www.northjersey.com Sunday, February 2, 2003 By VIOREL URMA associated press

NEW YORK - Some economic predictions for 2003: The United States will not see a true recovery before summer; Asian economies are expected to accelerate later in the year; Europe will pick up only slightly. In Latin America, economic turbulence in Brazil and Argentina will continue.

"Weak financial markets and tepid consumer demand should weigh on the global economy well into 2003," the Organization for Economic Cooperation and Development said in a November report.

In its latest review, the Paris-based OECD said the world's 30 largest economies should grow by 2.2 percent in 2003, compared with 1.5 percent in 2002. The new figures are a downward revision from the group's June report, which had projected 1.8 percent GDP growth in 2002 and 3.0 percent growth during the next year.

The International Monetary Fund also trimmed its expectations for global growth in its latest World Economic Outlook because of increased risks since last spring.

Besides concerns about a growing impact of the U.S. and European stock market declines, the economy also could be hurt by a war with Iraq, a jump in oil prices, and a possible destabilizing plunge in the value of the dollar, the IMF said.

The IMF had forecast the global economy would grow by 2.8 percent in 2002, up only slightly from 2.2 percent growth the year before, which had been the worst performance in a decade. In 2003, the world economy is projected to rise 3.7 percent.

The global growth outlook depends critically on the United States. Most economists expect the U.S. economy to grow about 3 percent to 3.4 percent in 2003, slightly above the estimated 2.7 percent growth in 2002, with real economic momentum not expected until the second half of the year.

In Asia, most economies are expected to remain sluggish early in the new year, though some experts predict things will pick up later in 2003 or at worst by 2004.

"We are looking for growth to accelerate as we go through the year," said Steve Brice, chief Southeast Asia economist at Standard Chartered Bank in Singapore. "Obviously, we are in a bit of a soft spot at the moment."

As always, Asian nations are dependent on stronger U.S. demand for their exports. "We will look for the U.S. to begin to lead in a slow resumption of growth that accelerates, so that by the end of [2003] we're pretty much prepared in 2004 for a return of potential growth on a global basis," said Cliff Tan, director of Asian economics for Citigroup in Singapore.

Strong exports pushed Asian economic growth higher than expected last year, but the growth rate likely will not rise further in 2003, the Asian Development Bank said.

The regional bank, based in Manila, Philippines, upgraded its Asian growth forecast for 2002 to 5.6 percent from its previous forecast of 5 percent in September. The bank, however, lowered its forecast for 2003 to 5.6 percent from 5.7 percent.

The ADB forecast does not include Japan, Australia, or New Zealand.

The bank forecasts China's economy, already Asia's fastest-growing, to expand 8 percent in 2002 but slow to 7.2 percent in 2003.

Indonesia, Malaysia, and Singapore will grow faster in 2003 because of sustained domestic demand, while Thailand and the Philippines are expected to slow, it said.

India, the only South Asian country for which a projection was available, is seen expanding 5.5 percent in 2003, up from the projected 5 percent growth in 2002.

In Japan, the world's second-largest economy, an adviser to the Japanese prime minister recently criticized the government's banking reform program, warning that the economy would worsen in the new year and possibly not recover at all.

"One scenario is that Japan's economy will zoom back in a V-shaped rebound," said Taichi Sakaiya, a former Cabinet member. "But the question remains whether Japan will just drop like a bungee jumper on a severed cord."

Lending is expected to tighten and bankruptcies to worsen. Japan's banks are burdened with massive bad debts and the unemployment rate is at a record high 5.5 percent. Stock market levels continue to hover near 19-year lows.

After contracting 0.7 percent in 2002, the Japanese economy is seen growing 0.8 percent in 2003, the OECD estimates. But Japanese analysts worry that may be too optimistic.

"Japan's economy has stabilized as a whole, but there is still substantial uncertainty toward recovery," the Bank of Japan said in its December report.

In Europe, the European Central Bank has sharply cut its projections for 2003 economic growth in the 12 countries using the euro, citing "persistently high uncertainty" over financial markets and political developments.

The bank cut its projection for the coming year's growth in the sluggish euro zone to 1.1 percent to 2.1 percent for the full year, from its earlier figures of 2.1 percent to 3.1 percent. It also cut its outlook for 2002 to 0.6 percent to 1.0 percent, from 0.9 percent to 1.5 percent. Growth was 1.5 percent in 2001.

The bank said growth prospects were being undermined by uncertainty about up-and-down financial markets and "geopolitical tensions with potential consequences for oil prices," usually interpreted as a possible war against Iraq. Europe's economy is heavily dependent on imported oil.

