www.nctimes.net Dan McSwain North County Times

Retail gasoline prices continued to surge higher Monday amid indications of soaring profits for some oil refiners and reports of scattered shortages at wholesale tanker terminals in Southern California.

In North County, the average gallon of regular cost $2.11, up 8 cents in a week, with only a handful of stations still selling for less than $2, according to a survey of 218 stations by the North County Times.

California's average was $2.08, a full 37 cents a gallon higher than the national figure of $1.71, reported a survey by the U.S. Department of Energy.

Energy analysts and gasoline traders said that North County's average is almost certain to shoot past $2.35 in the next week or so as California's oil industry reduces supplies during a technically difficult transition to a new grade of low-emissions gasoline.

North County drivers have swallowed increases of 55 cents a gallon since Christmas, a premium that costs the average, two-car family an extra $55 a month, according to state driving estimates.

"We have been expecting some bumps in California as people figure out how to handle this product going from winter to summer," said Joanne Shore, senior analyst at the U.S. Department of Energy. "Unfortunately, those bumps come on top of already high prices."

Powering retail price hikes were the state's seven dominant oil-refining companies, which have imposed dramatic increases in their charges to gas station owners.

Wholesale gasoline has jumped from around 70 cents a gallon in early January to nearly $1.50 on Monday. After accounting for 51 cents a gallon in federal, state and local taxes, the increases have forced dealers to fill empty storage tanks with fuel costing more than $2.

Oil economists say that about half of the increase is explained by higher world costs for crude oil, which have surged 50 percent since December in the wake of a political instability in Venezuela and war clouds in the Persian Gulf. The other half appears to have gone directly to U.S. refining giants.

Refiners averaged 53 cents in revenue from each gallon sold in California last week, up 96 percent from the 27 cents they earned in January, according to an estimate by the California Energy Commission, a state planning agency.

Station owners received an average 15 cents a gallon last week, while the cost of crude oil accounted for 89 cents, officials estimated.

Oil industry executives have generally attributed the recent rise in retail prices to underlying increases in crude oil costs. But on Monday officials acknowledged earning wider "refining margins," a term that describes the piece of each gallon sold that companies retain to cover operating costs and profits.

"Refining margins are obviously much better today, but they were negative on the West Coast last year," said Mary Rose Brown, chief spokeswoman for Valero Energy Corp., a San Antonio refining giant that owns two facilities in California.

Nicole Hodgson, a spokeswoman for ChevronTexaco Corp., the state's largest refiner, said that the firm has had no supply problems and is simply charging as much as consumers will pay.

"Like any good business, we charge what is competitive in the marketplace," Hodgson said. "If that's competitive, then people will come in and buy some gas."

However, there were signs Monday that consumers could be in for a breather. State officials say that gasoline imports increased in recent days, and oil industry officials say that an end to annual refinery maintenance could soon boost supplies and force down wholesale prices.

"My guys tell me that somewhere between the 9th and the 13th (of March), things will get back to normal," said Brown, the Valero spokeswoman.

Brown and other insiders say that a huge Arco refinery in Carson has been shut down for maintenance for two weeks longer than expected, panicking a market already rattled by rising crude oil prices and worries about supplies.

California drivers are no strangers to seasonal price spikes: Five of the last six years have featured sharp increases at the pump that began in February or March, according to the Energy Commission. However, the previous episodes have each been preceded by supply problems, typically from breakdowns at refineries.

Yet this time, analysts say that supplies are generally abundant according to federal inventory figures, although some truck terminals have reportedly run out of gas in the last week.

"I just can't imagine that there would be any shortage, anywhere, of gasoline right now," said Margaret Felts, a veteran refining analyst who heads MC Felts Corp. "What that means is that they (oil companies) are trying to make it look like a shortage."

Shore, the Department of Energy analyst, said that refiners may be experiencing short-term disruptions as they draw down storage tanks in order to avoid mixing winter grades of gas with a new, summer grade of low-emissions fuel. Under orders from Gov. Gray Davis, refiners are switching to ethanol, an agricultural product, and halting use of methyl tertiary butyl ether, or MTBE, an additive that burns cleanly but fouls groundwater.

