Oil prices steady while investors mull varied news


Sun, Feb 01, 2004 - Page 10

Oil prices steadied on Friday after a week-long sell-off as traders bought back short positions on suspicion prices could yet bounce.

US light crude for March delivery ended up US$0.24 at US$33.05, while heating oil -- one of the most active contracts this week -- settled down US$0.008 at US$91.56 for March.

London Brent crude closed US$0.05 higher at US$29.18.

With much of the Northern Hemisphere winter over, traders and analysts said the longer-term view pointed to a downward correction to end oil's four-month rally, which has seen prices gain 15 percent to date since September.

But they added that the fund led sell-off of the last week may have gone too far, too fast, and that prices could rebound slightly before continuing on a path lower.

"People are very, very cautious about this," said Tony Machacek of brokerage Prudential Bache in London. "It looks as if it should be heading lower, but we have seen this so many times over the last few weeks."

Oil dealers said support from winter heating demand in the US, the world's biggest energy market with consumption of more than 20 million barrels per day, was fading.

US crude stocks have fallen to 28-year lows but the US government's energy statistics arm, the Energy Information Administration, has said heating oil supplies are ample for the rest of winter.

Indications that the OPEC producer cartel is adopting a less hawkish stance towards supply restrictions has also undermined upward momentum.

Late last year some members of OPEC, including leading producer Saudi Arabia, said high oil prices were justified because of the weakness of the dollar, the currency used for international oil trade.

But in recent days, some OPEC ministers have said the group would likely decide to keep official production limits unchanged when it meets in Algiers on Feb. 10, calming fears the cartel might try to cut output to prepare for lower demand in the second quarter.

Algerian oil minister Chakib Khelil echoed the calls in an interview with reporters on Thursday.

"The most comfortable position may be to let's wait and see what happens in the second quarter and we still have our meeting on March 31 to see if we should be doing something there," he said.

Meanwhile, the Russian Natural Resources Ministry has found environmental violations at a subsidiary of the embattled Yukos oil company in the Russian arctic, the Interfax news agency reported Friday.

The ministry said that a check of Arctic Gas Company, a subsoil operator, in the Yamalo-Nenets region in the last two months of last year turned up numerous violations.

The alleged breaches include carrying out work without state ecological approval, unlicensed water use, the construction of roads and wells without planning permission and the unlicensed production of hydrocarbons, Interfax reported, citing the ministry.

There were no details about what action the ministry planned to take.

Yukos has been the focus of a wide-ranging probe by Russian prosecutors and other government agencies, culminating in the October jailing of its then chief executive, billionaire Mikhail Khodorkovsky, on fraud and tax evasion charges and the freezing of about 40 percent of the company's shares. It is also facing a 98 billion rubles (US$34 billion) bill for back taxes, fines and penalties dating from 2000, and probes into its financial records from 2001 to 2002.

The ongoing probe is widely perceived as punishment for Khodorkovsky's growing clout and political activity, but Russian authorities deny any political motivation.

Meanwhile, Interfax reported that the Audit Chamber has launched a tax audit of Sibneft oil company to check its tax payments for last year and the first quarter of this year.

Sibneft and Yukos had planned a merger that would have created the world's fourth largest oil producer. It was called off last month after the government probe against Yukos heated up. The already intricate transaction, however, remains to be unraveled and Yukos still holds a giant stake in Sibneft.

Billionaire Roman Abramovich is allegedly trying to reclaim control over Sibneft through the courts, according to Russian media reports. On Friday, Sergei Stepashin, the head of the Auditing Chamber, announced a planned audit of Abramovich's activities as governor of Chukotka, a remote Arctic province.

And in related news, Venezuela's state oil company will invest about US$5 billion this year to improve production capacity, the corporation's president said Friday.

Part of the investment will be used to increase drilling activity, Petroleos de Venezuela SA president Ali Rodriguez said in a TV interview.

PDVSA, as the company is known, spent about US$2 billion to improve capacity last year. Venezuela has a production capacity of 3.4 billion barrels a day.

Venezuela, one of the world's top oil exporters, is still recovering from a general strike last year that temporarily paralyzed oil production, costing the nation an estimated US$8 billion.

Chavez fired half of PDVSA's work force for participating in the strike, saying he would take advantage of the circumstances to trim the corporation's bureaucracy and improve its efficiency.

Critics say the abrupt dismissals cost PDVSA critical manpower and expertise.