 1, said Libyan Oil
Minister Abdalla Salem El-Badri.
"I hope that everybody will abide by the agreement,"
El-Badri said.
More ministers were scheduled to arrive today, when
delegates were expected to meet in small groups of two
or more prior to Tuesday's group meeting.
Non-OPEC members pledging to reduce production
include Mexico, Russia, Oman and Norway.
© 1999 The Associated Press - All Rights Reserved. The information in this
report may not be published, broadcast, rewritten or redistributed without the
prior written authority of The Associated Press.
cbs.marketwatch.com
+++++++++++++++++
Energies up on eve of OPEC meeting
CRB index jumps 1.2%; copper futures stage
rally
By Myra P. Saefong, CBS
MarketWatch
Last Update: 4:34 PM ET Mar 22, 1999
Agriculture Outlook
New! Futures News
NEW YORK (CBS.MW) -- Energy futures rallied
Monday, reversing earlier lows as the market anxiously
waits to see if the Organization of Petroleum Exporting
Countries keeps its promise for cuts in oil production
amounting to 2 million barrels per day.
Members from OPEC gathered in Vienna, Austria
Monday to prepare for deliberations Tuesday. The
cartel controls 55 percent of the international crude oil
trade.
On the New York Mercantile
Exchange, May crude oil rose 38 cents
to $15.74 a barrel -- a height unseen
since the $16.36 per-barrel price in
October 1998. April heating oil rose
1.76 cents to 42.45 cents a gallon -- a
4.3 percent leap in price. April
unleaded gasoline rose 1.78 cents to
49.42 cents a gallon.
The rally sparked a large hike in the
Bridge/Commodity Research Bureau
Index, a broad-based measure of
commodity futures markets. The index
jumped 1.2 percent to 190.44.
Investors are waiting for details of the cuts and hope
that both OPEC and non-OPEC producers stick to their
agreements. Crude oil prices have risen 8 percent since
the 2-million-barrel-per-day output reduction plan was
announced on March 12.
Meanwhile, oil minister Sergei Generalov said Russia
will reduce exports by 100,000 barrels per day starting
April 1.
The market may be finding some support from the
weekend bombing by Kurdish separatists of a crude oil
pipeline that pumps one million barrels per day from
Iraq to Turkey. Witnesses say damage is light, but the
slowdown in crude transports, coupled with the planned
production cuts provided some additional bullish news
for energy futures. The market, however, remains
fixated on the outcome of the OPEC talks and prices of
energy futures will likely take their cue from those
discussions.
But Senior Analyst Tim Evans from Pegasus
Econometric Group believes the summit will not yield
any more bullish news for the sector since the cutbacks
have already been announced. The meeting will merely
be a photo opportunity and a chance for members to
sample "some really good strudel."
Additionally, Tuesday's American Petroleum Institute
crude inventory report is another development traders
will watch closely, analysts say.
(snip)
Natural gas rises
Natural gas futures rose 4.2 percent Monday as the
market experienced the buying of futures contracts to
offset the selling amid traders' attempts to control
losses.
On the New York Mercantile Exchange, April natural
gas rose 7.1 cents to $1.77 per BTU.
Meanwhile, no positive weather news is on the horizon.
Temperatures are expected to be seasonally normal to
above-normal in the Northeast and Midwest throughout
the week. The winter, which has now been replaced by
spring, provided no relief from the surplus of natural
gas stocks as temperatures were 8.9 percent warmer
than usual.
cbs.marketwatch.com
++++++++++++++
Monday March 22 7:05 PM ET
Oil At 5-Month High, Copper, Grains Surge
NEW YORK (Reuters) - Oil prices rose Monday to the highest level since October as
expectations spread that world oil exporters meeting this week would adopt effective new curbs
on production.
In other commodity markets, large speculators operating as pooled ''funds'' continued to play a
major role as they bought futures contracts to cash in profitable, previously sold ''short''
positions. Copper, cotton and grains surged.
At the New York Mercantile Exchange, crude oil for April delivery closed 26 cents higher at
$15.50 a barrel, up more than $3 a barrel or 25 percent in the last month amid signs that oil
exporters would finally cooperate to cut the oil glut.
Officials of the Organization of Petroleum Exporting Countries meet in Vienna Tuesday to ratify
a deal to cut production by more than 2 million barrels a day.
Under the deal pushed two weeks ago by top OPEC producer Saudi Arabia, OPEC members
other than Iraq are expected to cut production by 1.717 million barrels a day, while non-OPEC
producers Mexico, Norway and Oman are to cut back another 286,000 barrels daily.
Two agreements last year that sought to cut output by a total of 3.1 million barrels a day failed
to revive prices, which had plunged to 25-year lows in real terms because of spotty compliance
with the deals by debt-strapped producers.
