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High Oil Prices a "Burden" but Economies Can Cope, Economists Say

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High Oil Prices a "Burden"
(05:20

but Economies Can Cope, Economists

Say

03/04/08) (CEP News) Vienna - High crude oil prices, which crossed the $100 per barrel mark recently, were detrimental, but global economies will cope a lot better than previous price spikes as they are less reliant on oil and more resilient than before, according to economists interviewed by CEP News.

Philip Shaw, economist at Investec Bank, said, "We are fast approaching a stage where a price on either side of $100 a barrel is something we have come to live with. However, European economies in particular and world economies in general, are a lot less reliant on oil." "No one would suggest that a $100 per barrel price is good. Adverse effects might be felt in some economies more than others. However, I do not feel that even a $100-$120 oil price spread is going to break the back of major economies and developing ones," he added. Looking ahead, Shaw believes it was difficult to quantify the long-term economic impact as many subsidiary influences come into play. In his opinion, big question marks also remained about the burgeoning Chinese economy, which is presently growing at 11.5%. "The other factor is the depreciating dollar, which is to an extent justifying the current price," he concluded . . Howard Archer, chief UK and European economist at Global Insight, recollects that there was a cacophony of investment notes out in the market expressing fears about a $100 per barrel oil price not that long ago. "Conjecture varied from minor economic disruptions to doom and gloom scenarios on how a high oil price would stunt growth. However, here we are in early on in March, confronting the very price which everyone feared. Such fears are genuine, especially in an inflationary context and are likely to give both the BOE as well as the ECB new headaches, but only to an extent," Archer said. He believes that European economies have learned to adjust better to "apparently" perennially high oil prices. Furthermore, he suggested that economies will cope better with rising oil prices over the medium-term, simply based on the argument that speculators were already looking at a $120 per barrel price. "It is something which the Fed, BOE and ECB policy-makers would not have missed, even though such a price was unrealistic given the prospect of U.S. slowdown," he concluded. Continuing on the subject of central banks and oil, Alan Clarke, economist at BNP Paribas, said monetary policymakers, trapped into doing the balancing act on the inflation front, would look at the $100 price with a degree of dismay. "Headline inflation is largely dependent on food and petrol prices which at present are constantly rising, in the UK for instance. It leaves consumers to spend more on essentials and non-discretionary items, and less on discretionary items for leisure or fulfillment. Domino effect is that this feeds Into the system. Couple high interest rates and with high oil prices, it becomes a heavy burden on input prices," he explained. However, Clarke suspects that most central bankers would have already factored in the current oil price into their thinking process well before it reached the present levels. "Central banks are in state of flux, and for now, given the uncertainty, the only clear mechanism to gauge which way their respective economies were going was through consumer sentiment," he acknowledged. Clarke thinks people in general and the media look at headline-grabbing certainly grabbed all the headlines of late. figures and a $100 price has

"However, we are not unduly perturbed about speculation that oil will touch the $120 per barrel mark. The U.S. remains a major consumer of oil and stunted economic growth there will hit oil price, regardless of the upward pressures on oil price from the burgeoning developing world economies," he concluded. By Gaurav Sharma, gsharma@economicnews.ca, edited by Nancy Girgis, ngirgis@economicnews.ca

(END) ©CEP Newswires - ©CEP News Ltd. 2008. All Rights Reserved. www.economicnews.ca

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07/03/2008

OPEC Ministers' Comments Suggest Decision in Favour of Holding

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OPEC Ministers'

Comments Suggest Decision in Favour of Holding

(13:2403/04/08) (CEP News) Vienna - Comments made by oil ministers from various member governments, ahead of OPEC's 148th general meeting on Wednesday, suggest that the oil cartel will hold production at current levels.