While most business confidence indicators in the euro zone have stabilized, Germany is struggling with widening budget deficits and lower tax collections from the slow economy. Comprehensive reforms of the country's tightly regulated job market are being urged.

"Germany is the weakest link in the region," said Jacques Cailloux, economist at Barclays Capital Inc.

The nation of 82 million people, and Europe's biggest economy, has been mired in near-zero growth for more than a year. Unemployment, which reached 9.7 percent in November, tops the 4 million jobless mark. The government has slashed its 2002 growth forecast to 0.5 percent from 0.75 percent.

In Russia, economic growth fueled by high prices for oil - a key Russian export - has helped the country dramatically increase its foreign reserves and meet its debt obligations in recent years. But Moscow will face a major test in 2003 when foreign debt payments reach $15 billion. Russian officials insist they are prepared to meet the challenge, even if the price of oil drops.

Economic turbulence in South American giants Brazil and Argentina set the tone for a rocky year in Latin America - where the economy shrank by 0.5 percent in 2002 - and the uncertainty will continue in 2003.

Brazil's new president, former union boss Luiz Inacio Lula da Silva, took office Jan. 1 with promises to create jobs, feed Brazil's 50 million poor, and revive the continent's largest economy.

But Silva also has pledged to generate a budget surplus, meet payments on Brazil's $264 billion foreign debt, and curb inflation that has soared to 10 percent, an eight-year high.

Argentina is groping for ways to solve the most severe economic crisis in its history, after a year marked by a $141 billion debt default, a 70 percent devaluation of the peso, and unemployment that has left one in five Argentines jobless. Talks with the International Monetary Fund over a new aid program have stalled, and the fund may prefer to wait to deal with the successor to President Eduardo Duhalde, who will be chosen in an election April 27.

The outlook is murky elsewhere on the continent.

Paraguay is nearly broke, Uruguay is mired in a three-year recession, and Venezuela, which has the largest oil reserves in the Western Hemisphere, is racked by a political struggle to oust populist President Hugo Chavez.

www.chicagotribune.com By Melita Marie Garza Tribune staff reporter Published February 22, 2003

Already on tenterhooks over the prospect of war with Iraq and possible terrorist attacks, U.S. energy markets spiked sharply early Friday after a fuel barge exploded at an Exxon Mobil Corp. storage facility near Manhattan. The incident also jolted the stock market, helping to send the Dow Jones industrial average down as much as 60 points in early trading. Both the Dow and the energy futures market recovered after authorities said there were no indications that the blast was caused by terrorism. "There was definitely an overreaction," said Mark Baxter, director of the Maguire Energy Institute at Southern Methodist University in Dallas. "First there were news reports that the explosion had occurred at a refinery, then before long you saw a picture of the Empire State Building with the smoke in the background," Baxter said. "Our first concern was: Who planted the bomb?'" Within 10 minutes of the explosion, light sweet crude oil jumped almost 50 cents, to $35.95 a barrel, on the New York Mercantile Exchange. Heating oil futures contracts gained about 3 cents within minutes, jumping to $1.12 per gallon by 10:25 a.m. Phil Flynn, vice president and senior analyst with Alaron Trading Corp. in Chicago, noted that prices already were on their way up before news of the barge explosion hit. "Then the traders down in the pits began to see the smoke billowing out across the skyline," said Flynn, noting that the dramatic footage sent prices up before details of the incident were known. Traders also were nervous because the terminal is from time to time responsible for up to 25 percent of the physical deliveries traded on the NYMEX. Exxon Mobil officials said the fire and explosion occurred as 100,000 barrels of unleaded gasoline were being unloaded from a barge. Two barge workers, employed by Bouchard Transportation Co., were killed in the explosion, while another worker, employed by Exxon Mobil, was admitted to the hospital with burns, officials said. To some degree, the market's reaction was considered understandable. The country has been on an "orange" or high, security alert since last week. Tom Ridge, the homeland security chief, has sent citizens off on a duct tape and plastic sheeting buying binge, urging them to stockpile such items to protect against a possible bioterrorist attack. In addition, energy infrastructure, including U.S. oil refineries, has been singled out as a possible terrorist target. Some initial news reports characterized Friday's incident as a refinery explosion, though none of the nation's 150 refineries are located north of New Jersey. Amid these jitters, the crude oil market has been on a march upward, putting pressure on already vulnerable sectors of the U.S. economy and raising prices at gasoline pumps. U.S. crude oil supplies are hovering perilously close to a 270 million-barrel minimum inventory level the federal government said must be maintained in order to insure uninterrupted supplies to consumers. The tight market is the result of a complex confluence of circumstances. Crude oil supplies have been squeezed since Dec. 2, when a general strike in Venezuela seriously cut exports. In addition, the government has been stockpiling record amounts of oil in the Strategic Petroleum Reserve, leaving less for commercial inventories. Tom Kloza, with the Oil Price Information Service, said dramatic footage of billowing smoke and circling helicopters, combined with inaccurate initial news reports, fed the emotional reaction of the futures markets. "In the grand scheme of things, this is not a big deal for prices," Kloza said. "On Fridays, markets have been prone to go up, but it has had more to do with worries overseas. "Monday, we are going to be looking back at this and say: Wow, that was a spectacular fire, but it really has very little to do with what is going to happen to prices,'" he said. The 100,000 barrels of gasoline lost Friday represent a minuscule portion of the 211.2 million barrels of gasoline in U.S. inventories. Still, "If you look at the big picture, it's still a big deal because it shines a spotlight on the bigger issues," said Flynn, of Alaron Trading. "We dodged a bullet here. If this had been a real refinery fire, it could have been a major problem. The whole country is running on fumes."

