Friday, June 04, 2004
OPEC - Attempts to Lower Prices
BEIRUT, June 3 - The Organization of the Petroleum Exporting Countries agreed on Thursday to increase its production quotas by two million barrels a day, or 8.5 percent, effective July 1. Industry experts gathered here for OPEC's meeting said that the decision sent a tepid message to oil markets about the group's commitment to lowering prices, which have been around $40 a barrel.
Traders responded to the news by bidding up the futures price of oil almost 70 cents a barrel on the New York Mercantile Exchange, but prices dropped later in the day when new Energy Department statistics showed growing supplies of oil, gasoline and other distilled fuels in the United States. Crude oil for July delivery settled in New York at $39.28 a barrel, down 68 cents from Wednesday.
Analysts said the problem with OPEC's move was that it would not add any new oil to the market. As a group, OPEC is already overproducing its declared ceiling of 23.5 million barrels a day, set in March, by at least 2 million barrels. Increasing the quota merely legitimizes what is already happening, they said.
The 10 voting members of OPEC - voting rights of Iraq, the 11th member, have not been restored yet - said they would raise daily quotas by an additional 500,000 barrels on Aug. 1. The group is scheduled to meet again on July 21 in Vienna to review market conditions."They're not doing anything," said Roger Diwan, managing director of PFC Energy, a Washington consulting firm. "There's no sense of urgency." Referring to the probable effect on prices, he added, "It's a bullish signal to the market; if you were expecting a change of policy in Beirut, come again." The thinking within OPEC may have been best summed up by the Algerian oil minister, Chakib Khelil. In an interview, Mr. Khelil said that there was already enough crude oil in the world, and that other factors besides the supply were responsible for the high prices. But OPEC, he said, nevertheless needed to send a message to the market that it, too, was concerned about the run-up. "Consumers have been asking for it," he said of the quota increase. "What do you think would have happened if we had not done this?" Even so, said Michael Fitzpatrick, vice president for energy risk management at Fimat USA, a New York brokerage house, "the OPEC decision is a little disappointing" because it will have little practical effect on supplies. Mr. Fitzpatrick said prices fell on Thursday afternoon because "people were looking past the meeting" and focusing on the strong inventory figures in the United States, which were attributed in part to the largest oil and gasoline imports in nearly two years. That inventory growth may be the first tangible sign of increased output, outside official OPEC quotas, from Saudi Arabia, the only producer with significant spare capacity. Almost all other countries are already pumping at capacity. The Saudis said on May 23 at an industry conference in Amsterdam that they would step up their production, at the same time calling for OPEC to increase its quotas by 2.5 million barrels a day. To them and some other members of the group, a sustained price of $40 a barrel or more poses the threat of slowing global economic growth and weakening the demand for oil.
Energy Secretary Spencer Abraham expressed a similar view in a statement Thursday welcoming the OPEC decision and saying that "oil-producing and consuming countries have shared interests and mutual responsibilities in fostering economic growth." According to Vera de Ladoucette, senior director for Middle East Research with Cambridge Energy Research Associates, a consulting group, Saudi Arabia could pump as much as 9.1 million barrels a day in June, compared with 8.3 million barrels last month, adding that this could go even higher later in the year. But analysts said the market might have been looking for a stronger stand from OPEC as a group, and not just the Saudis. "The market is looking for solidarity," said Falah Aljibury, an independent oil analyst. "It's a compromise that's not fully behind the Saudi proposal. The Saudis are concerned about high prices; others are concerned, but I'm not sure if some other members understand the gravity of the situation."
Mr. Aljibury and others said Iran might have dug in its heels against endorsing the full increase of 2.5 million barrels a day proposed by the Saudis. Iran, which usually advocates high prices, has no spare capacity, analysts said, so it stands to gain nothing from an increase in quotas. OPEC is also hesitant to open the taps all the way because of the view that the recent run-up in prices had relatively little to do with production levels. Rather, many members say, worries about political turbulence in Iraq, Nigeria and Venezuela and terrorist attacks in Saudi Arabia, like the one in Khobar last weekend, have added $6 to $8 a barrel to the wholesale price of crude oil. Analysts said a number of OPEC countries also feared that increasing production could create a glut once these worries subsided, leading to a sharp price decline. Whether Thursday's decision will have any lasting effect on oil prices will not become clear for several weeks, given Saudi Arabia's decision to step up output and the time lag between production and delivery.
