www.thenassauguardian.com

Those of us in the market for house paint will no doubt be gratified by the Trade & Industry's Minister's remarks in Parliament recently.

With his determination to prevent fuel suppliers from raising prices, we are certain he will hold the line on other consumables – such as the house paint manufactured by a company called Sunburst.

The Wall Street Journal notes that while high oil prices represent a potential windfall for major oil companies, they also make doing business more expensive and eventually undermine oil demand. And the Economist Magazine adds "the sluggish state of the world economy points to softer prices once the spectre of war is gone."

Oil prices behave much like any other commodity, with wide price swings in times of shortage or oversupply. The loss of oil from Venezuela and the prospective loss of Middle Eastern oil if war breaks out have caused prices to climb 50 per cent since December. But in the past half-century they have only exceeded $22 per barrel in response to war or conflict in the Middle East.

The United States imposed temporary price controls on domestically produced oil in an attempt to reduce the impact of the 1973-74 Arab oil embargo. The obvious result was that American consumers of crude oil paid 48 per cent more for imports than for domestic production.

But according to the Energy Economics Newsletter, if controls had not been tried, "The higher prices faced by consumers would have resulted in lower rates of consumption: automobiles would have had higher mileage sooner, homes and commercial buildings would have been better insulated and improvements in industrial energy efficiency would have been greater."

So the Trade & Industry Minister is just doing the usual politicking, trying to fool some of the people all of the time. Is he really going to restrict pump prices because, as he suggested, increases over the past 20-odd years should be enough for Esso, Shell and Texaco, and their hundreds of Bahamian employees and dealers?

We also wonder if he asked the owners of the individual gas stations and workers how much money or profit they see in a week or in a year?

We doubt it, but we nevertheless urge the abolition of all price controls. They are economically unrealistic, unworkable and undesirable. And perhaps if fuel prices were allowed to follow the market, we would have less traffic congestion on our roads!

Posted on Fri, Mar. 07, 2003

ogj.pennnet.com Sam Fletcher Senior Writer

HOUSTON, Mar. 7 -- Futures prices for oil and petroleum products advanced Thursday as traders awaited a television press conference by President George W. Bush, scheduled after the close of trading sessions.

During his news conference, Bush said he would ask the United Nations Security Council for another vote next week on whether to declare Iraq in violation of arms restrictions. He again indicated that the US might take action even without UN approval.

The April contract for benchmark US light, sweet crudes gained 31¢ to $37/bbl Thursday on the New York Mercantile Exchange, while the May contract increased by 58¢ to $35.54/bbl. Heating oil for April delivery jumped by 1.17¢ to $1.0556/gal. Unleaded gasoline for the same month was up 0.51¢ to $1.106/gal.

Venezuela production Meanwhile, Venezuelan Energy Minister Rafael Ramirez said his country soon would be producing 2.8 million b/d of oil, its production quota assigned by the Organization of Petroleum Exporting Countries.

In an interview with state news agency Venpres, Ramirez said, "We are sure that we are going to recover national production during the first half of this month to its normal level of about 3 million b/d, which will allow us to reestablish the production quota set by the organization.

He said, "We are recovering our oil production in a sustained fashion. Currently, it is above 2.5 million b/d and within hours will be at 2.8 million b/d, which means that we will be at the required level for the internal market, where gasoline production is at 60%, but additionally will allow us to strengthen exports."

However, the US Energy Information Administration this week estimated that Venezuela's oil production could increase to 1.8 million b/d by the end of this month, up from a production average of 1.4 million b/d in February.

EIA also predicted that OPEC might suspend production quotas for its other members if military action disrupts Iraq's oil production.

Iraqi production UN officials meanwhile reported Iraq's oil exports increased to 1.9 million b/d during the week ending Feb. 28, up from 1.7 million b/d the previous week under the UN supervised oil-for-aid program. The price for that oil also increased by 15¢ to $28.70/bbl.

However, the 4-week average for Iraqi oil exports fell to 1.73 million b/d, officials said.

Due to a cumulative shortfall of $4.5 billion in Iraq's oil revenue, largely as a result of self-imposed stoppage of oil exports during disputes with UN officials, 2,389 humanitarian supply contracts have been approved by the UN but remain unfounded.

