Hopes for quick end to crisis in Venezuela quickly deflate

If tanker pilots go back to work, it will not lead to an immediate resumption in oil exports because most foreign tankers will not dock at Venezuelan ports over insurance concerns related to the strike. In the eastern ports of Puerto La Cruz and Jose, where pilots are working, tankers are refusing to dock, citing unsafe conditions.

The first signs emerged Tuesday that the standoff in Venezuela may be coming to some sort of resolution, but by day's end hopes had evaporated on the oil markets.

Venezuelan oil output has come to a virtual standstill since the strike aiming to force President Hugo Chavez from office started in early December.

Behind the rise in prices are the same fears that have driven the oil market for nearly two months: the fear of oil shortages resulting from the continued loss of exports from Venezuela and the possibility of war in Iraq.

The market's tenor changed in midmorning when Reuters prematurely reported that tanker pilots on Lake Maracaibo were close to going back to work. Lake Maracaibo is the largest oil-producing region in Venezuela. Before the strike it was yielding 1.7 million barrels per day.

This report set off speculation that a deal with those who guide tankers from that key oil port could be the first step toward restoring oil exports from one of the biggest suppliers of crude to the United States.

But oil markets closed the day spooked by another warning from the Bush administration to Iraq, suggesting war is in the offing.

The price of crude for February delivery, which had an intraday high in New York of $35.20, closed 70 cents higher at $34.61 per barrel. It was the highest closing price since Nov. 30, 2000, when it closed at $33.82.

Heating oil for February delivery dropped 0.39 cent to 89.47 cents a gallon. February unleaded gasoline fell 1.01 cents to settle at 90.10 cents a gallon.

Late Tuesday, there were reports out of Caracas that 16 of the 45 pilots had accepted the government's offer and had returned to work. But U.S. oil markets had closed by then.

There were also indications Tuesday that higher crude prices are working their way into U.S. consumers' wallets.

The U.S. Energy Department reported that the cost for a gallon of regular unleaded gasoline has reached its highest level in 16 months.

The national average price for regular unleaded gasoline increased to $1.46 a gallon, up 35 cents from a year ago.

A gallon of regular unleaded gasoline in Houston was selling for $1.42 per gallon, according to the AAA.

Even if the pilots agree to a deal, analysts said it would be a largely symbolic victory for the government and Chavez. There would still be many others on strike demanding that Chavez leave office.

"It clearly represents a fissure in the opposition, but the pilots and the work they do in Lake Maracaibo is ancillary," said Paul Doran, senior Latin America analyst with Control Risks Group in London. "Currently it is unclear how much oil is actually reaching the tankers."

Also on Tuesday, former U.S. President Carter proposed that Venezuela hold a referendum on Chavez in August as a way of ending the strike. Chavez has been resisting efforts to move up the presidential elections from 2006.

As Carter works to mediate a settlement, some were looking for an end to the deadlock.

"This is at a junction where something has to give," said Terry Hallmark, manager of political risk and policy assessment at IHS Energy Group in Houston. "The fact that Chavez was willing to split up Petroleos de Venezuela, one of the best-run national oil companies in the world, is a sign of how serious he is."

Chavez proposed splitting up PDVSA into two, one for the eastern part of the country and another for the west. It was viewed as a ploy to divide strikingPDVSA workers in Caracas, where the company now has its headquarters.

In the eastern ports of Puerto La Cruz and Jose, where pilots are working, tankers are refusing to dock, citing unsafe conditions.

Even if the strike were to end tomorrow, the damage to some Venezuelan oil fields is irreparable. The country is expected to lose about 400,000 barrels per day of production that cannot be restored, according to a recent report by the International Energy Agency.

"Some fields will take at least one or two months to return to previous production levels. Others face a permanent production capacity loss currently estimated at around 400,000 barrels per day," the agency said in its monthly Oil Market Report.

The International Energy Agency estimates Venezuela now has output capacity of about 2.35 million barrels per day, plus heavy Orinoco oil upgrading capacity of about 500,000 barrels per day.

