straitstimes.asia1.com.sg

WE PRESENT HIGHLIGHTS OF FINANCE MINISTER LEE HSIEN LOONG'S SPEECH IN PARLIAMENT

IN 2001, our gross domestic product (GDP) shrank by 2.4 per cent in our worst-ever recession since independence.

Despite the global uncertainty, manufacturing grew by 8.3 per cent, driven by biomedical sciences, says DPM Lee. -- WANG HUI FEN

Last year began promisingly.

Despite the uncertainties of the war against terrorism and the conflicts in the Middle East, initially the recovery of the United States (US) economy boosted our growth prospects.

But as the year progressed, a wave of corporate scandals and the WorldCom and Enron collapses shook the confidence of investors and consumers.

This slowed down the US economy. The European Union (EU) and Japanese economies also lost steam.

However, the East Asian economies did well. Our exports to China grew strongly, but this was not enough to make up for the fall in external demand elsewhere.

Despite the unfavourable conditions, our economy grew by 2.2 per cent in 2002. Unemployment peaked at 4.6 per cent, but improved slightly to 4.2 per cent by the end of the year. DPM Lee's full speech

Manufacturing grew by 8.3 per cent driven largely by the small, but fast-expanding, biomedical science cluster. Exports remained resilient, growing by 1.9 per cent.

Singapore continued to attract investments. We garnered over $9 billion of fixed-asset investments in manufacturing.

Foreign manufacturing fixed-asset investments rose from $6.6 billion in 2001 to $7 billion, while committed foreign business spending grew by 35 per cent to $1.5 billion.

The electronics cluster continued to attract the largest share of investments followed by the chemicals cluster.

Investments in biomedical projects generated the second highest value-added for the economy. All these investments are expected to create 21,000 jobs.

Despite some public concern about the cost of living, the consumer price index (CPI) last year fell by 0.4 per cent.

Health-care and education costs rose, but housing and car prices fell.

Lower electricity tariffs, cheaper accommodation and household durables combined to reduce housing costs by 2.2 per cent.

Cheaper petrol and a lower road tax reduced transport and communication costs by 1 per cent. Basic food items such as rice, cooking oil, meat, seafood and vegetables all cost less.

The Government implemented a slate of measures to help Singaporeans cope with the downturn and adapt to the economic restructuring.

Last year, our training and upgrading programmes helped 36,000 workers learn new skills to match the jobs that are available or being created.

The Off-Budget package helped all Singaporeans, especially the lower-income and unemployed. 800,000 HDB households received 10 months of utilities rebates worth a total of $226 million.

A further $110 million went towards helping Singaporeans through rebates on rental and service and conservancy (S&C) charges.

WAR PROSPECT CLOUDS OUTLOOK

AT PRESENT, the major uncertainty hanging over the world economy is the prospect of war in Iraq.

Consumers are holding back their spending, and companies are delaying investment plans.

Within a few weeks we will know whether war is going to break out. Within a few months we will know how things have turned out.

One significant worry is oil prices. After a war, they could fall back to normal and give a boost to growth, or they may stay high and slow down the recovery process.

The crisis in Venezuela, which has significantly reduced world supplies of oil, makes it more likely that oil prices will stay high.

Growth in Europe and Japan this year is expected to remain sluggish.

In the US, the consumer confidence index in January reached its lowest level since 1993. The current projection remains for a pick-up in the second half of the year, bringing growth close to 3 per cent, slightly better than 2002.

In East Asia, sustained domestic consumption should maintain growth at rates similar to last year, despite tensions in the Korean peninsula.

Exports from the South-east Asian region should stay robust, as stronger demand from China should compensate partially for the weaker demand from the developed economies.

China is a large and rapidly growing market that offers many opportunities to nimble entrepreneurs and companies.

India's economy too has much potential. It is showing a new dynamism and a more outward orientation, especially in the southern states.

Economic cooperation among the Asean countries is deepening gradually, for example through the Asean Free Trade Area (Afta). Asean is also launching free trade agreement (FTA) negotiations with China and Japan, and preparing to benefit from an FTA with India and the Enterprise Asean Initiative with the US.