Other prices The April contract for natural gas lost 17.7¢ to $6.84/Mcf Thursday on NYMEX. That market "remains perched on the edge of winter, with continued cold in the Northeast and thinning storage levels holding up next-day cash prices.

"But traders expect to see short covering today ahead of the weekend and a possible war on the horizon," analysts at Enerfax Daily reported Friday. That buying might bring the April gas contract back above $7/Mcf, they said.

"Meanwhile, despite the strength in natural gas prices, we do not expect a significant up tick in US LNG imports near term, due primarily to the limited availability of LNG tankers for spot trade," said Robert Morris, Salomon Smith Barney Inc., New York, in a report Thursday.

US imports of LNG have been limited also by recent shutdowns of nuclear plants in Japan after Tokyo Electric Power Co. admitted to falsifying maintenance reports at its nuclear plants. Authorities ordered all 17 of the company's nuclear plants to be shut down by April for inspections; 13 have already shut down.

In London, the April contract for North Sea Brent oil gained 53¢ to $33.53/bbl Thursday on the International Petroleum Exchange. The April natural gas contract, however, lost 4.4¢ to the equivalent of $2.93/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes gained 21¢ to $32.50/bbl Thursday. Contact Sam Fletcher at samf@ogjonline.com

biz.yahoo.com Friday March 7, 3:22 pm ET

NEW YORK (Reuters) - World oil prices hurtled higher again on Friday as the United States and Britain set a March 17 ultimatum for Iraq to disarm or face war.

A revised draft resolution circulated by British Foreign Secretary Jack Straw at the United Nations, backed by Washington, gives Baghdad 10 days to meet U.N. demands.

The two allies during that time hope to garner support in the bitterly divided 15-member United Nations Security Council for military action against Iraq, which ships around 4 percent of world oil exports.

U.S. light crude climbed 78 cents to $37.78 a barrel, barely $2 short of a recent 12-year high. Brent crude futures rose 57 cents to $34.10 a barrel, a two-year high.

"News of that deadline is certainly keeping the market very strong," said broker Christopher Bellew of Prudential Bache in London.

"Any final deadline will give the market another shove to the upside," said Tom James of broker Carr Futures.

Oil prices have already jumped 20 percent this year on fear that war in Iraq will hit exports from the Middle East, which pumps a third of the world's oil. Concern is growing that rising energy costs will further strain a weak economy.

PRESSURE ON

Iraq's March 17 deadline puts pressure on the Security Council to adopt the resolution as soon as possible. The United States and Britain intend to bring the issue to a vote on Tuesday, diplomats said.

The new draft would order Iraq to give to inspectors "all weapons, delivery, support systems and structures" prohibited under U.N. resolutions as well as all "information regarding the destruction of such items."

While the United States and Britain have moved some 300,000 troops into the Middle East to prepare for the possible invasion of Iraq. French Foreign Minister Dominique de Villepin said on Friday that Paris could not accept the March 17 deadline.

France, a permanent member of the council with veto power, has been leading opposition in the 15-nation council to military action. Fellow veto-wielding council members Russia and China oppose war.

Secretary of State Colin Powell told the council on Friday that only the credible threat of force could ensure Iraqi compliance and the limited progress on disarmament was caused by the presence of the large military presence in the Gulf.

News of the planned new U.N. deadline came shortly after U.N. inspectors gave Iraq mixed grades on disarmament progress.

Chief weapons inspector Hans Blix told the Security Council Iraq had made some progress toward disarmament but its actions could not be considered immediate cooperation.

He said disarming Iraq would need more time.

An oil workers' strike in nearby Venezuela, and strong heating demand in a bitter northern winter has already drained U.S. fuel stocks. The government warned on Thursday that gasoline prices would hit record levels this summer.

Saudi Arabia, the biggest producer in the Organization of the Petroleum Exporting Countries cartel, has said it will raise production to meet any shortfall international market

Consumer countries represented by the Paris-based International Energy Agency have also said they will release emergency stockpiles for the first time since the 1991 Gulf War if necessary.

