boston.com By H. Josef Hebert, Associated Press, 3/5/2003 19:23

WASHINGTON (AP) President Bush ordered a rush of oil into the government's Strategic Petroleum Reserve after the Sept. 11 attacks, and the Energy Department stopped its practice of holding off shipments to the reserve when prices got high or supplies got tight.

A report by Senate Democrats Wednesday maintained the decision, which diverted 40 million barrels of crude from the markets into the government-owned reserve last year, helped drive up gasoline and other energy prices.

With markets tight and oil prices high, refiners dipped into their inventories to replace the oil going into the government reserve, said the report produced by the Democratic staff of the Senate Governmental Affairs investigations subcommittee.

''We're confident this had a significant impact on the price of oil in 2002,'' Sen. Carl Levin of Michigan, the ranking Democrat on the subcommittee and its chairman last year.

Energy Secretary Spencer Abraham rejected the notion that the government's decision significantly affected energy prices. He said the amount was too small to have an impact.

''The principal issue here is national security and we believe and continue to believe that enlarging the amount of emergency reserves we have in the strategic reserve is very important to America's energy and national security,'' said Abraham.

A department spokesman, Joe Davis, added that the reason inventories dropped was OPEC's decision to cut production in early 2002, a decline in Iraqi oil exports and losses of oil from Venezuela last December. As for oil that went to the SPR, ''we're talking about a drop in the bucket,'' said Davis.

Some critics also have said taxpayers have lost million of dollars because of oil acquisitions for the reserve during periods of high prices. While the government does not technically buy oil, it accepts oil in lieu of royalty payments on oil pumped from federal land.

At 100,000 barrels a day, filling the reserve when crude was selling at $30 a barrel rather than $20 a barrel cost taxpayers $1 million a day in lost royalties, the Levin report said.

During 2002, when oil was diverted steadily into the strategic reserve, oil prices climbed steadily from the low $20s early in the year to over $30 a barrel by September. After easing a bit, prices soared again toward the end of 2002, remaining largely above $30 a barrel as crude inventories tightened. War jitters have caused prices to continue their climb this year, recently passing $37 a barrel before retreating modestly.

The department reversed course on filling the reserve last December, with Venezuelan oil production halted and commercial inventories extremely low, and suspended delivery of oil to the SPR from December through March. On Tuesday, it said April deliveries also would be deferred.

Levin said such a decision should have been made a year ago, arguing that the reserve already has plenty of oil to meet emergency needs. Currently there are 600 million barrels of crude equivalent to four months of oil imports from the Middle East stored in salt caverns on the Gulf Coast.

Before December, oil company requests for deferrals of deliveries to SPR were routinely denied, the report said.

Internal DOE documents indicated that career officials involved in the SPR program cautioned that private oil inventories could suffer, leading to higher prices.

''Commercial petroleum inventories are low, retail product prices are high and economic growth is slow,'' said one memo from a senior SPR official in late May of 2002. ''The government should avoid acquiring oil for the reserve under these circumstance.'' Such purchases ''would be difficult to defend,'' he continued.

A reduction in private oil inventories equal to amounts put into the SPR ''could have a substantial price impact,'' said another memo, obtained by Levin's subcommittee.

John Shages, a director of policy for the SPR program, expressed his concern last June that filling the reserve could significancy impact private crude stocks and force up prices.

He characterized the SPR diversions as potentially ''a powerful 30 million barrel reduction of private inventory over 10 months'' if the oil is not replaced by OPEC or other producers. ''Come December ... we will have higher prices, nervous traders, a more confident OPEC...''

Commercial crude inventories declined from 310 million barrels to 280 million barrels during 2002 and another 10 million barrels early this year. Energy economists have cited the low inventories as a key reason for the sharp price increases of crude as well as gasoline and heating oil.

In April 2002, a BP executive repeatedly sought to have a scheduled delivery to the SPR postponed, according to e-mails obtained by the Senate investigators.

''Oil prices keep rising,'' wrote James Dyer to Michael Waggoner at the SPR office. ''As of this morning we calculate a year's deferral would be worth an extra 750,000 to you,'' Dyer wrote, referring to the premium in barrels that BP would agree to pay for later delivery.

But the department said no.

In October, Marathon Ashland Petroleum asked to defer its scheduled shipment to the SPR because a hurricane had kept oil from getting to its Louisiana refinery and it needed all the crude it could get. The refinery had ''nearly depleted all its crude oil working inventory,'' wrote Marathon Ashland's Daniel Pears to Waggoner.

His request was also denied.