The outcome of the meeting does indicate that all OPEC members, including Saudi Arabia, are much more comfortable with high oil prices than their customers are. "No one ever got fired for making too much money," an oil trader, who spoke about OPEC on condition of anonymity, aid. "Their budgets are doing great. You see it everywhere in these countries, with all the new building going on" in the United Arab Emirates and Saudi Arabia.
Thursday, June 03, 2004
Bush - Troop Movement (European Power Vacuum)
WASHINGTON, June 3 — The Pentagon has proposed a plan to withdraw its two Army divisions from Germany and undertake an array of other changes in its European-based forces, in the most significant rearrangement of the American military around the world since the beginning of the cold war, according to American and allied officials.
Pentagon policy makers said the aim is to afford maximum flexibility in sending forces to the Middle East, Central Asia and other potential battlegrounds. But some experts and allied officials are concerned that the shift will reduce Washington's influence in NATO and weaken its diplomatic links with its allies, all at a time of rising anti-American sentiment around the world. The proposal to withdraw the divisions comes at a time when the Army is stretched thin by deployments in Iraq and Afghanistan. But Pentagon officials said the move, which has been under consideration for some time and involves forces in Asia as well as in Europe, is unrelated to the current fighting.Under the Pentagon plan, the Germany-based First Armored Division and First Infantry Division would be returned to the United States. A brigade equipped with Stryker light armored vehicles would be deployed in Germany. A typical division consists of three brigades and can number 20,000 troops if logistical units are included, though these two divisions have only two brigades each in Germany, with the other brigade in the United States.
In addition, a wing of F-16 fighters may be shifted from their base in Spangdahlem, Germany, to the Incirlik base in Turkey, which would move the aircraft closer to the volatile Middle East; a wing generally consists of 72 aircraft. Under the Pentagon plan, the shift would be carried out only if the Turks gave the United States broad latitude for using them, something that some officials see as unlikely. The Navy's headquarters in Europe would be transferred from Britain to Italy. Administration officials are also discussing plans to remove some F-15 fighters from Britain and to withdraw the handful of F-15 fighters that are normally deployed in Iceland, though final decisions have not been made.Administration officials said Douglas Feith, the under secretary of defense for policy, recently briefed German officials on the plan. The Germans were told that the withdrawal plan had yet to be formally approved by President Bush and that the United States would listen to their concerns, an American official said.Officials said they expected the major decisions on the rearrangement to be made in a month or two. But the main direction of the Pentagon plan appears to be set. "Everything is going to move everywhere," Mr. Feith said a year ago, as the Bush administration was beginning to develop the details of its plan. "There is not going to be a place in the world where it's going to be the same as it used to be."
