www.canoe.ca Saturday, February 15, 2003 By MALCOLM MORRISON, CP

TORONTO -- Stocks finished higher yesterday as investors swooped to buy beaten-down shares in what's perceived to be an oversold market amid uncertainty about what will happen next with the Iraqi crisis. The Canadian dollar closed at 65.66 cents US, down 0.23 after a half-cent gain, and gold fell $5.70 to $351.30 US an ounce in New York. Stock markets took heart from a relatively positive assessment of Iraqi compliance from chief United Nations chief weapons inspector Hans Blix, who said yesterday UN inspectors haven't found any weapons of mass destruction. On the other hand, Blix said, many banned military materials remain unaccounted for and U.S. Secretary of State Colin Powell asserted "the threat of force must remain" -- causing markets to initially give up their early gains. Still, the Dow industrial average was up 158.93 points to 7,908.8 late in the day. The blue-chip barometer edged up 44 points on the week. The Nasdaq was ahead 32.73 at 1,310.17 for a gain of 27.7 points this week and the S&P 500 index rose 17.52 to 834.89. Gains in information technology helped balance weakness in the gold sector to give the S&P/TSX index a gain of 34 points to 6,487.13, adding 9.39 points this week. The junior TSX Venture Exchange was up 8.36 at 1,095.49. On the Toronto Stock Exchange, Nortel Networks advanced 11 cents to $3.53. The financial sector was also stronger as Royal Bank rose $1.30 to $56. The gold sector fell 2.6 per cent. Barrick Gold lost 87 cents to $24. Crude oil futures edged up 44 cents to a 29-month high of $36.80 US a barrel on the New York Mercantile Exchange. Crude prices have been pushed up by the Iraqi crisis and a general strike in Venezuela, another major petroleum producer. Analysts were doubtful the gains of the session would stick since the Blix report didn't convince markets that war would be averted. "The running assumption in the markets right now is there will be a war, it will happen -- happen very quickly -- and the second half of the year will be very strong," said Mark Chandler, financial markets economist at Scotiabank. The U.S. market was supported by a solid earnings report Thursday from Dell Computer. The No. 2 maker of personal computers reported record fourth-quarter sales and a profit of $603 million US, up 32 per cent. Its shares rose $2.54 to $25.77 US. In economic data, American industrial production rose 0.7 per cent in January after a 0.4 per cent drop in December. But the University of Michigan consumer confidence index fell to 79.2 for February, its lowest level since September 1993. A reading of 82.5 had been expected. Analysts said the confidence number had little effect on the markets, perhaps because previous swings in the index have not been reflected in consumer spending. "What they tell the polls is very different from what they do at the shopping mall," said Patricia Croft, managing partner at Sceptre Investment. "So I pay more attention to what they do than what they say." On the Toronto market, advances beat declines 545 to 496 with 225 unchanged. Active Toronto stocks included ATI Technologies, ahead 27 cents at $6.43, Bombardier, up 15 cents to $5, and Inco, down 47 cents to $31.43. Toronto volume was 143.8 million shares worth $1.61 billion. The Nasdaq Canada index was up 2.31 points to 222.25.