Despite rising energy prices, the White House said on Friday that President Bush is only inclined to tap America's Strategic Petroleum Reserve in the event of an emergency.

www.financialexpress.com Jyoti Sagar

War worry. Cold wave. Production pitfalls. Looks like a “perfect storm” is brewing in the oil prices market. Despite the outpouring of public outcry at the prospect of attack on Iraq, President Bush seems to be politically and strategically poised on the brink of war. This has created a ’fear psychosis’ sending oil prices north-bound. The cold weather is contributing to the price-spiral creating an unprecedented demand for heating oil in countries like US and Canada, sending inventories down and prices up. To add to the brimming woes, the Venezuela oil workers’ strike shows no sign of a let-up leading to a ’scarcity phobia’. Result: worldwide oil panic. A panic that is sending governments, politicians, economists and analysts in a tizzy as they conjure up images of likely war scenarios and their impact on oil markets, global recession and macro-economic parameters. What would be the impact of a Middle-east war on India? Can we withstand the shock? What is the prescription we have in hand? Will it insulate us from the storm or at least give enough cover till it blows over?

Prime Minister Atal Bihari Vajpayee and petroleum minister Ram Naik, with the customary political bravado have made light of the situation saying that forex reserves were enough to import more oil should the situation demand, that oil production from other countries would make up for the shortfall from Iraq, (the move from ad valorem duty structure to specific duties over a long period would minimise the impact on consumers) and measures like car-less days could help tide over the crisis in the short-term. For the longer term, the government has gone ahead and announced the setting up of strategic oil reserves at a capital cost of Rs 4,300 crore. This would be besides an inventory cost of Rs 1,800 crore annually. This cost, announced the government, would be met through a special cess on petroleum products. Brave, new step. But it raises several questions. Here’s why:

First, the cost factor. Whereas the government claims that the inventory-cost of 45-day strategic oil reserves (approximately 90-100 million barrels) is Rs 1800 crore annually, data culled from various government sources reveals that taking into consideration the storage, transportation, insurance, safety and protection costs, evaporation losses etc, total carrying cost of the reserves will not be less than a whopping Rs 15,600 crore. Whether the government decides on a cess or one-time grant to finance this, the fact is that ultimately it will be the consumer who will directly or indirectly pay for this. The question is can India afford this ’solution’?

Second, storage logistics. The government says that to begin with, it will create storage tanks at Rajkot, Mangalore and Vizag to stock 5 million tonne of crude oil. These tankages will take three and a half years to build and pose several issues that need to be addressed. For one, oil is a physical/liquid asset. It is vulnerable to evaporation, accident and spillage losses. It may even pose a security and defence threat. Remember the torching of oilfields and oil wells by Saddam Hussain in Kuwait in the 1991 Gulf war.

Third, quality and specification issues. That we will build oil reserves is the simple part. More complex is what type of crude will we import? There are some seven grades of oil available like Arab light, Brent, Arab Middle Distillate, West Texus Crude, Dubai Fateh, Isthmus, Minas and the mix. What may be good for one refinery may not be good for another. Crude procurement and storage therefore has to be location specific. Besides, the procurement must be product-specific and dictated by the demand. This requires a detailed study of product demand so that reserves can be built accordingly. conducted. Fourth, the rationale for creation of oil reserves is insulation from international price volatility, especially the sudden swing in prices dictated by unforeseen circumstances, like the impending war. However, in reality when countries start building reserves in anticipation of price hike, it actually creates ’artificial scarcity,’ akin to grain hoarding in times of famine. The net impact is price distortion.

Besides, there are other mechanisms available today to minimise international oil price volatility. Hedging is one. Through financial instruments like futures and options, one can secure supplies and optimise costs. Long-term trade agreement can also help in insulating against periodic swing in prices.

Creation of strategic oil reserves, at best, is a short-term supply-side security. Any long-term policy must take into account four factors-equity, security, efficiency and environment. Such a policy has to take into consideration development of alternative sources of energy especially bio-fuels, solar and wind energy in our country to arrive at a good energy-mix.

(The author is Managing Partner, J Sagar & Associates)

www.townonline.com By Erin Clossey / Staff Writer Friday, March 7, 2003

Tom Clarke has his favorite gas station, he's been going there a while. But during the past year, the Everett Avenue resident has been known to stray from his usual filling spot, searching out cheaper fuel for his Volkswagen Jetta.