Terrorism is still a problem in South-east Asia, but after the Bali bombing, Asean countries are cooperating more closely to combat this threat.

Given the external conditions, I expect Singapore's economy to continue to grow slowly in the first half of the year.

In the second half, if the US economy and the global electronics industry strengthen as we hope, Singapore should also recover more strongly, and our unemployment should start to decline.

For 2003 as a whole, the Ministry of Trade and Industry expects GDP growth to be between 2 per cent and 5 per cent, although it is less likely to be at the high end of the range. Like in 2002, growth is likely to be narrow and uneven across the different sectors.

A broader-based recovery is not expected until 2004.

KEEPING UP AMID CHANGES

WE NOW live in a fundamentally changed world.

Singapore is at a turning point. We face not just greater economic volatility, but also new political and security uncertainties.

Competition is keener and changes are coming faster. To stay in the race and ahead of the pack, we must constantly adapt to the changes around us, and restructure our economy.

After many years of rapid growth and development, our people now enjoy a high per capita income and standard of living.

But as our economy matures, it will be difficult for us to maintain the same high rates of growth that we experienced in the 1980s and 1990s.

Structural unemployment will become a more serious problem. Older, less educated workers who fail to update and upgrade their skills will be particularly vulnerable.

The Government's fiscal position will tighten as slower growth means less buoyant revenues, while an ageing population will lead to increased social spending.

We must find new sources of growth or else stagnate and decline. These challenges are formidable, but we can overcome them.

Over the last 30 years we have built up our financial, physical and human resources through toil and teamwork.

We have strengthened our social cohesion and institutions.

We share ideals and values that help us to work harmoniously together for maximum results.

These key advantages help us tackle difficult problems together, and restructure our economy for continued prosperity.

We have already begun the task of restructuring. In October 2001, the Government announced the establishment of the Economic Review Committee (ERC) to develop new strategies to take us forward.

Last year, the Government accepted and implemented two major recommendations of the ERC.

Firstly, we decided to restructure our tax system.

We are lowering corporate and top personal income tax rates substantially. This will help to retain and attract businesses and talent, and thus create good jobs for Singaporeans. At the same time we are raising the GST rate.

Secondly, we restructured the CPF to focus on the basic retirement needs of Singaporeans and trim over-investment in housing. This will keep the burden of CPF contributions as low as possible, while meeting the essential needs of the majority of the population.

To help older workers aged 50 to 55 stay employable, we also capped employers' contributions to their CPF at 16 per cent.

Besides these ERC recommendations, we responded to the recession by moderating wage increases to maintain our competitiveness and retain jobs.

Singaporeans have been guided by the National Wages Council's recommendation of wage restraint, which extends until June this year.

Their willingness to accept these sacrifices reflects their pragmatism, as well as the close tripartite relationship between the unions, employers and the Government.

This clear response has distinguished us from other countries. Foreign investors and analysts have noted our decisive actions to restructure the economy and tackle the downturn, as well as our support for difficult but essential policies.

This is a key reason why we have continued to attract investments, even as investment flows into other South-east Asian countries have declined.

HIGHER LEVEL, TOUGHER CLIMATE

LOOKING ahead, we expect the Singapore economy to grow more slowly, even after the present slowdown, because we are now at a higher level of development, and external conditions are more difficult.

We grew by an average of 7.3 per cent per year over the last 15 years.

For the next phase, the ERC estimates our medium-term growth potential to be 3 to 5 per cent, comprising labour force growth of 1 to 2 per cent and productivity growth of 2 to 3 per cent.

Growth of 3 to 5 per cent is lower than what we have become used to, but it is still an ambitious target.

Few developed countries with per capita GDPs similar to ours have maintained such a high rate of growth. However, the major global cities in those countries, such as London or New York, which draw on wider hinterlands, have been able to grow faster and sustain higher per capita incomes than their national averages.

Singapore too should be able to achieve 3 to 5 per cent growth, provided we too adopt the approach of these global cities.

This is why we must stay flexible, adapt quickly to changing markets and technologies, continue to welcome global talent and keep on upgrading our capabilities.

Then we can take advantage of the new opportunities, provide good jobs for our people, and raise our income and standard of living. Not every Singaporean will find the going easy. The powerful forces of globalisation will widen our income gaps. A small number of citizens will need help to keep up.