www.canoe.ca Saturday, February 15, 2003 By GILLIAN LIVINGSTON, CP

TORONTO -- Surging oil prices are hitting people where it hurts -- in the pocketbook -- as gasoline prices jump and heating costs rise during a bitter winter. But that's only the beginning, and a sustained high oil price could seriously curtail consumer and business spending, economists say. "Most consumers just basically have to swallow the increases," said Douglas Porter, a senior economist with BMO Nesbitt Burns. "Effectively what happens is -- no doubt about it -- it hammers confidence and it does tend to crimp spending on other things, places where consumers can cut back, so discretionary spending does feel the pain in the short term," he said. That means people dig into their savings and cut back on entertainment, such as going to movies or restaurants, and hold off on other purchases that can wait, such as clothing, furniture and vacations. "Let's face it, most people cannot really change their energy consumption quickly," Porter explained, since you can't hastily sell your car and buy a more fuel-efficient one, nor turn down the thermostat too far in chilly February. Rising energy prices also affect the cost of other goods, such as perishable food transported long distances, or anything that gobbles up fuel, such as airline travel. Gas pump prices in Canada averaged about 80 cents a litre this week -- topping nearly 90 cents in the Maritimes and causing Canadians to gripe about the cost to fill up. Oil prices have been steadily rising since last fall and closed at $36.80 US a barrel yesterday, the highest level since September 2000. Porter said a one-third increase in energy prices, which is about what's expected, would take about two percentage points from the level of consumer spending in Canada. During the 1991 Gulf War, Americans cut spending on durable goods by seven per cent while Canadian consumer spending dropped two per cent, said Kip Beckman, a principal researcher with the Conference Board of Canada. Oil prices are likely to stay high with the possibility of war in Iraq and a slow ramp-up in production from Venezuela after its long general strike. U.S. inventories are at their lowest levels since 1975. The overall higher energy expenses for businesses means it will hurt their bottom line and they'll likely postpone investments and try to pass on some of the added energy costs to consumers. The trucking industry is facing a 93 per cent year-over-year increase in the price of diesel fuel, to "levels we've never seen before," and that's hurting profits and leaving small players vulnerable, said David Bradley, chief executive of the Canadian Trucking Alliance. That also means the costs have to get passed down the line, particularly when 90 per cent of all of Canada's products and foodstuffs and 70 per cent of exports to the U.S. get there via trucks, he said. "Ultimately, any increased cost is passed along to the final consumer," Bradley said. Canada's exporters can't always pass on the costs to consumers because of competition, said Jay Myers, chief economist with Canadian Manufacturers and Exporters, so they have to find a way to cut expenses. "It really eats into the bottom line," he said, so it will slow down the North American economic recovery. As well, if the oil price stays high for several months manufacturers will have to reduce business investment, restructure operations and perhaps cut jobs. Even Canada Post is "feeling the pinch" with the rising fuel costs, but hasn't raised prices so far, said John Caines, a spokesman with the Crown corporation. Montreal-based airline Air Canada is closely watching fuel prices to see if fuel surcharges need to be adjusted, said spokeswoman Laura Cooke. Domestic flights already have a $15 per way fuel surcharge and the carrier applied last month for a $20 surcharge on international flights, although that hasn't yet come into effect. Between April and October last year, the carrier's international fuel surcharge was $15 each way. If war breaks out in Iraq, economists expect the world oil price to spike, possibly to $50 US a barrel. Although most price shocks are short and don't have a lasting effect, the runup in prices hurts economic growth. "Fortunately (a price spike) doesn't have that much of an effect if it's just fleeting," said Porter. "The important issue is how long do the prices persist at higher levels and to me that's the most worrisome development that's happened in the last month or so -- the steady, slow, upward grind in prices." That could dampen Canada's economic growth and boost inflation in the first half of the year, he said. In the United States, which imports lots of oil, a high crude price hurts the economy and that in turn can affect Canada's growth. It gets complicated in Canada because oil-rich Alberta, Saskatchewan and Newfoundland benefit from a rising oil price. Meanwhile, the more manufacturing-heavy economies of Ontario, Quebec, the Maritimes, B.C. and Manitoba get slammed by soaring energy costs, said Beckman from the Conference Board. "But overall, it still isn't good for Canada," he said. CP 1722ES 14-02-03 The overall higher energy expenses for businesses means it will hurt their bottom line and they'll likely postpone investments and try to pass on some of the added energy costs to consumers. The trucking industry is facing a 93 per cent year-over-year increase in the price of diesel fuel, to "levels we've never seen before," and that's hurting profits and leaving small players vulnerable, said David Bradley, chief executive of the Canadian Trucking Alliance. That also means the costs have to get passed down the line, particularly when 90 per cent of all of Canada's products and foodstuffs and 70 per cent of exports to the U.S. get there via trucks, he said. "Ultimately, any increased cost is passed along to the final consumer," Bradley said. Canada's exporters can't always pass on the costs to consumers because of competition, said Jay Myers, chief economist with Canadian Manufacturers and Exporters, so they have to find a way to cut expenses. "It really eats into the bottom line," he said, so it will slow down the North American economic recovery. As well, if the oil price stays high for several months manufacturers will have to reduce business investment, restructure operations and perhaps cut jobs. Even Canada Post is "feeling the pinch" with the rising fuel costs, but hasn't raised prices so far, said John Caines, a spokesperson with the Crown corporation. Montreal-based airline Air Canada is closely watching fuel prices to see if fuel surcharges need to be adjusted, said spokesperson Laura Cooke. Domestic flights already have a $15-per-way fuel surcharge and the carrier applied last month for a $20 surcharge on international flights, although that hasn't yet come into effect. Between April and October last year, the carrier's international fuel surcharge was $15 each way. If war breaks out in Iraq, economists expect the world oil price to spike, possibly to $50 US a barrel. Although most price shocks are short and don't have a lasting effect, the runup in prices hurts economic growth. "Fortunately (a price spike) doesn't have that much of an effect if it's just fleeting," said Porter. "The important issue is how long do the prices persist at higher levels and to me that's the most worrisome development that's happened in the last month or so -- the steady, slow, upward grind in prices." That could dampen Canada's economic growth and boost inflation in the first half of the year, he said. In the United States, which imports lots of oil, a high crude price hurts the economy and that in turn can affect Canada's growth. It gets complicated in Canada because oil-rich Alberta, Saskatchewan and Newfoundland benefit from a rising oil price.