Low-pressure reservoirs, such as those in Venezuela, suffer more from being shut in than higher-pressure ones, the agency said. Wells producing the heavy oil of eastern Venezuela must be injected with steam to coax the oil out. Many of these wells are believed to be lost for good.

ConocoPhillips has shut in about 170,000 barrels of oil per day at its two major Venezuelan projects, Petrozuata and Hamaca.

In another sign of the strike's effect, Citgo Petroleum Corp., a U.S. refiner owned by Venezuela's national oil company, said it will cut discretionary capital spending by $200 million this year to help avoid a cash shortage.

The Tulsa-based company will continue to review the timing and amount of capital spending, even after the budget cut, Citgo said in a filing with the U.S. Securities and Exchange Commission.

Anti-President Hugo Chavez protesters marches against Chavez during a women's opposition march in Caracas, Venezuela, Tuesday, Jan. 21, 2003. The sign at left reads: "Venezuelan Military: Say no to the destruction of your Venezuela, of our Venezuela. Support democracy and peace." (AP Photo/Leslie Mazoch)

Hugo Chavez - Venezuela

Companies Send Home Workers in Venezuela ***None of the companies has announced it is withdrawing for good. Venezuela is the world's fifth-largest exporter of crude, and it has accumulated $20 billion in investment in its natural gas, oil and oil-related services sector alone in the past 10 years. "I think (oil companies) are assessing the situation and trying to stay as invisible as possible," said Larry Goldstein, president of the New York-based Petroleum Research Foundation. "Politically they don't want to be seen as choosing sides right now. Some have substantial investments they have to protect."

Many local workers are striking and others can't get to work because of gasoline shortages. Political protests occur daily and often end in violence. Financial transactions can be hard to complete since Venezuelan banks are operating only three hours a day. Ricardo Tinoco, a spokesman for Ford Motor Co. in Venezuela, said operations have been suspended since early December.

He said all employees were told to come back next week. "But in light of the current situation, the lack of fuel and the fact that many of our suppliers are on strike, we don't see how we'll be able to start operations next week as planned," he said. Ford has a large assembly plant in Valencia, 70 miles west of Caracas.

Venezuela's military raided a Coca-Cola affiliate bottler and another bottler belonging to Venezuela's largest food and drinks producer, Empresas Polar, on Friday. Both companies denied hoarding goods. The Venezuelan American Chamber of Commerce condemned the raids as "a grave rupture of the state of law." It warned more than 1,000 affiliates that the army could commit more abuses and urged them to report alleged violations.***

Venezuela's Castro Venezuela's Castro*** Ideologically, Chávez is a wooly rethread of the quasi-Marxist, demagogic populists who have ruined Latin America during the 1970s and 1980s. His declared hero is Simón Bolívar, the father of South American independence two centuries ago, and indeed Chávez has changed the country's name to the Bolivarian Republic of Venezuela. His "Bolivarian" ideology includes nationalism, "solidarity" and, last but not least, anti-Americanism.

His first visits abroad were to Baghdad, Tripoli, and Teheran. His friendship with Castro is both personal and concrete: in accordance with a 2000 agreement, Venezuela provides 50 percent of Cuba's oil imports, some 53,000 bpd, with 25 percent of the cost payable over 15 years and a two-year grace period-all of which amounts to a vital lifeline to Cuba's dismal economy. Castro has paid a long visit to Venezuela (reminiscent of his three-week visit to Allende's Chile) and provides doctors (which Venezuela does not need) and experts on internal security (which the Chávez regime does need), including some involved in the formation of the "Bolivarian circles," a local copy of Cuba's infamous Committees for the Defense of the Revolution. Like the CDRs, the Bolivarian circles are basically mobs of the unemployed, unemployable and social misfits paid and armed by the government.

To make his ideological allegiances and the threat he poses to regional stability clearer, Chávez' security services are actively cooperating with the Colombian Marxist-Leninist terrorists/narcotrafficantes of the Fuerzas Armadas Revolucionarias de Colombia - Ejército Popular (FARC-EP), including providing arms, safe havens and transit facilities-at least according to the Colombian government and high-ranking defectors from the Venezuelan military.