OPEC President and Minister of Energy and Mines in Algeria, Chakib Khelil, said, "I can tell you they are not going to increase production because there are plenty of stocks. Gasoline stocks are high, then we have a second quarter reduction in demand and with the economic situation in the U.S., probably a recession, demand will definitely fall, maybe not by much." A source close to the influential Saudi Arabian delegation to OPEC told CEP News that the March declslon was directly dependent on the amount of crude stocks that have been drawn down over the course of the fourth quarter of 2007. He added that audited inventories were at the low end of a 48-month average range, but it did not imply by default that the Saudis would support or recommend a production increase. Libyan Oil Minister Shokri Ghanem believes that with prices hovering around the $100 a barrel mark, the group should wait and see if the prices stay at the current level. Speaking to reporters on his arrival in Vienna, he said, "With prices at these levels, the cartel will have to wait and see if the $100 per barrel level forms a floor or prices will continue their latest rally or drop back below $100. At present, it looks like things will be as they were." However, Iranian oil minister Gholamhossein Nozari was non-committal on holding production. Declining to comment further to reporters, he merely said, "We will consider all the factors which will affect the market." Qatari Oil Minister Abdullah bin Hamad al Attiyah also said all options were open, despite some ministers hinting at cutting or increasing oil output. However, Nigeria looks set to oppose any plan to cut oil production were it proposed, according to H. Odein Ajumogobia, the country's Minister of Petroleum. "For the time being, unless there is a significant change in the market, our position is, we will continue to watch the market. This has never happened before," Ajumogobia told Bloomberg before leaving Beijing following a state visit. Meanwhile, speaking to state television, Venezuelan Energy and Oil Minister Rafael Ramirez said, "We believe there is no reason at all for us to place more barrels in the market. At OPEC, we'll maintain production or cut production. " Meanwhile, Ecuador's oil minister Galo Chiriboga said that all options were open. "We still have to analyze the market. We have to wait. The permanent devaluation of the dollar affects the economic resources that come to our countries," he said. Thus far, Kuwait's acting oil minister, Mohammed al Olaim, is the only representative in favour of heeding to the U.S. government's request for increasing oil production. Speaking to Kuwait's national news service, he said, "We will consider an increase in output in March." However, the Kuwait delegation in Vienna told CEP News that it would wait until the declslon on Wednesday before commenting further. Meanwhile, the Venezuelan and Ecuadorian delegations have started a sideshow in Vienna by calling on fellow OPEC members to present a united front and side with Venezuela over its dispute with U.S. oil giant Exxon Mobil. Venezuela cut commercial ties to Exxon after it won court orders in the U.S., UK and Netherlands freezing up to $12 billion in Venezuela's assets. A declslon to hold production was not necessarily a negative thing, according to consultancy Petrologistics. Its research suggests that OPEC has pumped more than 400,000 barrels per day (bpd) above its agreed production target of 29.67 million bpd. A holding pattern, according to the consultancv, would still leave plenty of latitude for furtive production shifts by members internally on their own devices. No one from OPEC was available for comment on Petrologistics' research when contacted on Tuesday. Outside of OPEC, different trains of thought were seen emerging. A spokesperson for the International Energy Agency said the second quarter of 2008 offers the opportunity to "replenish" oil inventories and "a cut in production would be very surprising and disappointing."

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OPEC Ministers' Comments Suggest Decision in Favour of Holding

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Dominique Strauss-Kahn, managing director of the International Monetary Fund, while declining to comment on OPEC, was cited by several U.S. media sources as having said, "We are now in a situation where it is possible that the slowdown in the world economy could decrease the demand for oil and that could lead to a decrease in the price of oil." Saudi Arabia is the largest oil producer among OPEC's 13 members, followed by Iran, the United Arab Emirates, Kuwait and Venezuela. The group, which is headquartered in Vienna, accounts for more than 40% of the world's total oil supply, comprised of Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Among the members, Iraq is the only country without a production quota at present owing to the ongoing political unrest. Analysts are expecting Wednesday's meeting. OPEC to announce a hold in oil production at 29.67 million barrels at the end of

By Gaurav Sharma, gsharma@economicnews.ca, and Stephen Huebl, shuebl@economicnews.ca

edited by Cristina Markham, cmarkham@economicnews.ca

(END) ©CEP Newswires - ©CEP News Ltd. 2008. All Rights Reserved. www.economicnews.ca

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07/03/2008

OPEC Preview: Analysts Expect Oil Cartel to Hold Production

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OPEC Preview: Analysts Expect Oil Cartel to Hold Production
(14:25 03/04/08) (CEP News) Vienna - Commodities analysts expect the Organization of Petroleum Exporting Countries (OPEC) to announce a hold in production, currently pegged at 29.67 million barrels, following the conclusion of its 148th General Meeting in Vienna on Wednesday.

Eight out of ten commodities analysts polled by CEP News believe OPECwill hold production with the oil prices sitting in the vicinity of $100 per barrel despite no visible sign of supply shortages. Jacob Vinding Jensen, commodities trader at Jyske Bank, said, "Market sentiment for the short term is still chiefly bullish as OPEC will keep the current production level unchanged. The price may well test $105, but then we expect oil to lose steam up in the second quarter when demand is usually lower." Kevin Norrish, commodities research analyst at Barclays Capital, said It was "increasingly probable" that OPEC will keep production on hold despite current price levels. "This is supported by their belief that the fundamentals of the market are well balanced, which combined with an uncertain macroeconomic outlook and an expected second quarter seasonal-build in inventories, should prompt the group to maintain the status quo," he added. Earlier, decision quarter that did a source close to the influential Saudi Arabian delegation to OPEC told CEP News that the March directly depends on the amounts of crude stocks which have been drawn down over the fourth of 2007. He added that audited inventories were at the low end of a 48-month average range, but not imply that the Saudis would support or recommend a production increase.