But every Singaporean can benefit from our country's progress, provided he puts in the effort and is willing to adapt himself to the opportunities and jobs available.

The Government will concentrate its social safety nets on the minority of Singaporeans who need them most. This will ensure that the help reaches the neediest Singaporeans without undermining our work ethic and culture of self-reliance.

However, the task of caring for less successful Singaporeans cannot fall entirely on the Government. Singaporeans have a responsibility to look after others doing less well than themselves.

The generous response of Singaporeans to charity drives is thus both heart-warming and reassuring.

Concern for our fellow citizens and government assistance will help keep our society cohesive as we navigate an uncertain world.

No amount of aid to lower-income Singaporeans can substitute for job-creation through strong economic growth. Despite the uncertain outlook, we are well placed to seize the opportunities that only present themselves in uncertain times.

If we stay the course, when the storm clouds clear, all Singaporeans will share in the fruits of success.

GEARING UP WITH FRESH GOALS

WE CANNOT predict how the international security situation will evolve, nor do we know for sure when the global and regional economy will regain its health. But we can and will use our resources and strengths to give ourselves the best chances to succeed, whatever the circumstances.

In this spirit, the Government accepts the ERC recommendations to revitalise the economy in the immediate future and sustain growth over the longer term.

Vigorously implemented, over a decade these strategies will make Singapore a leading global city, a hub of talent, enterprise and innovation, and one of the best places in Asia to live and work.

We will be host to both global multinational corporations and emerging business networks linking up China, India and South-east Asia.

Our broad economic base will have services complementing manufacturing industries, start-ups operating alongside established companies, and Singaporean companies reinforcing MNCs.

These diversified activities will provide a wide range of rewarding jobs for Singaporeans, either as knowledge workers, skilled technicians, or semi-skilled workers.

Change will not be effortless. There is no safe harbour where our ship can shelter to rebuild and refit, before heading out to sea. In a rapidly unfolding situation, all work must be done on board the ship while we are sailing and battling the elements.

The Government will act to bring about and facilitate these structural shifts, but success depends ultimately on the resourcefulness and resilience of Singaporeans.

We must shake free of our old mindsets, and adjust our positions to better face a changed world order out of which new opportunities will arise.

Some of us may not find this easy to do. But everyone who makes the effort will find a place in the new Singapore economy.

And all will get focused assistance from the Government and support from employers and unions. Through our joint efforts, our economy will bounce back.

At the end of the day, the purpose of restructuring is more than finding new growth sectors and creating new jobs.

It means forging a bond between all Singaporeans, in a spirit of joint endeavour, to secure our common future.

In an uncertain and volatile world, we have to overcome new challenges and set fresh goals for ourselves.

We have to grow as a united people, to create a better tomorrow for ourselves and our children, regardless of race, language or religion. And we must bring to this task tough minds and warm hearts.

KEY UNCERTAINTY

'The major uncertainty hanging over the world economy is the prospect of war in Iraq. Consumers are holding back their spending and companies are delaying investment plans. Within a few weeks we will know whether war is going to break out. Within a few months we will know how things have turned out.'

GROWTH FORECAST

'For 2003 as a whole, MTI expects GDP growth to be between 2 and 5 per cent, although it is less likely to be at the high end of the range. Like in 2002, growth is likely to be narrow and uneven across the different sectors. A broader-based recovery is not expected until 2004.'

TOUGH ROAD AHEAD

'Not every Singaporean will find the going easy. The powerful forces of globalisation will widen our income gaps. A small number of citizens will need help to keep up. But every Singaporean can benefit from our country's progress, provided he puts in the effort and is willing to adapt himself to the opportunities and jobs available.'