www.mirror.co.uk Feb 15 2003 By Jeff Edwards, Jan Disley And Wayne Francis   BRITAIN is on a state of maximum alert as police hunt two al-Qaeda cells planning attacks on airports.

US intelligence told Downing Street on Monday that an a cell had entered Britain with at least two lightweight anti-aircraft SAM missiles.

MI5 and Special Branch have information a second team, perhaps British born Muslim fanatics, has rocket propelled grenades (RPGs).

A Scotland Yard source said yesterday: "The SAM threat is still with us. Now believe a second team may be on the prowl."

"The RPG does not have the range or power of a SAM, but it is still a devastating weapon.

"It can punch a hole in an aeroplane. It is a nightmare because both weapons are shoulder launched, and small enough to be hidden in a car or van."

Yesterday four people arrested "as a precautionary measure" in Langley, Bucks, near Heathrow, were released, then taken into custody by immigration officers.

And two Algerian men detained by armed police in a car under a Heathrow flightpath were cleared of terrorist involvement. One has been handed over to immigration officers.

Anti-terror police were yesterday still questioning a passenger who arrived at Gatwick airport from Venezuela with a live grenade in his luggage , as the airport itself returned to normal after the scare.

A police source said: "Rumours he is a Muslim from Bangladesh are untrue.

"He is Venezuelan born and a Christian. We don't think the grenade was going to be used for political purposes, but we are trying to find out what he was planning to do with it."

Police also arrested two men on Thursday under the anti-terrorism act after they were seen acting suspiciously close to Leeds/Bradford airport.

The two, believed to be Iraqi Kurds, are aged 25 and 26.

Police were also examining a Vauxhall car found at the scene but no weapons were found. The threat of a terror strike loomed over the Royal castle at Windsor yesterday, which is directly under the flightpath to Heathrow.

But it seemed to be business as usual.

Prince Harry strolled through the streets of nearby Eton, during a school break. And the traditional changing of the guard carried on as usual.

Tourists flanked the streets to watch the pomp and ceremony. But behind the scenes a vigilant security cordon has been thrown around the town.

Residents have even seen troops in search operations in Windsor Great Park.

www.theage.com.au Saturday 15 February 2003, 18:30PM

OPEC oil production rose 2.2 per cent to 25.663 million barrels per day (bpd) in January from December despite the turmoil in Venezuela, the Middle East Economic Survey (MEES) reports.

Output from the cartel's 10 members without Iraq increased 1.2 per cent or 263,000 bpd to 23.11 million bpd from 22.85 million bpd in December.

Baghdad accounted for just over half of OPEC's overall increase in January, the industry newsletter says in its Monday edition.

Gulf states Kuwait, Saudi Arabia and the United Arab Emirates together lifted production by 580,000 bpd while Iraq pumped 2.55 million bpd, a level not seen since since the first quarter of 2002, MEES notes.

"High Iraqi production is only being achieved at the price of damage to reservoirs - particularly in the north," MEES says.

Iranian production fell slightly on lower exports at 2.263 million bpd as domestic consumption remained steady on 1.45 million bpd.