For Defense Secretary Donald H. Rumsfeld, the reasons for the reshuffling seem clear and compelling: that the purpose of military units is to fight and win the nation's wars, and they should be stationed in locations that enable the United States to use them most efficiently and with minimal political restrictions."It's time to adjust those locations from static defense to a more agile and a more capable and a more 21st-century posture," Mr. Rumsfeld told reporters on Thursday on a flight to Singapore.Proponents of Mr. Rumsfeld's plan see little merit in keeping a large number of forces in Germany now that the cold war is over. They argue that the United States would be better off withdrawing most of them and establishing new bases in Southeastern Europe, from which forces could be rushed if there was a crisis in the Caucasus or the Middle East."From a strategic point of view, there is more sense in moving things out of Germany and having something in Bulgaria and Romania," said Joseph Ralston, a retired general and a former NATO commander. But some experts and allied officials are concerned that a substantial reduction in the United States military presence in Europe would reduce American influence there, reinforce the notion that the Bush administration prefers to act unilaterally and inadvertently lend support to the French contention that Europe must rely on itself for its security. Montgomery Meigs, a retired general and the former head of Army forces in Europe, said substantial reductions in American troops in Europe could limit the opportunities to train with NATO's new East European members and other allies. While American forces can still be sent for exercises from the United States, he said, it will be more difficult and costly to do so. "You will never sustain the level of engagement from the United States that you can from Europe," he said. "We will not go to as many NATO exercises or have as many training events." Other specialists have warned that the greatest risk is the possible damage to allied relations."The most serious potential consequences of the contemplated shifts would not be military but political and diplomatic," Kurt Campbell and Celeste Johnson Ward of the Washington-based Center for Strategic and International Studies wrote in an article published last year in the journal Foreign Affairs, well before the extent of the changes now planned became known."Unless the changes are paired with a sustained and effective diplomatic campaign, therefore, they could well increase foreign anxiety about and distrust of the United States." Gen. James Jones, the American commander of NATO, has supported the withdrawal of the two divisions from Europe on the understanding that American ground units would rotate regularly through Europe, allied officials say. But some allied officials believe it is less clear that the Pentagon will finance and organize the regular rotation of forces that are central to General Jones's vision, especially since so much of the United States' energy and effort is focused on Iraq.Already, administration officials have said a brigade of troops is to be shifted from Korea to Iraq. That reflects both the demand for additional forces in Iraq and the new thinking about positioning forces in Asia. Pentagon officials insist they are effectively managing relations with key allies. "What we have been hearing from the allies privately and publicly is that they understand the U.S. is changing and want to stay connected," said Andy Hoehn, deputy assistant secretary of defense for strategy. "The real message is that we have been consulting with the allies and the result has been pretty positive."The Pentagon plan was discussed at a May 20 meeting of top United States officials. Administration officials declined to comment on the record about the session. A State Department official said that the meeting was a "snapshot at a given time," and that some ideas have continued to be refined since then. In the meeting, Secretary of State Colin L. Powell, who was once the chairman of the Joint Chiefs of Staff, said he thought it was unlikely that the Turks would agree to allow the United States to operate freely from Turkish bases. Gen. Richard B. Myers, the current chairman of the Joint Chiefs of Staff, also said securing Turkey's agreement was a long shot and indicated that he favored keeping the F-16's in Germany, according to an account of the session that was provided. No United States forces are to be removed from Italy. The Navy's European headquarters, however, is scheduled to move from London to Naples. Earlier plans to move that headquarters to Spain have been dropped. While skeptics have wondered if the switch from Spain to Italy is related to the decision by Spain's new Socialist government to withdraw its troops from Iraq, Defense Department officials insist that it is being made on cost grounds. Regarding Britain, administration officials are discussing a plan to remove some F-15 fighters. Some Defense Department officials have suggested moving an air command center to Britain from Germany as compensation if F-15's are removed. But General Myers indicated that he thought the F-15's should remain in Britain, according to an account of the meeting.Iceland has long been a sensitive matter, with civilian officials at the Pentagon pushing to remove the small number of F-15's that are regularly rotated through Iceland under a bilateral agreement reached during the cold war. That could upset a government that has been generally supportive of American policy and which relies on the F-15's for its air defense. Condoleezza Rice, the national security adviser, said at the May 20 meeting that Mr. Bush would not support the withdrawal of the aircraft until a way was found to mollify the Icelanders. One possibility is to make Iceland a "cooperative security location," Defense Department jargon for a base to which forces could rapidly deploy in a crisis. The Caucasus has also figured into the Pentagon's calculations. Here the issue is not about moving out, but whether to move in. At the May 20 meeting, senior officials agreed that stationing troops in Georgia could be destabilizing, especially since Russia still has not withdrawn all its forces from that country, a former republic of the Soviet Union. The idea was dropped. Civilian officials at the Defense Department have pressed for a presidential speech or announcement in mid-June about the new military posture. But State Department officials have argued that this would not leave sufficient time for consultations with the allies and would make the new policy appear to be a fait accompli. Some officials have noted that the stationing of forces in past decades has entailed more flexibility on all sides than many people realize. During the May 20 meeting, Mr. Powell is reported to have observed that Army troops like being stationed in Europe and noted that the Germans had never stood in the way when the United States wanted to send its German-based forces on other missions. The United States sent Army units in Germany to fight in the Persian Gulf conflict in 1991 and in the Iraq war in 2003.