WINNING VALUES

'Producing entrepreneurs will also depend on our social values. A society that prizes self-reliance is more likely to produce winners. So is one in which winners are celebrated, while the unsuccessful are encouraged to learn from their mistakes and try again.'

ogj.pennnet.com   Maureen Lorenzetti Washington Editor Venezuela is a reliable US oil supplier, the head of state-owned oil company Petroleos de Venezuela SA said Thursday in an exclusive interview with Oil & Gas Journal. "Of course we are," said PDVSA Pres. Alí Rodríguez Araque, when asked to respond to concerns by some Bush administration officials that the country is now an unreliable supplier to the US because of its internal political problems. "For many, many years, through war and peace and through different types of governments, we have maintained a good relationship with the US," he said. "We maintain that same position, and the US needs supplies from Venezuela," he said. Rodriguez and Rafael Ramirez, Venezuela's minister of energy and mines, sought to deliver that message in Washington Wednesday. They met members of the Bush administration and Congress and said that, despite the firing of thousands of striking PDVSA workers, production is recovering to prestrike levels.

The trip to Washington comes as heating and motor fuel prices become a growing worry for policymakers who are under pressure from consumers to take corrective action. In Congress, lawmakers have spared little time calling for various measures, most of which are too expensive for a fiscally conservative White House. These have included: Strategic Petroleum Reserve releases, federal gasoline tax suspensions, and new tax initiatives that encourage domestic production. Meanwhile, analysts testifying before Congress have cited Venezuelan's labor woes as a contributing factor for recent price runups, although market jitters over Iraq, and basic supply and demand market fundamentals are also factors.

Meetings and assurances Venezuela's top energy officials met with House members of the Venezuela Caucus and the House Western Hemisphere Subcommittee and Energy and Commerce Committee. They also met with senior officials from the departments of State and Energy. Sources present at the meetings said the Venezuelans stressed that both crude and gasoline exports from their country were expected to be on the rise next month, helping ease price pressures in US markets. But their reassurances were not sufficient for some Bush administration officials, according to government sources. Department of State officials said the Venezuelan delegation was told that the US still has "serious concerns" over the Venezuelan supply disruptions and that the only way to restore confidence and attract foreign capital is to negotiate with strike leaders, many of whom are former PDVSA managers. In an interview in New York City the next day, Rodríguez insisted that the conversations over oil supply reliability were not "official" US policy, and he claimed that, in fact, Bush administration officials at the meeting pledged to support a "democratic, peaceful and constitutional end" to the strike.

Political impasse Venezuelan President Hugo Chávez as recently as Feb. 25 rejected calls by the US and the Organization of American States to negotiate with opposition leaders. Chavez's stance has now led the White House to openly wonder if oil exports may again be put in jeopardy because of escalating civil strife. Opposition leaders say the economy continues to spiral downward, and basic needs such as food and fuel are getting scarce. For the oil sector, the financial impact of the strike, now in its third month, is not in dispute: $4 billion has been lost in oil revenue and another $2 billion in tax-generated income. And both sides acknowledge there is a credibility issue that the state oil company must overcome. "There has been damage done that is both tangible and intangible," Rodríguez said. "How can you estimate it?"

Opposition leaders have accused Chávez of using PDVSA as a cash cow to finance a corrupt government that is not serving the needs of its people. Responding to those criticisms, Rodríguez said that opposition leaders do not have the interests of Venezuelan citizens at heart, because they are politicizing oil supplies for their own means and hurting the country's relationship with key allies in oil-producing and consuming countries. "OPECcountries have the commitment not to use oil as a political weapon. But in our country some have used oil as a way to impose their will on society and the state," he said.

Prior to the strike, Venezuela exported about 2.3 million b/d of crude and products, with about 1.5 million marketed to the US. In December and January exports dropped dramatically but now appear to be recovering slowly, according to the US Energy Information Administration. Sec. of Energy Spencer Abraham told a US Senate Energy and Natural Resources hearing earlier this week that he expected levels of imports from Venezuela to return to normal within 3 months. Rodriguez said that DOE's estimate was "accurate," although he did not speculate on whether Venezuela—as a member of the Organization of Petroleum Exporting Countries—will be allowed to make up oil exports it didn't ship in December and January, when the full impact of the strike severely limited exports. "At this point, nobody know what will happen," he said, referring to possible US military action against Iraq that may start before the Mar. 11 OPEC meeting.