MEES says the general strike in Venezuela saw average production drop to 620,000 bpd in January from one million bpd in December and three million bpd before the strike began at the end of 2002.

World oil prices climbed to their highest level in more than two years as traders bet on a war in Iraq despite diplomatic efforts at the United Nations.

New York's reference light sweet crude contract for March delivery rose 44 cents to 36.80 dollars a barrel, the highest level since September 2000.

The price of London Brent North Sea crude oil for April delivery, the new benchmark contract, rose seven cents to 32.53 dollars a barrel.

www.freelancestar.com

LEXINGTON--"Homeland security" is such a straight forward-sounding concept since the Sept. 11 attacks that not many people would say they have trouble understanding what it means. But one of the more sobering implications coming out of preparations for war with Iraq is that, in some instances, there is nothing straightforward about it.

One of the serious issues raised by the crisis is the danger of a catastrophic cutoff of oil from the Middle East. Yet in all the talk about war, too little attention has been paid to energy security. That's curious, because protecting ourselves against politically inspired and unanticipated disruptions in oil supplies from abroad is crucial to the smooth running of our economy.

Consider that America imports 60 percent of its oil, with a quarter of the imports coming from Middle East producers like Saudi Arabia, Kuwait, and the United Arab Emirates. Who can predict what looms on the horizon? Terrorist attacks on oil fields throughout the Middle East and beyond? Massive sabotage of pipelines? Terrorist attacks on oil tankers in the Persian Gulf?

It's easy to pretend we can shield ourselves from disaster. The United States, as some suggest, could avoid trouble by stepping up domestic production and buying more oil from our neighbors in Canada, Mexico, and Venezuela. But the fact is, we face the same predicament as the rest of the industrial world: Europe, Japan, and Asia rely much more heavily on oil from the Middle East.

We're all in the same boat because there's only one country with existing excess capacity, one country in a position to increase production quickly should some other supplier be knocked out of action. That big producer is Saudi Arabia, a country that doesn't always have our best interests at heart.

Keep in mind that over the past 30 years, we have suffered Middle East supply disruptions caused by the Arab-Israeli War of 1973, the fall of the Shah of Iran in 1979, and Iraq's invasion of Kuwait in 1990. The time for complacency has clearly passed.

But how to protect ourselves against a huge supply shutdown? Short term, the answer is building up America's Strategic Petroleum Reserve. President Bush wisely wants to build up the reserve from its current level of 600 million barrels to 700 million barrels, enough to supply U.S. needs for more than a month; his new budget request to Congress would provide almost $200 million to meet that goal. Congress should take prompt action to increase the reserve, since it could be used quickly to fill the gap in the event of an oil disruption.

Long term, we must do all we can, consistent with a market-based environmental policy, to increase domestic production. And we should of course diversify our supply sources, especially from oil-producing countries in Latin America, Africa, and the Caspian Sea region of the former Soviet Union. These regions contain enormous quantities of oil, and President Bush wisely has made broadening the sources of America's oil supplies a touchstone of his energy and foreign policies.

The administration has made it clear that the effort to liberate Iraq is just that--and not a war for oil. American oil companies have invested comparatively little in the turbulent Middle East, allocating the largest share of their exploration and production budgets to countries like Nigeria, Angola, Brazil, and Kazakhstan.

Yes, Iraq has substantial oil reserves, second only to Saudi Arabia. But even if the most optimistic estimates prove to be right, the Iraqi reserves--or major discoveries anywhere else in the world, for that matter--would not guarantee U.S. access to oil.

Once a legitimate government has been established in a liberated Iraq, that government would no doubt determine what role other countries would play in developing Iraq's oil potential. It might well decide that Iraq's future prosperity would be best served by opening its fields to France and Russia, countries with which it already has contracts, or China, now an oil-importing country with rapidly growing demand.

Energy is the lifeblood of our economy. No one can foresee what might lead to a catastrophic cutoff of oil from the Middle East, whether war with Iraq might trigger terrorist attacks against oil fields and facilities throughout the region and beyond. The nation needs to fortify itself against a shock if the oil weapon is used.

Building up the strategic reserve is the answer. We need protection. Now is the time for Congress to act.

BRUCE R. BOLLER is instructor of physics and astronomy at Virginia Military Institute.

Date published: 2/15/2003