Gasoline traders say they have been nervous about the transition for months, because ethanol takes up less volume than MTBE, forcing refiners to either produce or import 5 percent more gasoline, an enormous amount in the supply-constrained state.

Indeed, buyers for independent, "unbranded" stations say that local markets have been roiled by a series of mysterious spot shortages at refueling terminals for tanker trucks.

"There is no gas available in L.A.," said Bob van der Valk, manager of bulk fuels for Cosby Oil Co., an independent wholesaler in Santa Fe Springs. "We're lined up at the rack and sucking it out faster than they can put it in the tank."

Contact staff writer Dan McSwain at (760) 740-3514 or dmcswain@nctimes.com.

More on gas prices at www.nctimes.net/gas 3/11/03

www.thewest.com.au VIENNA OIL production would be boosted should war with Iraq disrupt supplies and send prices rocketing even further, the Organisation of Petroleum Exporting Countries pledged yesterday. The price of oil hit $US37.78 a barrel at the weekend, sparking fears of a shortage if war was to cut off Iraq's "legal" exports of about 1.9 million barrels a day or disrupt other producers in the Persian Gulf, such as Kuwait. But the price retreated to $US37.27 a barrel yesterday when OPEC's member countries, which produce about a third of the world's oil, said they would act to head off any shortfall and could lift production by as much as three million barrels per day. "We will do whatever we can to avoid a shortage," OPEC president Abdullah bin Hamad al-Attiyah said at the cartel's Vienna headquarters, after officials from Qatar, Algeria, Nigeria and Venezuela all agreed to a production hike in the event of a war. However, not all members agreed that an increase was possible, with United Arab Emirates Oil Minister Obaid Bin Saif al-Nasseri warning that OPEC was already producing at "almost full" capacity. OPEC's production ceiling is set at 24.5 million barrels per day, although most observers believe it is actually producing around 24.7 million barrels a day. Crucially, many observers doubt Venezuela's claims that it could lift its output to 3.5 million barrels a day by mid-April despite the lingering impact of a two-month oil strike at the start of the year. Venezuela yesterday claimed it was already producing 2.65 million barrels a day, and would reach its pre-strike production level of 2.8 million barrels by the end of the month. An OPEC delegate estimated Venezuela's production at 1.5 million barrels a day. Only Saudi Arabia, the world's biggest producer, is considered able to boost output significantly. Saudi is producing about 9.3 million barrels a day, but claims to have the capacity for 10.5 million barrels daily. Many OPEC members also fear lifting production quotas could result in a massive glut of oil and plummeting prices in the second quarter should Iraqi opposition to a United States invasion prove short-lived. -REUTERS with BLOOMBER

www.theage.com.au March 12 2003 By Neela Banerjee Vienna

Facing the prospect of war in Iraq and the continued shortfall of oil exports from Venezuela due to political unrest, the Organisation of Petroleum Exporting Countries was expected to announce at its meeting in Vienna yesterday that it would continue to supply as much oil as the markets need.

This is essentially an affirmation of what it has been doing for months, although with limited success. Most of the 10 voting OPEC members are pumping as much oil as they can, but prices have stayed high. In New York yesterday, crude oil for April delivery fell US51¢ cents, or 1.4 per cent, to $US37.27 a barrel.

But analysts in Vienna noted that prices would have been higher had OPEC not increased output, first to compensate for the loss of Venezuelan oil production and then to calm fears of a possible halt in Iraqi exports.

Recently, consumer countries, led by the United States and Europe, announced they would allow OPEC to make up for any possible shortfall in oil supplies if war broke out before they released oil from their own strategic stockpiles.

Most analysts think OPEC, at maximum capacity, could make up for the inconsistent Venezuelan production and the loss of 2 million barrels of Iraqi exports.