However, Phil Flynn, Vice-President and energy analyst with Alaron Futures and Options in Chicago believes that with inflation rising and higher economic uncertainty, OPEC might be wasting a opportunity to send a positive sign to the markets by assuring that they will keep the world's economies in their thought process. "It is so much easier to be noble with oil trading over $100 a barrel. And though production, we do not look for them to step up production either," Flynn concluded. Analyst Stephen oil prices hover stockpiles. "The decide to cut, of OPEC may not cut

Schork, author of The Schork Report, felt that OPEC was finding itself in a "bit of pickle" as around the $100 mark and a possibility the cartel may not cut production despite healthy market is now comfortably trading above $100. Therefore, OPEC now runs the risk, should it fanning the flames of the current speculative rally," he explained.

Schork said that as far as the monthly outlook is concerned, crude oil prices show a tendency to retreat in March and April. Whether or not prices abide by this trend will depend a lot on what OPEC ultimately decides this week. However, Schork explained that he found the high price of oil inexplicable. "Since the start of the month crude oil supplies have risen by a much stronger than expected 81f2 MMbbls and gasoline stocks have moved to a 14-year high. However, as steep as this rise in supply has been, the rise in price has been even steeper," Schork said. "In a normal world, t.e. a non-NYMEX world, rising supply typically translates into falling price. But we live in a NYMEX-world, where all you have to do is whisper China and trigger a reaction," he concluded. Meanwhile, Lehman Brothers increased its first-quarter forecast for Brent crude oil by 8% to $92 a barrel. Furthermore, the 2008 full-year forecast for Brent crude had already been raised to $86 a barrel from $84 while the second-quarter prediction of $85 a barrel was maintained on Friday. The bank's first-quarter estimate for West Texas Intermediate, the NYMEX benchmark, was raised 8% to $93 a barrel. In an investment note, Lehman chief energy analyst Edward Morse wrote that the market was being driven by the supposition that "supply constraints show little signs of abating and will continue to underpin a $90 plus crude price that is unresponsive to seasonality, waning demand or rising inventories. The current price action runs against fundamental data. Fundamentals should prevail, putting pressure on current $100 a barrel levels." Supporting Morse's conjecture, seven out of ten analysts contacted by CEP News ahead of the OPEC summit in Vienna believe that there was little potential left in the market for a rise towards $105 per barrel in the

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OPEC Preview: Analysts Expect Oil Cartel to Hold Production

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short term and a period of oil prices above $100 was expected to be brief. By Gaurav Sharma, gsharma@economicnews.ca, edited by Nancy Girgis, ngirgis@economicnews.ca

(END) ©CEP Newswires - ©CEP News Ltd. 2008. All Rights Reserved. www.economicnews.ca

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07/03/2008

Ecuador Petroleum Minister Says $90-$120 Oil Spread Reflects "Market Realities"

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Ecuador Petroleum Minister Says $90-$120 Oil Spread Reflects "Market Realities"
(04:35 03/05/08) (CEP News) Vienna - Ecuador's Minister for Petroleum and Mines, Galo Chiriboga, told CEP News on Wednesday that a $90-120 spread for the price of a barrel of oil "reflects market realities." In an exclusive interview ahead of the 148th General Meeting of the Organization Petroleum Exporting Countries (OPEC), of which his country is a member, Chiriboga insisted that depreciation in the value of the dollar and market speculators had a role to play in the rocketing of oil prices. "In an ideal scenario, oil price is dictated by market mechanism and should respond to the supply and demand mechanism, but it isn't at the moment. Oil stockpiles are healthy but prices are still rocketing. The value of the dollar and speculators who are an important component of the market must apportion the blame and not OPEC," he added. He opined that Ecuador is being hit by a double-edged sword, courtesy of the dollar's depreciation, and that a high oil price was in nobody's best interest. "Ecuador not only exports oil, but also imports subsidiary oil products. We are being hit both ways and are not the only oil-exporting nation facing that dilemma," Chiriboga added. The minister revealed that an economic commission to look into the role of the dollar was set up at the Riyadh OPEC heads of state summit at the behest of Ecuador's President Rafeal Correa. The commission is currently analyzing the impact of the dollar. Looking ahead, Chiriboga said that the slowdown of the U.S. economy will definitely have an impact on the oil market. "However, this would be compensated to a certain extent with the consumption of India and China in my opinion," he added. Responding to the accusation that Ecuador and Venezuela were ganging up as hawks within OPEC, Chiriboga said, "We have our own oil policy. We decided to rejoin OPEC on our own terms and of our own accord in 2007. Its not a question siding with Venezuela. We are a sovereign nation, with our own policies and perspectives. We share solidarity with the whole of OPEC and not just Venezuela." Ecuador, he added, aspires for the most stable price possible within the market mechanism as "massive price fluctuations do not benefit anyone, the producers or the importers." He declined to comment on the decision expected later on Wednesday about production levels, but added that Ecuador's vote would based on "supply and demand permutations." By Gaurav Sharma, bryant@economicnews.ca, gsharma@economicnews.ca, with contributions edited by Nancy Girgis, ngirgis@economicnews.ca by Bryan R Thomas,

