story.news.yahoo.com 2 hours, 58 minutes ago Add Top Stories - The New York Times to My Yahoo! By DAVID LEONHARDT The New York Times

The most common cause of recessions, a surge in oil prices, is again afflicting the global economy.

Just as they have before every American downturn over the last 40 years, energy costs have risen significantly in the last year, capped by a sharp spike since December. With more money being spent on gasoline and heating fuel, economic growth has slowed in both the United States and Europe, and the uneven recovery that began in late 2001 is facing perhaps its biggest threat yet.

Most forecasters expect the United States economy to avoid a new recession this year, saying that only an unexpectedly protracted war in Iraq (news - web sites) would keep oil at its current price or higher. But any war is an unknown, and the price increases for both oil and natural gas have already caused consumers to cut back on other spending. The increases have also created a new problem for businesses trying to emerge from the hangover of the late-1990's boom.

"The economy is extremely fragile," said Mark M. Zandi, the chief economist at Economy.com, a research company in West Chester, Pa. "We've got some real problems if this drags on for any length of time."

Energy costs began rising more than a year ago, when the Organization of the Petroleum Exporting Countries cut production in response to the weak global economy. The potential war in the Persian Gulf, political chaos in Venezuela and a cold winter in the United States caused the price of a barrel of oil to soar to almost $40 on Thursday, the highest since Iraq invaded Kuwait in 1990, before it retreated to $36.60 on Friday in New York. That is about 69 percent higher than it was a year ago.

Every time that oil prices have risen by at least 60 percent since World War II, a recession has occurred in the United States, with the exception of a one-month blip in oil prices in 1987. The current annual increase is similar in size to the jumps of late 1990, when a recession was starting, and the summer of 2000, nine months before another began.

Higher energy costs reduce economic growth by effectively forcing families and businesses to send more money to a small number of oil-producing countries, leaving less to be spent on goods and services that create jobs at home.

Energy prices affect Europe and Japan even more severely than the United States, which produces more of its own oil and natural gas. Britain reported last week that its economy had grown at the most sluggish pace in 10 years during the last three months of 2002. The German economy shrank at the end of last year for the first time in a year.

"The single best cyclical indicator for the world economy is the price of oil," said Andrew J. Oswald, an economist at the University of Warwick outside Coventry, England. "Nothing moves in the world economy without oil in there somewhere."

In recent weeks, a number of big American manufacturers have blamed higher energy costs for cuts in their earnings forecasts. A few have cited oil prices while postponing new investments that could add jobs, even as an overall rise in business spending has suggested that the economy might be picking up speed were it not for energy.

For example, DuPont, the large chemical maker, recently delayed until June an expansion of its business that had been scheduled to start in February, according to Ann K. M. Gualtieri, a spokeswoman.

In Elkhorn, Wis., Hudapack Metal Treating, which employs 125 people, is investing in technology to make its furnaces less dependent on natural gas which costs more than twice what it did a year ago rather than spending to increase its production of bolts for pickup trucks.

"It's real bad," said Gary Huss, the president of Hudapack, which is merely breaking even. "You can't take an extra $20,000 a month, throw it at gas prices and expect to be profitable."

The ailing airline industry is also being hit hard. American Airlines will probably spend about $200 million more on fuel this quarter than it did a year ago. Standard & Poor's lowered the company's credit rating on Friday, saying fuel costs were one reason that American might have to file soon for bankruptcy protection.

Many companies buy advance fuel contracts, a practice known as hedging, to protect them from some of the short-term price increases. United Parcel Service has purchased gasoline hedges, but it will still increase the fuel surcharge on its deliveries to 1.5 percent tomorrow, from 1.25 percent, because of increased costs.

Rising oil prices appear to be helping keep layoffs at a pace that few analysts expected, according to government figures, delaying any major improvement in the nation's moribund job market. The economy employs almost two million fewer people than it did two years ago.

Consumers, paying almost 50 percent more for gasoline than a year ago, in turn are reducing their spending on other goods. Over all, purchases at American retail chain stores fell 1.1 percent in January, according to the Bank of Tokyo- Mitsubishi, which adjusts its numbers for seasonal variations.

At 7-Eleven, people are buying smaller cups of coffee than they did in January and more individual sodas in place of 12-packs, said James W. Keyes, the chief executive. Consumers are also buying less premium gasoline.

"We see the change immediately," Mr. Keyes said. "A 20- to 30-cent-a- gallon shift at the pump can take as much as $50 from the working person each month."