"I have my eye out when I drive. I have my antenna up," he said.

Prices at the pump have become outrageous compared to only a few months ago. The average price per gallon of regular unleaded gasoline in Watertown is $1.69 - with a high of $1.79 and a low of $1.63. Independent stations are able to charge less than name-brand dealers, but anywhere you go, you're going to pay more for gas than you're accustomed to.

"I try to conserve, I look for the best priced station, I do," Clarke said.

He's not the only one trying to conserve. At Toyota of Watertown, there has been a "flood" of interest in the Prius, Toyota's electric/gasoline hybrid model, said Craig Heinonen, sales manager.

People are still buying gas-guzzling sport utility vehicles, Heinonen said. But many are trading in their SUVs for more gas-efficient cars these days, and sales of the Prius have gone up about 50 percent in just months, he said. Heinonen admitted that a lot of that had to do with increasing awareness of hybrid vehicles in general, but he believes that soaring gas prices are a huge factor.

The Prius gets 52 miles to the gallon on the highway. The Sequoia, Toyota's largest SUV, gets about 17 highway miles to the gallon.

"When people see 52 miles to the gallon, right away, they're saying 'wow, look at this,'" he said.

There are three major factors contributing the price of gas today, said Mark Williams, professor of finance and economics at Boston University's School of Management and a former senior vice president of global risk management at Citizens Power Boston. A looming war in Iraq, political upheaval in Venezuela, the world's third-highest producer of crude oil, and general instability in many of the 10 countries that make up OPEC all have contributed to driving the cost of oil per barrel up by 60 percent in a few months, Williams said.

What this country considers a "reasonable" cost of oil is about $25 per barrel, which is where it was last fall, Williams said. Today, oil costs around $40 per barrel, and the futures on Wall Street aren't predicting a return to normal pricing until June 2004, he said.

This obviously means heartbreak for consumers (although Williams said the 60 percent increase in the cost of oil has only translated to an increase of 23 to 25 percent in gas prices at the pump. If the cost rose proportionately, we'd all be paying $2.50 per gallon). Williams said he was still surprised on a recent morning to put $25 of gas into his car, and instead of seeing the needle jump all the way to full as it normally does, hover around the three-quarter mark. He nonetheless was able to get away with only $1.85 per gallon for high-octane gas at an independent dealer.

"I felt pretty proud," he said.

As of early this week, the cheapest gas in town was at Belmont Street Auto, which sells gas under the generic label, XTRA. Owner/manager George Artin said he scouts out other filling stations in town and tries to under price them. His price of $1.63 per gallon was 2 cents cheaper than the next lowest price, offered by most of the other non-brand name stations and Getty and Hess stations.

About 80 percent of his customers are regulars, Artin estimated, but the gas is just a lure to get people into the heart of his business, the repair shop.

"Believe me, nobody makes money on gas," Artin said.

Stations who sell name-brand gasoline generally charge more for their product because factored into the cost are fees charged for the privilege of displaying the Mobil or Sunoco name. But octane to octane, gas is the same wherever it comes from, Williams said.

As owner/manager of S&P Shell on Orchard Street, Bill Kaufman said he is forced to charge higher prices for his gas ($1.79 per gallon) in part because of Shell Corp.'s pricing system, which has prompted a number of local dealers take Shell to federal court.

A completely Shell-owned and operated station in Waltham is able to charge just $1.65 per gallon, which Kaufman says is less than what he pays for the gas. But because he is an operator who leases the full-service gas and repair station, Kaufman has a lot of overhead he needs to worry about. Shell took away its rent incentives to dealers, and because Watertown only permits full-service gas stations, he must also pay someone to pump gas, he said.

Gas prices haven't mattered much yet to Ron Dilbarian. Because he is currently out of work, so does less traveling than he typically would, he said. But he still goes to the Sunoco station on Bigelow Avenue to fill up his Ford Taurus, regardless of what other stations are charging, because it's so convenient to his East End home.

"Nothing has changed," he said.

Erin Clossey can be reached at eclossey@cnc.com.