(END) ©CEP Newswires - ©CEP News Ltd. 2008. All Rights Reserved. www.economicnews.ca

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07/03/2008

Overnight OPEC Basket Oil Price at $96.29 per Barrel, Ahead of Production Decision

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Overnight OPEC Basket Oil Price at $96.29 per Barrel, Ahead of Production
(06:47

Decision

03/05/08) (CEP News) Vienna - The overnight price of the OPEC basket of twelve crudes stood at $96.29 a barrel on Tuesday, compared with $97.26 on Monday, the OPEC Secretariat said on Wednesday.

The new OPEC Reference Basket of Crudes (ORB) is made up of Saharan Blend (Algeria), Girassol (Angola), Minas (Indonesia), Iran Heavy (Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE) and BCF 17 (Venezuela). Analyst Stephen Schork, principal author much accepted OPEC will not alter current "Energy the last selling? target," of The Schork Report, told CEP News that the market production levels on Wednesday. had pretty

prices over are weak, the Large Specs have been ferociously buying the rumour of an OPEC cut since OPEC meeting. Now the question is, was Tuesday's plunge in the complex the beginning of the fact If so, then how low can we go? The 50/62% retracement from 94.72 to 92.67 would be our first Schork said.

Jacob Vinding Jensen, commodities trader at Jyske Bank, said, "There is broad consensus that the outcome of Wednesday's OPEC meeting will be that the current production levels are maintained and no reduction is introduced as some are fearing. Our expectation of unchanged production remains unaltered. The weekly U.S. inventories will also be updated today, so the day will doubtless be an interesting one." By Gaurav Sharma, bryant@economicnews.ca, gsharma@economicnews.ca, with contributions edited by Nancy GirgiS, ngirgis@economicnews.ca by Bryan Thomas,

(END) ©CEP Newswires

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07/03/2008

Non-OPEC Oil Production Likely to Disappoint Over 2008, Analysts Say

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Non-OPEC Oil Production

Likely to Disappoint

Over 2008, Analysts

Say

(11 :02 03105108) (CEP News) Vienna - Non-OPEC oil producers were unlikely to improve their production over 2008, in a year when the market most needed their output to rise and make an considerable impact, analysts said on Wednesday. Russia seems to bear the brunt of analysts' ire. Kevin Norrish, commodities research analyst at Barclays Capital, said, "The latest data from Russia revealed that oil production was at 9.79 million barrels barrel per day (bpd), unchanged from 9.78 million bpd in January and down year-over-year for a second consecutive month." Norrish said disappointments were not limited to Russia as the recent flow of data suggests continued conditions yet parallel non-OPEC supply weakness. positive demand

Lehman Brothers forecast that non-OPEC supply was likely to record a growth of only 650,000 bpd or 1.3% in yearover-year terms, and would not do much to alleviate the burden on OPEC crude. Furthermore, 70% of the 650k bpd growth is coming from non-crude liquids such as biofuels, condensates synthetic crude and other conversion supplies, and only 30% from crude oil, according to a note issued by the investment bank. Lehman believes that FSU growth, expected at 430k bpd, may make a strong declines in the North Sea (-280k bpd) and Mexico (-180k bpd). contribution, but it merely offsets

Deepwater tar sands were seen as crucial, as Brazil is expected to grow production by a further 270k bpd and an additional 170k bpd is expected from Canadian tar sands. Overall, 2008 could be the year for a "last hurrah" for the non-OPEC crude supply, but nothing more, Lehman said. Looking beyond the figures, analyst Stephen Schork, principal author of The Schork Report, also feels that 2008 could have been a year for non-OPEC oil producers to prove their mettle, but the market must expect nothing more than the usual disappointments. "To begin, detrimental nothing much has changed in Russia. The archaic infrastructure which Russia has is, in any case, to production. Furthermore, the country's politics defies belief," Schork told CEP News.