Sales of sport utility vehicles and pickup trucks have fallen recently, while car sales are still rising. The largest trucks, like the Chevrolet Tahoe and Lexus LX 450, are selling particularly poorly compared with a year ago, according to Morgan & Company, a research firm. Analysts are divided over whether fuel prices are a reason, noting that some carmakers have recently reduced discounts and sales incentives for many trucks.

With gasoline prices and heating costs up sharply during a cold winter, families are spending about 5 percent of their budgets on energy, up from 4.1 percent at the start of last year, according to Economy .com.

About one-third of Americans say the recent spike has caused them "financial hardship," according to a recent Gallup poll. More than one- quarter said they thought that gas prices would be near their current level six months from now, and about one half said they would rise.

"I think it's going to get much worse," said Teri Chavez, a public relations executive in Denver, as she filled the tank of her blue Volvo station wagon last week. "Does it mean that I'm going to stop driving? No. But I might think twice before I take my car up in the mountains."

Ms. Chavez said she had "a silly rule" that she would not spend more than $20 on gas at one time and she was getting much less gas than she used to.

In 1991, oil prices fell almost as soon as the United States attacked Iraq, and many economists think the same could happen this year. Even if a war temporarily reduced the supply of energy, President Bush (news - web sites) could release oil from the nation's Strategic Petroleum Reserve to bring down prices, analysts note.

But because oil inventories are lower than they were 12 years ago, a price decline could be smaller today than at the outset of the Persian Gulf war (news - web sites).

Based on the price of oil futures contracts, investors are expecting oil prices to remain around $38 a barrel through April and then gradually decline, falling below $30 by the end of the year.

At those levels, oil prices would still probably prevent the economy from growing rapidly this year. But they would also make a new recession unlikely, particularly because business executives have recently shown signs of optimism, increasing their investments in new technology and equipment after almost three years of cuts.

"It's definitely a negative," said William C. Dudley, the chief United States economist at Goldman, Sachs, referring to the cost of energy. "It's just not at the point where we think it's recessionary. But it's fair to say people have generally underestimated the impact of oil-price spikes."

www.hinduonnet.com By N. Ravi Kumar

Nagapattinam March 1. A day after the Finance Minister virtually turned down his plea for an excise duty cut on petrol and diesel, by not making any announcement to the effect in the budget, the Union Minister of Petroleum and Natural Gas, Ram Naik, hinted at hard days ahead for the

consumers if the volatility in international crude price continues. "There is no choice if the price (of crude) goes up," he told presspersons after inaugurating the Rs. 96-crore oil jetty of the Chennai

Petroleum Corporation Limited (CPCL) at its Cauvery basin refinery here today.

Stating that several factors, including the war-like situation in the Persian Gulf and the ongoing labour strife in Venezuela, were behind the present volatility, Mr. Naik said, "if the duty (on the automobile fuels) is reduced," the resultant burden on the consumers would be comparatively less. With the country 70 per cent import dependent for its crude requirement — the oil import bill last year came to Rs. 78,000 crores — it had little option. "There are only two options, either to restrict the imports and stop economic activity, or reduce the supply," both of which were not easy, Mr. Naik said.

Noting that the Rs.1.50 per litre increase in petrol and diesel prices, after the latest fortnightly revision announced on February 28 evening, would have been double if the oil companies had compensated for the increase in the crude prices, the Minister said, "some sort of cushion arrangement (to absorb such shocks) were being tried out." The decision of the oil companies was their own and taken in the interest of the customers, he said, even while adding, "I will have a dialogue with the Finance Minister" seeking reduction in the excise duty.

Allaying apprehensions that the supply of petroleum products would be affected in the event of a war in Middle East, Mr. Naik said the stock-piling experiment conducted by the Ministry, when a war with Pakistan looked imminent last year, came in handy now. The present stock was enough to meet the country's requirement for two months and "we have made contingency plans to purchase crude from countries that do not come under the war zone."

However, he refused to divulge further details about the countries and the quantum of orders placed for obvious reasons. Similarly, he refused to comment on why the Centre continued to impose cess on petrol and diesel when the customers were already feeling the pinch of the volatility in the global crude prices.