However Obaid bin Saif al-Nasseri, the United Arab Emirates Oil Minister, said on Monday that it would be "very difficult" for OPEC to make up for a halt in exports from Iraq and a simultaneous halt from nearby Kuwait.

www.canada.com Reuters Tuesday, March 11, 2003 Herald Archive, Associated Press

Iraqi officials said deployment of military forces to its oilfields and related facilities was to protect them, not blow them up if there's a war.

Iraq denied on Monday that it has placed explosives at the Kirkuk oilfields in northern Iraq to prevent them from being taken over in the event of a U.S. invasion of the country.

"Iraq is keen to defend its oil wealth and it is illogical that we burn our oil wealth with our own hands," Iraq's oil undersecretary, Hussein Suleiman Al-Hadithi, told Reuters.

A U.S. official told Reuters on Monday that Iraq had placed the explosives.

"There are indications that has taken place," the official said, adding that the movement had occurred "recently."

CNN quoted unnamed U.S. sources as saying there was also activity in the southern oilfields, with troops moving through them.

"These American statements are hostile and provocative," Hadithi said.

He said that Iraq had taken steps to guarantee oil production in case of war.

"Our oil production installations are working normally. If an aggression takes place against us, we have plans to continue production," he said.

The United States and Britain has massed tens of thousands of troops in the Gulf for a possible invasion of Iraq to punish its alleged non-compliance with UN weapons inspectors.

U.S. President George W. Bush has said he will push the United Nations Security Council to endorse a resolution this week giving authority for immediate military action.

Hadithi had said in an earlier statement that military defences had been set up at oil installations.

He also warned that the loss of Baghdad's two million barrels of daily exports could plunge markets into turmoil.

World oil prices have risen 50 per cent since November because of the threat of U.S.-led military action against Iraq and shortfalls caused by a general strike in oil producer Venezuela.

www.canada.com Reuters Tuesday, March 11, 2003

World oil prices dipped Monday as the United States and Britain struggled to convince wavering nations to back a United Nations resolution that would pave the way for war on Iraq.

Prices fell despite signs that the OPEC oil producer cartel, which meets today, was backing away from plans to suspend formal quotas on oil production should the United States attack Iraq.

U.S. light crude slipped 51 cents to $37.27 a barrel, below its recent peak of $39.99. Oil prices set a record high of $41.15 a barrel during the 1990-91 Gulf crisis.

London benchmark Brent for April fell 35 cents to $33.69 a barrel, below a session high of $34.55, its highest level since November 2000.

Oil prices are up 20 per cent this year on concerns that a war in Iraq could upset oil supplies from the Middle East.

A draft UN resolution proposed by the United States and Britain has set a deadline of March 17 for Iraq to satisfy all Security Council resolutions that it was co-operating fully with disarmament demands, or face war.

A vote could come as soon as today. The United States and Britain stepped up efforts to win support for the declaration, while veto-wielding members France, Russia and China are opposed to military action.

The prospect of disruption of Middle East oil supplies in the event of war is all the more serious in that it follows a strike that has crippled Venezuela's oil industry.

The Venezuelan stoppage and strong heating demand due to a severe northern winter have helped to reduce stocks in the United States, the world's biggest oil consumer, to the lowest levels since the Arab oil embargo of the mid-1970s.

OPEC powers Saudi Arabia and Kuwait had hoped to find backing at today's meeting of the Organization of the Petroleum Exporting Countries to set aside production quotas if war prevented Iraqi deliveries.

Saudi Arabia -- which holds the majority of OPEC's spare capacity -- is trying to convince the United States and other importers that OPEC can compensate for war stoppages without the need for a co-ordinated release from emergency stockpiles in consumer countries.

U.S. Energy Secretary Spencer Abraham said the United States was prepared to release crude from emergency reserves in the event of supply disruption, but a decision to release stocks would be made only in the event of a supply emergency.

Behind the scenes, Saudi Arabia has made clear that it is prepared to pump at maximum levels, with or without OPEC backing. Riyadh has lifted output sharply in recent weeks and is now pumping more than 9 million barrels daily of its 10.5-million bpd capacity.