"In Vladimir Putin, the outgoing president, we have an ex-KGB man using oil as tool. The incoming president would not radically alter Russia's position; at least we don't see it happening. End result is that Russia, rather than supporting the oil market, wishes to use it for political gains," he added. Schork feels the worst point is that Kremlin's politics stifle private sector investment into the Russian energy sector, which it badly needs. "End result is Russian oil and gas supplies remain as unreliable as their politics," he added. Looking beyond Russia, he felt many other non-members have not stepped up to the plate. "Mexican production has been constantly slipping. As a result, the Saudis and Venezuelans overtook them in terms of export volumes to the U.S. Canada remains at the top of the pile in terms of exports to U.S. but in terms of exporting beyond American shores and opening up inward investment into Canadian Tar sands go, nagging royalty issues predominate. Its Alberta provincial government has committed itself to improving things, but the market is yet to be convinced," he concluded. By Gaurav Sharma, gsharma@economicnews.ca, Nancy Girgis, ngirgis@economicnews.ca edited by Cristina Markham, cmarkham@economicnews.ca and

(END) ©CEP Newswires - ©CEP News Ltd. 2008. All Rights Reserved. www.economicnews.ca

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07/03/2008

OPEC Rebuffs Criticism for High Oil Prices, Holds Production at 32 Million Bpd

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OPEC Rebuffs Criticism

(12:18 03/05/08) (CEP News) Vienna - The Organization of the Petroleum Exporting Countries (OPEC) decided to maintain current production levels at 32 million barrels per day (bpd) following the conclusion of its 148th General Meeting here on Wednesday. It revealed that the figure was revised upwards to 32 million from 29.67 bpd on account of the inclusion of Iraq's output to the total daily production volume. In reviewing prospects for the oil market, OPEC noted that the economic slowdown in the U.S., coupled with the deepening credit crisis in financial markets, was increasing the downside risks for world economic growth and, consequently, demand for crude oil. OPEC members estimated that the market was currently well supplied, with current commercial oil stocks standing above their five-year average. The oil cartel further noted, with some level of concern, that the current price environment does not reflect market fundamentals as crude oil prices were being strongly influenced by the weakness in the dollar, rising inflation and Significant flow of funds into the commodities market. Speaking to the media following the decislon, OPEC President and Algerian Oil Minister Dr. Chakib Khelil said, "In spite of the seasonally low demand in the second quarter, we have decided to maintain the OPEC production levels. Increased uncertainty and volatility calls for continued market vigilance by OPEC members and we are committed to the task." He reiterated the cartel's commitment to market stability and ensuring adequate supplies. Khelil, while declining to comment on U.S. President George W. Bush's call for an OPEC production increase, dismissed suggestions that the organization was to blame for high oil prices. "High oil prices are down to the activities of market speculators and mismanagement of the U.S. economy. Repeatedly, it has been suggested that we should raise production, but we see no reason for that as oil supplies are adequate," he said. However, Khelil said the U.S. dollar was still the preferred currency for oil contracts and would remain so for the foreseeable future. He added that while individual member countries can, and indeed do, accept payment in other currencies, it did not mean that OPEC was considering moving away from the dollar. In terms of accepting new members, Khelil quashed press speculation that Brazil and Canada had been approached to join OPEC. Earlier, OPEC members expressed solidarity with Venezuela on the ongoing legal dispute between its state oil company, Petroleos de Venezuela SA and U.S. oil giant ExxonMobil Corporation. In a joint statement, OPEC members said they supported Venezuela "in the exercise of its sovereign rights over its natural resources, in accordance with international law, a right reiterated by the Algiers, Caracas and Riyadh Summit Declarations of OPEC Heads of State and Government." They further called for resolving any such disputes through good faith and amicable parte pre-judgment measures which will make finding fair solutions more difficult. negotiations, and excluding ex

On procedural matters, an OPEC spokesperson said, "Resolutions passed at Wednesday's meeting are expected to be published on April 5, after ratification by Member Countries. The next (Ordinary) General Meeting will be convened in Vienna on Sept. 9, 2008." However, President Khelil said, "OPEC members could convene earlier, market conditions warrant a meeting." By Gaurav Sharma, gsharma@economicnews.ca, if the global economic situation deteriorates or

edited by Nancy Girgis, ngirgis@economicnews.ca

(END) ©CEP Newswires - ©CEP News Ltd. 2008. A" Rights Reserved. www.economicnews.ca

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