Bush - Deep Cuts
WASHINGTON, June 3 - The United States will reduce its stockpile of nuclear weapons by nearly half over the next eight years, the Energy Department said Thursday. The Bush administration made the decision last month and informed Congress on Tuesday in a classified report.Linton F. Brooks, administrator of the National Nuclear Security Administration, which is part of the Energy Department, said in a conference call with reporters that the reductions would leave the nation with "the smallest nuclear-weapons stockpile we've had in several decades." He called the decision historic.
Mr. Brooks would not discuss specific numbers for the cuts. "The numbers I'm prepared to use are 'almost in half' and 'smallest in several decades,' " he said. The decision by the administration followed an announcement by President Bush in November 2001 that the nation would reduce the number of "operationally deployed" strategic warheads by about two-thirds by 2012, leaving 1,700 to 2,200 warheads. But that announcement did not commit the United States to reduce the total number of weapons in its inventory, only the number of strategic weapons that were ready to use immediately.The new decision includes additional categories of weapons, including short-range weapons that are not considered strategic, weapons held in reserve and weapons in places like nuclear submarines that are in overhaul and "logistical spares," which are used to swap with weapons being recalled for overhaul.When Mr. Bush promised in 2001 to cut the number of actively deployed strategic weapons to no more than 2,200, the United States had 6,100, according to Tom Cochran, an expert at the Natural Resources Defense Council, a group that specializes in nuclear weapons, among other environmental issues. The United States had 10,000 nuclear weapons in all categories, and the announcement made Thursday will cut that to 6,100, Mr. Cochran said, suggesting that the overall reduction would be somewhat less than Mr. Brooks's figure. Some of the weapons to be removed from the active category will be dismantled, and some will go into the reserve category, meaning that they could be returned to readiness quickly; some of the weapons now in the reserve will be decommissioned, Mr. Cochran said.
In practice, the weapons to be retired will join a long queue at an Energy Department plant in Amarillo, Tex., called Pantex, which is now busy with "life extension" of existing weapons, Mr. Brooks said. He said that President George Bush, who left office in 1993, decided to retire the nation's stock of nuclear artillery shells, "and we just finished dismantling the last one last year."
Mr. Brooks said in a letter to members of Congress that making the stockpile smaller would require more work on the remaining weapons. "We must continue the administration's efforts to restore the nuclear weapons infrastructure," he said in an unclassified cover letter to the memo describing the schedule for reducing arms from now to 2012. In the conference call, Mr. Brooks said that the decision to reduce the stockpile meant that a new bomb plant that the administration wants to build, the Modern Pit Facility, could be smaller than it might have otherwise been, but that it would still be needed. Pits are the hearts of plutonium weapons, and the Energy Department lost most of its capacity to make pits when it closed the Rocky Flats, Colo., plant, near Denver, in the 1990's, because of environmental and production problems.The plutonium in the pits in existing weapons is breaking down over time, Mr. Brooks said, and at some point the department will have to melt down and recast the pits. One reason for that the memo was issued Tuesday was to convince members of Congress that a new pit plant is needed, he said."We've not yet been able to convince some of our Congressional colleagues that the Modern Pit Facility is unrelated to any notion of future weapons development or future weapons growth," Mr. Brooks said.In fact, the administration has shown intermittent interest in a new class of small nuclear weapons, an idea bitterly opposed by some members of Congress. Mr. Brooks said the reduction was the largest in history in percentage terms. Mr. Cochran, at the Natural Resources Defense Council, agreed that the reduction was significant. But he said: "These cuts are over eight years. That's two presidential administrations. This is not a fast-paced reduction."