www.jamaica-gleaner.com published: Saturday | February 22, 2003

FEARFUL OF what a war in Iraq would mean for Jamaica's oil bill, the country is pressing aggressively ahead with plans to convert to liquefied natural gas (LNG) as a main energy source.

The move has become even more imperative in light of the continued oil strike in Venezuela, Jamaica's main source of crude. Jamaica is yet to resume lifting oil from the turbulent South American country, creating uncertainty in the energy markets here over energy price stability.

Prime Minister P.J. Patterson says the introduction of LNG into Jamaica's energy mix, is a major step towards diversification and a move towards greater security and stability of energy supply and price.

He was speaking in the context of a looming war in Iraq, and Jamaica's heavy dependence on imported energy and the domination of petroleum in the supply mix.

Imported petroleum accounts for over 92 per cent of Jamaica's annual energy consumption of some 26 millions barrels of oil, mainly from Venezuela, Mexico and Trinidad & Tobago.

While recognising the limited impact of Iraq's erratic oil production on world petroleum supply, the Prime Minister said the threat of military action against Iraq had added a war premium to the price of petroleum. He noted that in the context of globalisation, Jamaica could not continue to remain reliant on the volatility of the price and supply of crude.

Yesterday oil prices were trading at US$32.21 per barrel as recorded by the international benchmark Brent crude. By comparison Jamaica was paying US$23/24 per barrel when the troubles with Venezuela first hit.

Pointing to the continued volatility in world oil prices due to war and anxiety premiums, the PM warned that in the event of an attack on Iraq, the price of oil might further escalate, putting pressure on the cost of energy in the oil-importing developing countries.

Recalling the recent strike in Venezuela, during which the collection of petroleum was suspended, Mr. Patterson informed journalists that in addition to meeting the supply shortage by importing from Mexico and Trinidad & Tobago, Jamaica also had to buy from Ecuador on the open market at high spot prices.

"We have not as yet resumed uplifts from Venezuela," the Prime Minister said, adding that once Venezuelan production recovered to the pre-strike level, Jamaica was unlikely to face a serious supply threat.

"In the case of war, members of the Organisation of Petroleum Exporting Countries (OPEC) are expected to lift the supply quotas, and it is expected that the spare capacity in some of the OPEC countries would kick in to meet the supply shortage, if any," he said.

The Prime Minister said that prices were likely to continue to rise in the short run, and that in order to meet Jamaica's energy needs, the country would be required to buy petroleum at world prices as anyone else.

Representing a strategic shift to a cheaper and more environmentally friendly source of fuel, for long-term economic benefits and preservation of the environment, the proposed move to the use of LNG is expected to reduce electricity cost by one third, said JIS News, quoting Donald V. Graf, a consultant with MPR Associates Inc., in Virginia, USA, who worked on the feasibility study here.

The project could save Jamaica US$30 million a year in its fuel import bill, representing a reduction by five million barrels of oil a year, said Mr. Graf, adding that similar savings could be achieved by the bauxite and alumina sector.

The fundamental objective of the shift to LNG is to bring a source of energy that would enable Jamaica to become a much larger player in the industrial world, so that reducing the price of electricity was important, not just for itself, but for the total industrial improvement and economic benefits to Jamaica.

According to the pre-feasibility study, the LNG is to be sourced mainly from Trinidad & Tobago, where it had spawned several industrial processes, such as polyethylene and steel plants, because it is a cheap energy source.

However, existing generating plants would have to undergo some amount of conversion, in order to be able to use LNG. The building of new LNG plants would also be an option. Once the electricity is produced, it would go through the existing lines.

In the long term, LNG could potentially be used to provide fuel for motor vehicles. LNG vehicles are believed to be much cleaner-burning than gasolene or diesel-fired engines.