Production, exports increasing Meanwhile, production is "increasing every day", Rodríguez said, now standing at about 2 million b/d; it should increase "more or less" to 2.5 million b/d next week. And by the end of March, he expects levels to be at about 2.7 million b/d. On Feb. 25, the company lifted force majeure on three crude export contracts in the eastern region; foreign companies started to lift supplies for the first time since the strike started Dec. 2. Downstream, PDVSA's 635,000 b/d Amuay refinery, a major source of product exports to the US, is expected to be repaired and at full capacity in mid-March, the PDVSA chief and former OPEC secretary general said.

Upstream issues Rodríguez declined to speculate on how much production may have been permanently lost from the strike because of poor field management or what he characterized as possible acts of sabotage by some PDVSA workers, now dismissed. The International Energy Agency estimates that about 400,000 b/d of crude output capacity may have been permanently lost. "It is possible there has been damage to some wells," Rodriguez said.

Opposition leaders dispute both PDVSA's estimates of current production levels and its estimates for the future. They say production is now only at 1.6 million b/d, and that billions of barrels of reserves may have been lost because of poor field management. Opposition leaders have also warned that the wave of what they see as politically-motivated firings that have taken place in the past month may damage the company's ability to keep up with technical challenges, such as making low-sulfur fuels.

Rodríguez said that at least 7,000 of the 12,300 dismissals were justified as cost-cutting measures to trim back a 33,000 member workforce; in many cases, employees were fired because they did not show up for work, he said. More technical people, in the refining sector and elsewhere may be needed in the long term, he acknowledged. Later this year PDVSA will receive a management consultant's report on ways to improve performance and may take further action then. In the meantime, PDVSA has had success recruiting retired employees to assist in technical areas, Rodriguez said. "Our plans are not conditioned by these people," he said, referring to fired PDVSA managers "There are many different factors involved in these firings. These are the new realities of the oil market. We continually need to increase productivity and obtain better revenues."

While there is evidence to suggest Venezuelan oil exports may be increasing enough to bring in some much-needed cash to the country's coffers, there may be longer-term investment implications from the strike, opposition leaders suggest. Opposition leaders say that PDVSA is looking to sell its US downstream subsidiary Citgo Petroleum Corp. Opposition groups allege oil interests in Nigerian were unsuccessfully approached; an offer to Petronas, the Malaysian state petroleum country, is now on the table, they say.

Rodríguez said that any talk of a Citgo sale is "speculative." He said that the company will look at the consultant's recommendations and then move forward. "If necessary, we will sell some assets, maybe we'll buy some assets." He also expressed hope that foreign investment will continue to be robust. "I am sure, in the next round of bidding, we will have many, many companies tender offers.," he said. Rodríguez sees an opportunity for companies as soon as this summer. The fate of Citgo is of special concern to US policymakers because of the amount of refinery capacity it controls. Selling Citgo also creates potential problems for PDVSA, because that subsidiary's refineries provide a special outlet for heavier crudes that are difficult to market. And in the mid to long-term future, a rebuilt Iraq could be a formidable challenge to PDSVA's future success, analysts say.

straitstimes.asia1.com.sg

Changes in China bewilder Cuban leader Castro, whose country's economy is still reeling from the loss of Soviet subsidies

BEIJING - China and Cuba are two of the last remaining one-party communist states in the world, but the similarity just about ends there.

For 76-year-old Cuban leader Fidel Castro, who last visited China seven years ago, the difference was bewildering.

Visiting China after seven years, Cuban President Fidel Castro met a new generation of Chinese leaders, such as Vice-President Hu Jintao who is expected to take over as president next week. -- REUTERS

'I can't really be sure just now what kind of China I am visiting because the first time I visited, your country appeared one way and now when I visit it appears another way,' he said when he met the head of China's legislature, Mr Li Peng, on Thursday.

'You can say that every so often your country undergoes great changes.'

Cuba muddles on with a planned communist economy still reeling from the loss of Soviet subsidies.

Meanwhile, China has become aggressively mercantile, growing into the world's manufacturing powerhouse.

Its cities are littered with new high-rises, their streets clogged with vehicles.

Mr Castro, who arrived in Beijing on Wednesday, was briefed on China's economic reforms by Vice-Premier Wen Jiabao, the country's No 2 economic official, the official Xinhua news agency said.