Underscoring the significance of increasing the country's indigenous crude production, the Minister said the fourth round of the New Exploration Licensing Policy were to be announced in the first week of April and it would include blocks in the Cauvery basin. The Directorate General of Hydrocarbons, he added, would announce the details about the blocks. The present regime at the Centre, he added, awarded as many as 70 blocks under three rounds of NELP as against the 22 blocks awarded in the previous 10 years.

www.forbes.com Reuters, 03.01.03, 11:12 AM ET CARACAS, Venezuela (Reuters) - Venezuela's inflation rate jumped to 5.5 percent in February, the highest monthly rise in nearly seven years as many imported goods became scarce after leftist President Hugo Chavez introduced foreign exchange controls. Annualized inflation rose to 38.7 percent compared with 13.7 percent a year ago as the nation's oil-dependent economy fell deeper into recession, the Central Bank reported Saturday. A recent national strike, called to try to force left-winger Chavez to resign and hold early elections, cut back oil output by the world's No. 5 oil exporter, forcing the government to introduce foreign exchange restrictions and price controls on basic goods earlier this year. The Central Bank blamed the sharp rise in February on the government's move to stop the purchase of U.S. dollars without state permission. "This figure was mainly due to ... new foreign exchange controls that directly affected imports and supplies ... and sparked distortions in the market," the bank said in a statement. Chavez set a fixed exchange rate of 1,600 bolivars to the U.S. dollar -- a 16 percent revaluation -- and put other restrictions in place to stop dollars being siphoned out of the country, further destabilizing an economy that had been reeling from the strike. While the strike petered out last month, the economy is still feeling the impact of lost oil production, the country's main source of revenue. Venezuela's inflation rate closed 2002 at 31.2 percent, the highest level in five years and more than double the 12.3 percent recorded in 2001. Inflation in January this year was 2.9 percent. The February rise was the highest since June, 1996, when prices rose 7.1 percent. The economy shrank 8.9 percent in 2002, according to the government. Economists and analysts polled by Reuters in February predicted a sharper contraction this year of more than 13 percent. The poll saw inflation rising to 42.8 percent in 2003 from 31.2 percent last year.

www.barnstablepatriot.com By Edward F. Maroney

WAR CLOUDS FORECAST Maureen Kelliher, senior vice president of Citizens Bank, told Cape Cod Chamber of Commerce members Wednesday that the duration of a possible war with Iraq will determine the health of the American economy.

Wondering if the U.S. will take on Saddam Hussein in the next few weeks? Look to the oil strike in South America for the answer.

"My sense is that we cannot go to war until Venezuela comes back on line," said Maureen Kelliher, senior vice president of Citizens Bank, in an address to the Cape Cod Chamber of Commerce Wednesday on the economic outlook for 2003.

Drawing on the analysis of economists at the Royal Bank of Scotland, which owns Citizens, Kelliher said hopes for a full recovery from the recession ride on the duration of a potential war with Iraq.

One factor in determining the health of a country's economy is the status of its gross domestic product, or GDP. Kelliher tied that statistic to the price of oil.

"Every dollar above $26 per barrel drains $5 billion from the GDP," she said, adding that the price is fluctuating between $34 and $37.

Kelliher said there are three scenarios the American economy can follows in 2003. One envisions not going to war or staging a quick and successful campaign in Iraq. "If the conflict subsides quickly, the economy will return to growth in the second quarter," the banker said.

If the price of oil remains high (one of the "economic headwinds" she cited), Kelliher predicted a "flat to slightly positive GDP."

The third scenario envisions a prolonged war in Iraq with a concomitant loss of consumer confidence in the U.S. and a sharp climb in oil prices resulting in what Kelliher called "a double-dip recession."

Consumer spending has been the engine keeping the economy inching forward, according to the banker, who noted that the latest surveys find a decline in consumer confidence. She said the economy grew 2.8 percent last year in spite of big stories about corporate malfeasance and high-profile bankruptcies coupled with geopolitical jitters.

One saving grace, she noted, was that the cheating and failures of some companies "didn't have a lot of domino effect" on the rest of the economy.

The "truly robust housing market" continues to help, Kelliher said. She said she expects remortgaging activity to continue at its fast pace in 2003. "There's a lot of pent-up opportunity for the consumer to reduce his costs and strengthen his balance sheet," she said.

Asked whether technology stocks will rebound, Kelliher said corporate expenditures preparing for the Year 2000 computer conversions pushed up the value of such companies. "The problem," she said, "was that there was no Y2K (disaster)." Nevertheless, she expects a "small echo boom" as companies prepare to replace outdated information technology.

Chamber Offers Look at Fourth Quarter

The Chamber used the occasion to issue its fourth quarter economic update, which showed a 6 percent increase in state and local room tax revenue over the last three months of 2001.

A statistic based on use of one (unnamed) major credit card showed a 13 percent increase in credit charges, with the greatest jump coming in fuel products. Total transactions with the card in department stores were off 3 percent.

The number of single-family homes sold increased 5 percent over the same quarter in 2001, but the average sales price jumped 25 percent, from $275,845 to $344,497.

Visits to the Chamber's visitor centers and to Cape Cod National Seashore areas increased 4 percent.

Wendy Northcross, the Chamber's CEO, said Citizens Bank will sponsor the quarterly economic update this year.