Market confidence that the latest accord would be followed with a high degree of compliance
has grown, mainly because Saudi Arabia agreed to shoulder the biggest sacrifice -- cutting
output by 585,000 barrels a day. It officially told customers last week that the cuts would begin
on April 1.
Oil product prices also jumped Monday, partly on news that oil giant Exxon Corp. (NYSE:XON
- news) shut down a big gasoline-making unit at its Benicia, Calif., refinery for repairs last
week. The closure, which is expected to last several weeks, is the latest of several shutdowns at
California refineries.
Unleaded gasoline for April delivery closed 1.78 cents higher at 49.42 cents a gallon, while
April heating oil rose 1.70 cents to 42.39 cents.
dailynews.yahoo.com
+++++++++++++++
There are reasons for OPEC countries to stick to the deal.
03/21/99- Updated 05:54 PM ET
Pampered Kuwaitis in for rude awakening?
Oil's slide threatens world of hired help, 5-car
families
By David J. Lynch, USA TODAY
KUWAIT CITY - The flip side of the cheap-gas bonanza
that American motorists have enjoyed for the past year
can be found in the elegantly appointed suburban villa of
Abdullah Marafie.
Three dozen men wearing headdresses and robes called
dishdashas are seated beneath gleaming chandeliers on
plush red banquettes. Cradling sleek cell phones in one
hand and traditional prayer beads in the other, these
engineers, lawyers and businessmen while away hours
talking over bottomless cups of sweet tea.
With the driveway full of Mercedes and BMW sedans,
there are no obvious signs of economic distress. But the
talk tonight, at this traditional weekly gathering known as
a diwaniya, is of a global oil glut that has driven the
price of Kuwait's chief product to historic lows. "The
life of Kuwait depends on oil. That's why we are
suffering," says Maher Marafie, Abdullah's cousin. "Ask
the people in this room: Most have lost 60% to 70% on
the (local) stock market in the past year."
Despite a rally the past month, oil prices of $15 a barrel
are still well below the $26 level of January 1997. The
decline - at one point to under $12 a barrel - has shaken
Kuwaitis' sense of security to a degree unseen in this
pampered state since the 1990 war. The oil slump
illuminates both the need for fundamental reform in a
country where more than nine of 10 citizens work for the
state and the difficulty of winning change from a
status-quo-oriented regime.
"This is an economic emergency," says consultant Ahmad
Bishara. "Kuwait is not in as dire a situation as Saudi
Arabia perhaps. But if we don't use this opportunity (to
reform), we'll regret it for a long time."
Persistently low oil prices may be the most important
economic phenomenon of this decade. Without them, U.S.
inflation last year would have been 50% higher. Subdued
inflation allows the Federal Reserve to keep interest
rates low, buoying the stock market and the global
economy. Cheap oil also frees American consumers to
indulge in gas-guzzling sport-utility vehicles.
But the price plunge has terrorized producers. Industry
giants, such as Exxon, Mobil, BP and Amoco, have taken
refuge in mergers. Tens of thousands of workers have
been laid off, and independent drillers are going out of
business at a steady clip.
The oil price collapse also has exacerbated instability in
major producers such as Russia and Indonesia and
threatens to end the oil boom in the Caspian Sea nations
almost before it has begun.
But nowhere have the effects been more keenly felt than
in the Persian Gulf, home to two-thirds of the world's
known oil reserves. Oil revenue is down by 50% or
more for Kuwait and Saudi Arabia, forcing them for the
first time to consider scaling back generous welfare
states that would make even the most ardent socialist
blush. "It is a terrible thing. All oil-producing countries
are losing a lot of money," says Iranian Foreign Minister
Kamal Kharrazi, who has closed several embassies for
lack of cash.
With the recent rally and with oil suppliers now
proclaiming a tentative agreement on a 2 million
barrel-per-day production cut, prices may head higher
still. But that won't erase the damage: For Kuwait, the
price slide has opened a $7 billion hole in its budget,
says Cambridge Energy Research Associates.
Whether the Organization of Petroleum Exporting
Countries (OPEC) will implement the latest cut remains
to be seen. The cartel, meeting Tuesday in Vienna to
apportion the reduction among individual countries, is
notorious for cheating on its own deals. Previous
accords, including a trumpeted 2.6 million
barrel-per-day cutback a year ago, have been far less
effective than anticipated.
Better off than some
Of the Persian Gulf states, Kuwait remains among the
best positioned financially. It recalls Houston in its
petrodollar heyday, clogged with Jaguars, Range Rovers
and Porsches. Upscale shopping malls, offering Swiss
watches, Italian suits and Belgian chocolates, mimic
those of Newport Beach.