All of this raises a crucial issue regarding the Chávez regime's chances of surviving: the loyalty of the armed forces. Indeed, with his popularity in the 20-percent range among all social and economic sectors of the population, including the poor and disadvantaged he is supposedly championing, it is becoming clearer by the day that Chávez' ability to stay in office, just as Allende's before him, is almost completely dependent on the military.

The problem is that the Venezuelan military has a dislike of Castro and Castroism that goes back to the early 1960s, when Fidel and his sidekick Che Guevara prepared and led a failed insurgency against the recently established democratic government in Caracas. And although in April 2002 segments of the military briefly removed Chávez from power, only to have others bring him back, the country's almost total militarization in recent months-the armed forces have taken over the oil fields, ports, and police armories in Caracas, the transportation and distribution sectors, etc.-increases the stress on an institution that has had no decisive political role since the 1950s. Chávez' habit of appearing in public ceremonies with the generals in his lieutenant colonel uniform, rather than as the civilian supreme commander he is supposed to be by the Constitution, does not help with the military's institutional pride-or speak well for his political judgment.***

Oil accidents mount in Venezuela - Novice stand-ins blamed for chaos *** CARACAS - Venezuelan workers running the country's oil industry in place of striking employees and managers have caused at least 60 industrial accidents in the past month, including oil spills whose black stains stretch for a mile, local government leaders say. The increase in spills and accidents is the direct result of blunders by inexperienced people running a dangerous and delicate business, according to striking oil workers, environmentalists and local government officials. Strike leaders say at least 4,500 barrels of oil have spilled and seven fires have broken out. Citing damage to its fishing industry and beaches, a city in western Venezuela filed for an injunction last week, asking the court to force the government oil company to cease operations.

Oil company firefighters and loss prevention experts -- who had stayed on the job despite the strike -- joined in afterward, saying work conditions were too hazardous. Although the government denies it, one person allegedly died in a refinery explosion last week. ''They are making terrible mistakes,'' said Clemencia Rodner, president of the Venezuelan Audubon Society. ``Not only are they having many, many problems, but when they have a problem, they don't know how to solve it.''

…………………. Meanwhile, three Venezuelan oil tanker captains who were stripped of their command last month for participating in the strike appeared in Miami on Monday to accuse their government of beating and threatening tanker crews and replacing them with unqualified Iraqi, Libyan and Cuban nationals. ''Members of the merchant marine have been tortured, threatened, detained and beaten,'' said Miguel

Rodríguez, a dismissed PDVSA tanker captain. ``The government calls us pirates. Perhaps we are pirates, but for a good cause -- rescuing Venezuela.'' The Venezuelan ambassador to Washington said the claims were lies. ''That never happened. It's totally false. There was no violations of human rights and these Iraqis and Libyans are not operating our boats,'' said Ambassador Bernardo Alvarez.***

Venezuela's La Isla Refinery Restart Failed [Full Text] CARACAS (Dow Jones)--The planned restart over the weekend of the 335,000 barrels per day La Isla refinery at Curacao has failed due to technical glitches, a refinery spokeswoman said Monday.

"We have tried to restart several units, but technical problems have forced us to delay plans to bring the plant back on line," the spokeswoman said. She added that due to the technical problems certain parts of the units have to be flown in from abroad. She couldn't say by how long the planned startup has been delayed. The plant was scheduled to be back at full capacity within two weeks.

An attempt to restart a crude distillation unit that didn't suffer from technical problems will be made later Monday, she said. Storage facilities have been drawn down sufficiently enough to restart the processing of around 200,000 b/d of gasoline. The plant was forced to shut down after an oil strike hit production and exports of Venezuela's state-owned oil monopoly Petroleos de Venezuela SA and storage facilities were full.

The production and exporting of around 200,000 b/d of gasoline are crucial for the gasoline supply in Venezuela, hit by an oil strike which entered its eighth week Monday. The La Isla refinery is leased by PdVSA. The Venezuelan government still depends mostly on gasoline imports to fight a gasoline shortage. Only its 200,000 b/d Puerto La Cruz refinery is functioning. It's producing around 75,000 b/d. ***

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