On the Net: Strategic Petroleum Reserve: www.fe.doe.gov reserves.html Senate Governmental Affairs investigations subcommittee: www.senate.gov affairs/psi.htm

www.guardian.co.uk Thursday March 6, 2003 12:20 AM

WASHINGTON (AP) - President Bush ordered a rush of oil into the government's Strategic Petroleum Reserve after the Sept. 11 attacks, and the Energy Department stopped its practice of holding off shipments to the reserve when prices got high or supplies got tight.

A report by Senate Democrats Wednesday maintained the decision, which diverted 40 million barrels of crude from the markets into the government-owned reserve last year, helped drive up gasoline and other energy prices.

With markets tight and oil prices high, refiners dipped into their inventories to replace the oil going into the government reserve, said the report produced by the Democratic staff of the Senate Governmental Affairs investigations subcommittee.

``We're confident this had a significant impact on the price of oil in 2002,'' Sen. Carl Levin of Michigan, the ranking Democrat on the subcommittee and its chairman last year.

Energy Secretary Spencer Abraham rejected the notion that the government's decision significantly affected energy prices. He said the amount was too small to have an impact.

``The principal issue here is national security and we believe and continue to believe that enlarging the amount of emergency reserves we have in the strategic reserve is very important to America's energy and national security,'' said Abraham.

A department spokesman, Joe Davis, added that the reason inventories dropped was OPEC's decision to cut production in early 2002, a decline in Iraqi oil exports and losses of oil from Venezuela last December. As for oil that went to the SPR, ``we're talking about a drop in the bucket,'' said Davis.

Some critics also have said taxpayers have lost million of dollars because of oil acquisitions for the reserve during periods of high prices. While the government does not technically buy oil, it accepts oil in lieu of royalty payments on oil pumped from federal land.

At 100,000 barrels a day, filling the reserve when crude was selling at $30 a barrel rather than $20 a barrel cost taxpayers $1 million a day in lost royalties, the Levin report said.

During 2002, when oil was diverted steadily into the strategic reserve, oil prices climbed steadily from the low $20s early in the year to over $30 a barrel by September. After easing a bit, prices soared again toward the end of 2002, remaining largely above $30 a barrel as crude inventories tightened. War jitters have caused prices to continue their climb this year, recently passing $37 a barrel before retreating modestly.

The department reversed course on filling the reserve last December, with Venezuelan oil production halted and commercial inventories extremely low, and suspended delivery of oil to the SPR from December through March. On Tuesday, it said April deliveries also would be deferred.

Levin said such a decision should have been made a year ago, arguing that the reserve already has plenty of oil to meet emergency needs. Currently there are 600 million barrels of crude - equivalent to four months of oil imports from the Middle East - stored in salt caverns on the Gulf Coast.

Before December, oil company requests for deferrals of deliveries to SPR were routinely denied, the report said.

Internal DOE documents indicated that career officials involved in the SPR program cautioned that private oil inventories could suffer, leading to higher prices.

Commercial petroleum inventories are low, retail product prices are high and economic growth is slow,'' said one memo from a senior SPR official in late May of 2002. The government should avoid acquiring oil for the reserve under these circumstance.'' Such purchases ``would be difficult to defend,'' he continued.

A reduction in private oil inventories equal to amounts put into the SPR ``could have a substantial price impact,'' said another memo, obtained by Levin's subcommittee.

John Shages, a director of policy for the SPR program, expressed his concern last June that filling the reserve could significancy impact private crude stocks and force up prices.

He characterized the SPR diversions as potentially a powerful 30 million barrel reduction of private inventory over 10 months'' if the oil is not replaced by OPEC or other producers. Come December ... we will have higher prices, nervous traders, a more confident OPEC...''

Commercial crude inventories declined from 310 million barrels to 280 million barrels during 2002 and another 10 million barrels early this year. Energy economists have cited the low inventories as a key reason for the sharp price increases of crude as well as gasoline and heating oil.

In April 2002, a BP executive repeatedly sought to have a scheduled delivery to the SPR postponed, according to e-mails obtained by the Senate investigators.

Oil prices keep rising,'' wrote James Dyer to Michael Waggoner at the SPR office. As of this morning we calculate a year's deferral would be worth an extra 750,000 to you,'' Dyer wrote, referring to the premium in barrels that BP would agree to pay for later delivery.

But the department said no.

In October, Marathon Ashland Petroleum asked to defer its scheduled shipment to the SPR because a hurricane had kept oil from getting to its Louisiana refinery and it needed all the crude it could get. The refinery had ``nearly depleted all its crude oil working inventory,'' wrote Marathon Ashland's Daniel Pears to Waggoner.