A nation roughly the size of New Jersey, Kuwait has the
fourth-largest oil reserves in the world plus an estimated
$45 billion in public savings invested abroad, according
to former Kuwaiti Central Bank economist Jasem
Al-Sadoun.
That's why the current budget shortfall is a problem, not
a disaster. But disaster may yet loom. "The level of
social services and entitlements built into the system is
not supportable," says James Placke, a retired Foreign
Service officer. "And they've got a limited number of
years to make the transition to another economic system."
Beginning in the 1970s, expensive oil proved a windfall
for Persian Gulf producers. And Kuwait responded by
creating a cradle-to-grave welfare state that smoothed all
the rough edges off of life. Kuwaitis get free education,
free health care, low- or no-interest mortgages up to
$220,000 and a virtual guarantee of a job with the
government. Electricity and water are virtually free. The
government pays a monthly stipend of $170 for each
child.
For each of the roughly 700,000 Kuwaitis, there are two
expatriate Pakistanis or Filipinos to wait tables, wash
cars and take out the trash. And there is no income tax.
Whoever said there is no such thing as a free lunch never
visited Kuwait.
But the cost of these benefits is a system hard-wired with
inefficiency. The local phone system in this country of
fewer than 2 million people uses the same computerized
switch as a Manhattan phone network serving 3 times as
many. The outsized gear is needed because Kuwaitis,
encouraged by free local calling, misdial more than 10
times as often as Americans.
Kuwaitis acknowledge the government can't keep its
promises to the next generation. There's already a list of
45,000 people waiting for housing. And with 44% of the
population under age 15 - more than twice the percentage
in the USA - a flood of new workers is about to hit the
labor force. They can't all work for the government, but
there are few opportunities in the private sector. Higher
unemployment could threaten political stability within a
decade, says Al-Sadoun.
A few adjustments
So far, the brunt of the government's limited retrenchment
has fallen on capital spending. Construction of Subiyah, a
planned "second city" north of here, has been postponed,
as have plans for a new university and a wastewater
treatment plant.
Firms in construction and related businesses have been
hit hard. Jassim Qabazard, a civil engineer, says he's laid
off seven foreign nationals, about one-third of his staff.
"Design and feasibility work on construction projects
just isn't being done," he says.
Elsewhere, there have been only minor adjustments.
Tarek Alrujaib, a prominent businessman, says he just
paid $30 to renew his driver's license and almost $500
for his annual business license. Both were once free.
Other equally minor proposals were shouted down by a
parliament afraid of provoking voters before elections
scheduled for October 2000. Last year, when the
government cautiously proposed increasing the price of
gasoline to 60 cents a gallon from 40 cents, one
lawmaker - with no apparent sense of irony - worried
aloud about the impact on the five-car family.
Now the government wants to dip into the "Fund for
Future Generations," the investment account created to
ensure that today's oil wealth isn't all spent by today's
Kuwaitis. It's only the second time the government has
proposed selling assets from the multibillion-dollar fund;
the first was to finance postwar reconstruction.
Welcome back?
And the government has accelerated plans to do
something that once would have been unthinkable:
inviting foreign oil companies to return to Kuwait, which
evicted them in a 1975 nationalization. The move is part
of a major regional shift that also has seen Saudi Arabia,
Iraq and Iran open their energy sectors to foreigners.
Throwing out the foreigners demonstrated Kuwait's
sovereignty. But without input from abroad, the state-run
oil business became about as innovative as the post
office. Between 1981 and 1997, as drilling costs
elsewhere fell by a third, they increased in Kuwait, says
Placke, an analyst with Cambridge Energy Research
Associates. Without innovation, the country eventually
could find it difficult to produce as much oil as OPEC
quotas allow.
Earlier this decade, Kuwait hired Chevron and
BP-Amoco for technical assistance on existing fields.
Now, the country wants about $7 billion of new
investment to boost production in aging fields. That's part
of an ambitious $13 billion effort to increase capacity to
3 million barrels a day to capitalize once world oil
demand recovers.
Parliament is still considering a government proposal
that would involve foreign companies in so-called
"upstream" exploration and development activities. The
proposal has sparked controversy among Islamic
members of parliament, who see it as a reminder of a
bitter colonial past and are suspicious of the country's oil
minister, whom they suspect of pro-Americanism. But if
political hurdles can be surmounted, agreements could
come by next spring.
Some say the oil price decline offered a perfect
opportunity to mobilize Kuwaitis for needed sacrifices.
But now, with prices moving up, the sharp impetus for
reform may have dulled.
Back at the diwaniya, cigars are lighted as the tea and
talk continues to flow. "We are aware of what needs to
be done," says Qabazard, the civil engineer. "But we
have to get used to thinking about it. Getting to actually
doing it, actually stepping down from one way of life to a
less glamorous way of life - it's very difficult."
usatoday.com
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