There is also the potential use of LNG to produce cooking gas, which can be taken to homes, not in tanks, but through a network of pipes, as is the case in major cities such as London.

www.canada.com JAY BRYAN The Gazette Saturday, February 22, 2003

With the price of gasoline and heating oil already at uncomfortable levels, the prospect of an Iraqi war naturally raises the question: how bad can it get?

Pretty bad, but only for a very short time, suggests economist Earl Sweet, who's just finished an analysis whose worst-case scenario sees the price of a barrel of oil spike as high as $60. That compares with a recent price around $36 a barrel and an average in recent years of something like $25.

Perhaps more important, though, Sweet believes that even in this worst case, prices would drop very quickly from their peak to levels at least a little lower than today's.

That's a relief, since a rule of thumb equating a $1 hike in the price of oil (which is priced in U.S. dollars) with approximately a one-cent rise in the cost of a litre of Canadian gasoline suggests that $60 oil could push Montreal gas prices above one dollar a litre.

The $60 scenario assumes that there really is a war and that Iraqi dictator Saddam Hussein responds, as he did in Kuwait a decade ago, by torching Kuwait's oilfields, making it hard for any successor regime to export oil without major reconstruction.

While this scenario is not a forgone conclusion, it is widely considered a plausible one.

The happier news is that Sweet, an assistant chief economist at the Bank of Montreal, thinks there are powerful forces that would begin to cut the price of oil very quickly should a war push it much above $40, much less to $60. How quickly? Perhaps in a matter of days.

That might seem a little surprising if you've been following the news of unusually low oil stockpiles brought by the general strike in Venezuela, a major exporter. But Sweet points out that oil exports from Venezuela are gradually rising, while a number of other factors suggest that any serious shortage will quickly call forth new supplies.

In the short run, the big strategic oil reserves held in the U.S, Europe and Asia are likely to be tapped if oil prices rise above $40, he notes.

More important, the OPEC producers outside of Iraq and Venezuela are already pumping more oil to offset the recent shortfall and still have the capacity to raise production further, potentially offsetting most of any Iraqi production loss. Important oil regions outside of OPEC are also raising production. Russia is the biggest producer, but Canada and Africa are also significant.

Finally, high prices do have an impact on consumption.

But we don't want to depend too much on this impact in the current crunch, because it hits the whole economy, not just energy purchases. While energy efficiency is a very good thing, it is most efficiently gained through long-term policies that specifically target energy.

A spike in the price of oil, on the other hand, won't change people's energy consumption much because they won't buy more-efficient cars or heating systems in response to a temporary condition. Instead, it acts as a tax discouraging all kinds of spending, from new cars to home renovations to business investment, which is a recipe for weaker economic growth.

jbryan@thegazette.canwest.com

www.newsday.com By James Bernstein STAFF WRITER

February 22, 2003 Motorists and homeowners, already paying some of the highest prices for gasoline and heating oil in years, are expected to be hit in the wallet even harder after Friday's barge explosion off Staten Island, energy industry experts said. Home heating oil prices may rise 5 cents a gallon, and gasoline 3 cents to 5 cents, in the next few days, analysts said. Some heating oil dealers on Long Island said they already had been notified of increases. "Right now, because supplies are so tight, even a minor disruption can cause a price rise," said Phil Flynn, senior energy trader at Alaron Trading Corp. in Chicago. "This should serve as a big wake-up call as to how tight supplies are." Crude oil prices shot up after the explosion but leveled off, with oil for April delivery closing at $35.58 a barrel, up 84 cents, on the New York Mercantile Exchange. Gasoline futures for March delivery rose 4.67 cents to $1.0125 a gallon and March heating oil futures gained 4.93 cents to $1.108 a gallon. Flynn said the U.S. oil supply is currently at about 268 million barrels, the lowest since 1975. That does not include the approximately 570 million barrels in the U.S. Strategic Petroleum Reserve, which the government so far has declined to tap. Flynn said about 50 percent of the oil used in the New York area passes through the Arthur Kill, the waterway between Staten Island and New Jersey that was closed after the explosion at an Exxon Mobil terminal. John Nuzzi, owner of Nuzzi Fuel Oil Co. in New Hyde Park, said he was notified at 2 p.m. by a wholesaler of a 5-cent-a-gallon price rise. "This is a gasoline fire [on Staten Island] but all markets are affected," said Nuzzi, whose company has 3,000 customers. "It's a knee-jerk reaction." Nuzzi said he believed prices would fall again by early next week. Other experts said they were not so certain. Oil prices are up almost 18 percent so far this year in anticipation of a U.S.-led war against Iraq, a strike in Venezuela and the tight supply situation.