Caracas & Tehran Opposed To Saudi Move.

Venezuela snubbed the Jeddah summit, revealing a deepening rift within OPEC over Saudi Arabia's unilateral decision to call the meeting and increase its crude oil output. Venezuela's Energy and Petroleum Minister Rafael Ramirez on June 20 said: "We believe all issues pertaining to production must be discussed in the...OPEC [ministerial] meeting".

Iran, OPEC's second largest producer, is also upset with the Saudis. Its OPEC Governor Mohammad Ali Khatibi called any unilateral decision to raise output "a wrong action". Iran's Oil Minister Gholam-Hossein Nozari was on June 22 expected to repeat Tehran's opposition to a unilateral Saudi production increase at Jeddah. Iran now has more than 30m barrels of unsold crude oil stored in VLCCs, a proof that the market is not short of supply.

Ramirez said the high paper WTI price was not caused by supply problems and any extra crude oil put on the market by Saudi Arabia would just end up in storage tanks around the world. And President Hugo Chavez has threatened to stop selling oil to EU states over a controversial new migration law, leading to dismissals by EU leaders on June 20 that he had failed to understand the law. Chavez, who also threatened to kick European firms out of Venezuela, said rules making it possible to detain illegal immigrants for up to 18 months and face re-entry bans of up to five years showed "signs of fascism", adding: "Venezuelan oil will not go to the countries that apply this shameful directive".

Chavez never carried out repeated threats to suspend oil shipments to the US, by far his largest customer. Slovenia's PM Janez Jansa, whose country holds the EU presidency, said Chavez's threat was "perhaps exaggerated and perhaps not really understanding" of what the new laws meant. European companies in Venezuela include StatoilHydro, Total, ENI and Shell.

Investors Shun DME's New Oil Futures & Attempts On ICE: Dismally small trading volumes on the Dubai Mercantile Exchange (DME)'s new cash-settled oil futures signal that initial resistance may be turning into a resounding failure for the new contracts. But the markets' heightened volatility and record-high prices are also to blame for the lack of interest, as they raise the financial cost of trading and increase regulatory scrutiny, leaving dealers wary of new contracts.

August DME Brent traded an average of 113 lots since its launch on June 1, while DME cash-settled Oman fared slightly better at 129 lots a day. But both contracts are well below the 1,884 lots a day averaged by the DME Oman physical contract during its first month of trading when it was launched a year ago.

The contracts have attracted less attention than the rival cash-settled Dubai contract, launched by InterContinentalExchange (ICE) last year, which averaged a much higher 2,870 lots a day on its first month of trading, before falling into near-oblivion. There has been deep resistance to the two financial contracts as the industry sees little need for them.

A trans-Atlantic deal to cap speculation in London oil futures is a small step towards wider market oversight and should not initially slow the flood of money into commodities. For hedge funds and other investors, energy and agriculture markets have been hot plays of the year. But even as regulators move to counter the ripple effect of runaway commodity prices, tougher steps may still be needed to curb speculation and alleviate worries about inflation and food supply.

The US Commodity Futures Trading Commission (CFTC) and its UK counterpart have reached a deal with ICE Futures Europe to impose regulations on WTI contracts which trade on the London electronic exchange within 120 days. They have unveiled a plan to slap the first trading limits on oil contracts which change hands on a London electronic exchange as US lawmakers have called for more regulations to rein in speculators. CFTC's Acting Chairman Walter Lukken on June 19 was reported to have told US lawmakers the move will place more limits on trading of the WTI contract on the London exchange, which hosts up to 30% of total volumes. NYMEX, which the CFTC regulates, has the rest.

US lawmakers say the lack of limits on the ICE created the "London loophole" allowing oil traders to evade US-style regulations. Charles Vice, president of the ICE, says it is unlikely that ICE Futures Europe was the primary driver behind WTI prices. He says expectations that more regulations on ICE trading will tame prices are likely to go unmet.

(US regulators are feeling heat from US lawmakers to rein in excessive speculation, which they believe is the culprit behind record paper WTI prices).