His request was also denied. ^--- On the Net: Strategic Petroleum Reserve: www.fe.doe.gov Senate Governmental Affairs investigations subcommittee: www.senate.gov

www.sfgate.com Wednesday, March 5, 2003
(03-05) 14:41 PST MEXICO CITY (AP) --

Mexican stock prices inched up in slow trading Wednesday, helped by share buybacks and the weakening of the peso against the dollar.

The market's key IPC index closed up 0.1 percent or 3.17 points to 5,914.41. At the end of 2002, the IPC stood at 6,127.09.

Volume was 57.1 million shares worth 783.7 million pesos, compared with Tuesday's 46.4 million shares traded.

A Mexico City trader said the local market moved a little independently from U.S. equities as some companies took advantage of current prices to buy back their own shares.

Among individual stocks, bellwether Telmex L shares rose 0.9 percent to 16.36 pesos, retailer Walmex C shares rose 0.9 percent to 22.45, while brewing and bottling concern Femsa UBD shares rose 0.6 percent to 35.95.

Wireless telephony concern America Movil L shares slipped 0.4 percent to 7.57.

RIO DE JANEIRO, Brazil (AP) -- Brazil's stocks ended higher Wednesday as light bargain hunting offset previous losses amid paper thin volume as investors slowly returned from the Carnival holiday.

After tracking losses in Wall Street for most of the session, Brazil's key Ibovespa index ended 0.24 percent higher at 10,305 points on volume of 263 million reals.

Among the gainers was bellwether Telemar, which ended 0.84 percent higher at 23.90. Oil giant Petrobras, however, lost 2.53 percent to 41.61 reals.

Power distributor Eletropaulo dropped 1.42 percent to finish at 22.97 as investors remain aprehensive over the future of the utility. Brazil's development bank BNDES is expected to take back control of the company after AES, which owns the utility, missed a loan payment in January.

BUENOS AIRES, Argentina (AP) -- Argentine stocks closed mixed Wednesday, taking in stride a Supreme Court ruling that struck down part of last year's "pesification" decree, which converted dollar loans and deposits into devalued pesos.

The blue chip Merval Index was 1.41 points, or 0.2 percent lower at 595.17 points. The broader General Index was 28.89 points, or 0.01 percent higher, at 28,309.36 points.

Twenty two companies rose, 30 fell back and 11 were flat. Volume traded was 26.73 million pesos.

In the end, two of the three blue chip bank stocks closed the day higher. Banco Frances was up 1.2 percent to 5.08 pesos and local bank Bansud 2.9 percent at 1.41. Only banking group Grupo Financiero Galicia fell back, closing 3.3 percent lower at 78 centavos.

In its decision, the court ordered the state-owned Banco de la Nacion to return almost $250 million in dollar savings that the province of San Luis had held in the bank when the so-called pesification decree converted all dollar-deposits into recently devalued pesos at ARS1.40 per dollar. With the peso now worth 3.185 per dollar, the dollar deposits are now worth less than half their original value.

CARACAS, Venezuela (AP) -- Venezuelan shares ended a lower Wednesday with the IBC General Stock Index closing at 8,155 points, down about 4 percent, following the market's biggest stock, telephone giant CA Nacional Telefonos de Venezuela, which lost 2.7 percent.

CANTV, as the company is known, ended at 2,296 bolivars per share, down 64.00.

www.upi.com By Ian Campbell UPI Chief Economics Correspondent From the Business & Economics Desk Published 3/5/2003 6:56 PM

Duct tape is selling, but not much else. The problem is "geopolitical," "war," "Iraq" and "layoffs."

It cannot be very often that the word "geopolitical" has appeared 12 times in the not very long Beige Book report, the U.S. Federal Reserve's eight times per year summary of economic conditions, the latest of which was released Wednesday afternoon.

It does this time. The report provides yet more evidence of the decline of the U.S. consumer, daunted by imminent war and uncertainty about the economy.

"Many reports indicated that geopolitical and economic uncertainties were constraining consumer and business spending," the Fed says it its summary.

Duct tape, which doesn't seem to be the sternest of protection against a terrorist attack, is being bought for its defensive qualities. And "defensive" describes the usually unstoppable U.S. consumer.

"Overall consumer spending remained weak during January and February," the Fed writes. Even with the short-term interest rate at 1.25 percent and the government slashing taxes, consumption is weak. That is a recent development, which takes the U.S. economy into hazardous new territory.