It paraphrased the visiting Cuban leader as saying he has always closely followed China's development and hoped to learn from it.

China and Cuba ran along parallel communist tracks for years after Mr Castro took power. China undertook first the Great Leap, which created a famine that killed an estimated 30 million people, and then the Cultural Revolution, Mao Zedong's convulsive last attempt at perpetuating his revolution.

Their histories began to diverge, though, as China embarked on reforms after Mao's death in 1976.

Beginning in the 1980s, the planned economy was steadily dismantled, setting the stage for today's relative prosperity - even while the Communist Party maintained its stranglehold on political power.

The bases of that growth - foreign investment totalling hundreds of billions of dollars and the emergence of a dynamic private sector - remain largely alien concepts in Cuba.

China, which is Cuba's third most important trading partner after Venezuela and Spain, now provides hundreds of millions of dollars in economic credits to Cuba, as well as some direct aid.

China took over as Cuba's main political and financial partner in the early 1990s after the fall of the Soviet Union.

The trade balance, however, clearly favours China. According to official figures here, Cuba exported US$70 million (S$120 million) worth of goods to China in 2001 while it imported US$547 million worth of goods from that country.

Mr Castro's talks with Chinese President Jiang Zemin earlier this week focused on economic ties and concluded with the signing of an economic cooperation agreement and Chinese aid package for Cuba.

As the last remaining leaders of the communist world, Mr Castro has developed close personal ties with Mr Jiang, who visited Cuba in November 1993 and April 2001.

During his visit, Mr Castro met Chinese Premier Zhu Rongji.

He also met Vice-President Hu Jintao, who is expected to take over as China's president at the annual legislative session beginning next week. --AP, AFP

www.globeandmail.com By MATHEW INGRAM Globe and Mail Update

The price of crude oil has skyrocketed over the past several months, partly as a result of concerns about supply from Venezuela and partly because of market speculation as the United States gears up for a war with Iraq. On Thursday and Friday, crude came within a hair of $40 (U.S.) a barrel, close to the peak it hit after Iraq invaded Kuwait in 1990. So that means investors should run out and load up on oil stocks, right? Not so fast.

Like most heavily traded commodities — such as gold, for example — supply and demand are only part of the equation when it comes to oil prices. The current price, which is hovering in the $39 range, is a result of supply glitches in Venezuela and higher demand for fuel oil in the United States due to cold weather, but it is also driven by an army of commodity traders, and theories about what may happen a month or two from now.

Based on simple supply and demand, the price of crude should probably be in the mid- to upper $20 range somewhere, depending on which market expert you talk to. The rest of the current price is a result of speculation by oil traders about what will happen if war is declared, whether Saddam Hussein will decide to blow up his own oilfields, whether OPEC will be able to deal with any supply disruptions, and so on.

Some traders are betting that a war with Iraq would be over fairly quickly, and that once it is finished the price of oil will return to normal levels. This is based largely on the fact that it's exactly what happened after the Gulf war. Traders betting on that scenario have been short-selling oil, and some of the price rise in recent days has been blamed on short-sellers having to buy to cover their bets.

The opposite end of the spectrum has traders not only betting that the war in Iraq will go on longer than it did in 1991, but also that it might destabilize the rest of the Middle East, which could make the supply of oil from other OPEC producers less reliable as well. The combination of those events has some oil industry watchers predicting that oil could stay above $40 for some time, and might even get to $70 or $80.

The chance of that more extreme version of events taking place is fairly low, most oil industry analysts say. According to Philip Verleger, an oil industry economist and senior fellow at the U.S. Council on Foreign Relations, even if a war stops the flow of oil from Iraq completely, the other OPEC nations — and Saudi Arabia in particular, the cartel's largest producer — will likely step in to help cover that supply.

According to Mr. Verleger's comments at the Institute for International Economics, the oil-producing nations would do this for a couple of reasons, the first being that skyrocketing oil prices would be bad for the global economy — and that would be bad for business in the long run. The other reason is that high prices would encourage non-OPEC nations such as Russia — which already produces almost as much oil as Saudi Arabia — to produce even more, and that would cut OPEC's market share.