The territory comes in part with the prospective invasion of Iraq. The word "war" appears nine times in the Beige Book; "Iraq" six times. All over the country, in different sectors of the economy, the weight of impending war is being felt.

"Commercial lending remained weak, in part because of the uncertainty over Iraq," the Richmond Fed says.

Time for a nice new car? "Compared with contacts in other industries, auto dealers appeared to be more adversely affected by uncertainty over a possible war with Iraq," the Kansas Fed says.

There will be "no sign of a real pick-up in activity until the Iraq situation is cleared up," says a plastics producer in North Carolina.

Rising oil prices don't help either. They are being "pushed up by continued global uncertainties in Iraq and Venezuela," the Dallas Fed reports

Yet war is only half the problem. The St. Louis Fed found car dealers reporting that sales in December and January fell from year-earlier levels. "Almost all contacts," the Fed said, attributed this to "the threat of war" and "to an uncertain economy."

"Layoffs," a word occurring five times in the Beige Book, are the threat.

The summary says: "State fiscal woes were cited as contributing to layoffs in the Minneapolis and Kansas City regions."

The Minneapolis Fed reports more than 1,000 layoffs in the high-tech and financial services sectors -- and a bus manufacturer.

From the Boston Fed, the reports are particularly bleak. "About one-half of the manufacturing contacts expect to shrink their workforce in coming months." Most of the rest are holding steady "following layoffs in recent months."

Boston adds another negative factor for economic prospects: "In 2003, merit pay increases are or will be modest, ranging from zero percent to 4 percent at most firms."

War and economic uncertainty are then the themes of this Beige Book. When the next one appears on April 23, there can be little uncertainty about one thing: the war will already be being waged or be over.

If the war is swiftly won, will the economy then be stronger?

A cloud, it is true, would have lifted. Oil prices would come down. But war is only one of the clouds hanging over the U.S. economy. The fiscal position is bad. State and municipal governments are having to cut back on staff and spending. The consumer, so long a free spender, was and is uncertain about the economy, not just Iraq, and is right to be.

The economy's decline from those euphoric days when money grew on trees known as "stocks" continues. War is just an ugly episode on the way down.

-0-

(Comments to: icampbell@upi.com)

www.foxnews.com Wednesday, March 05, 2003 By William La Jeunesse

The sight of massive oil fields aflame is a recurring nightmare for many Kuwaitis and a memory they find hard to forget.

To prevent another economic and environmental disaster in a showdown with Iraqi leader Saddam Hussein, Kuwait is closing oil wells along the Iraqi border and guarding oil refineries and fields with Patriot missiles.

"If I told you we are not worried I'd be lying. There is a chance they will send scuds," said Mohammed Al-Sager, a Kuwaiti member of parliament.

Off the shores of this small nation along the Persian Gulf, coalition destroyers are also on patrol, boarding suspicious boats that might be considered a terrorist threat.

"Saddam has a history and his history is damaging," said Kuwaiti oil analyst Kamel Al-Harami. "He poisons his own people. You can't put prediction on him."

It's precisely that uncertainty that has oil markets nervous, despite assurances OPEC can offset any loss in production caused by a war with Iraq.

"If there is any shortfall, all the OPEC ministers said they would increase production straight away," said Nader Sultan, the CEO of Kuwait Petroleum Co.

Precisely how that will happen is not yet clear. Saudi Arabia is the only OPEC nation with excess capacity, roughly 2 million barrels a day, just enough to cover losses in Iraqi output.

But with Venezuela, a key non-Arab OPEC member, still operating well below capacity, analysts say the margins are razor-thin. That leaves the world market unprepared for any disruption in Kuwait, according to experts.

"We are cautious, but we are alarmed," said Al-Harami.

That may explain why Kuwait on Wednesday allowed a group of international reporters to tour its most secure oil facilities. Soldiers were on high alert and the fields were operating quietly, pumping millions of gallons per day onto tankers protected by an armada of warships against Iraq and Al Qaeda terrorists vowing to retaliate against the West.

"We in Kuwait are guarded," said Al-Harami. "I think the threat is minimal."

While Iraq could lob a rocket into Kuwait, analysts fear a chemical weapon more than conventional warhead hitting a refinery. Oil speculators have also assumed the worst, sending prices once again towards $40 a barrel.

It didn't help Tuesday when Ahmed al-Arbeed, the chairman of Kuwait Oil Co., said the state was shutting down its western oil fields, cutting national production by a third. But the government on Wednesday issued a clarification, saying the executive did not speak for the state, and assured markets Kuwait could uphold production quotas.