But even under a moderate scenario, won't producers enjoy windfall profits, and therefore aren't their stocks sure to go up? After all, Canadian Natural Resources just said its fourth-quarter profit tripled over last year, and it could make $1-billion (Canadian) more in profit this year than it expected to a month ago. Unfortunately, it's not that easy to draw a straight line between higher crude prices and higher stock prices.

Take a look at what happened to Canadian Natural's stock after it made that announcement. You might expect that $1-billion extra dollars on the bottom line, even for a company that size, would make a major difference — after all, it works out to more than $7 per share. And yet the stock rose by less than $3 after the news, and at $50 or so isn't even as high as it was last fall. It has climbed by 25 per cent since October, but the price of crude oil has climbed by more than 60 per cent since then.

"Institutions never pay for peaks, nor do they pay for valleys," FirstEnergy analyst Martin Molyneaux told Globe and Mail reporter Guy Dixon recently. In other words, investors won't pay more for a stock if they don't think high oil prices are sustainable, even though the company might seem to be worth a lot more. The risk that the price increase won't be sustainable translates into a lower multiple for those stocks.

Of course, oil and gas stocks (because most companies do both) have been going up based on more than just crude prices. Natural gas is also high, in part because of cold winter weather, and a sharp drop in inventories. That could help justify higher prices even if crude oil does come back down in price — but it isn't going to produce a windfall for investors at this point, given how far some stocks have already climbed.

E-mail Mathew Ingram at mingram@globeandmail.ca Look for exclusive Mathew Ingram commentary at GlobeInvestorGold

www.tribnet.com By BRAD FOSS, AP Business Writer

NEW YORK (February 28, 1:36 p.m. PST) - If history is any guide, consumers should brace for even higher gasoline prices, already above $2 a gallon in some places.

The wholesale price of gasoline has risen between March and May every year since 1985, according to an analysis by Cameron Hanover, an energy risk management firm based in New Canaan, Conn. Pump prices have tended to follow suit, statistics kept by the Energy Department show.

"We're expecting a further round of price increases at the retail level," said Jacob Bournazian, an analyst at the Energy Information Administration, the statistical arm of the Energy Department. "It could be anywhere from 4 to 8 cents."

The national average retail price for regular unleaded last week was $1.66 per gallon, 54 cents above year-ago levels.

The springtime pattern of rising gasoline prices coincides with the period when refiners shut down equipment, scrub it clean and switch from winter- to summer-grade fuel ahead of the peak driving season. That process, known in the industry as "turnaround," causes supplies to temporarily shrink and prices to rise.

Whether the 18-year seasonal trend is extended - or ended - in 2003 depends on factors ranging from a possible war in Iraq to the supply of fuel from Venezuela, whose oil industry strike has resulted in sharply reduced exports to the United States.

If U.S.-led military action against Iraq proceeds quickly and without any disruption in the flow of Middle East oil, analysts believe the price of crude, now close to $37 a barrel, could drop quickly, bringing today's high gasoline prices down, too.

"That could kill the (seasonal) trend," said Ed Silliere, an analyst at Energy Merchant LLC in New York. The ability of refiners in the United States, Europe and elsewhere to make up for the expected shortfall from Venezuela could also tip gasoline prices in one direction or the other, Silliere said.

Still, Silliere and other analysts said all signs point to the annual trend being magnified by geopolitics and the current supply-demand imbalance. Nationwide inventories of gasoline are nearly 3 percent below year ago levels with Venezuela's refineries running far below capacity, analysts said the situation could get worse.

Peter Beutel, president of Cameron Hanover, said the confluence of outside factors makes it difficult to predict what will happen in gasoline markets this spring, but his advice to clients in a recent report was this: Don't make large bets prices will fall.

"We have to ask ourselves if we want to fight this kinds of odds," he said.

In 16 out of the last 18 years, June gasoline futures trading on the New York Mercantile Exchange rose between March 1 and May 15. In 1993 and 1998, the June contract rose between March 1 and May 1, before falling two weeks later. Gasoline for April delivery was up 2 cents to $1.04 a gallon Friday on the Nymex.

The monthly average for retail prices, excluding taxes, was higher in May than in March in 15 out of the last 18 years. Pump prices declined slightly over that period in 1986, 1997 and 2000.