washingtontimes.com Gary M. Galles

     The recent surge in gasoline prices has triggered the typical American response — politicians portraying themselves as voters' protectors against the evils of the market. Of particular note has been public servants' scrambling for air time and column space by demanding an investigation — into whether higher gas prices reflect collusion. But it is all consumer advocate imagery devoid of substance.      Absent a smoking gun documenting conspiracy, which is already illegal, not to mention impossible if the government was really protecting us, collusion is unprovable from the available price data. The reason is that the evidence of collusion is higher prices, but multiple political and market forces, with hard or impossible to quantify effects, have been pushing up gas prices. There is no way to accurately subtract the magnitude of those effects from the actual increase in market prices, particularly because the relevant costs are forward-looking, rather than historical, to demonstrate collusion.      Events in Iraq, Venezuela and elsewhere have increased crude oil prices, and with it the price of gas. And the decision to add to the Strategic Petroleum Reserve has done the same. But any alleged collusion among refiners has nothing to do with that.      Of more importance to the retail gasoline market is the uncertainty about future oil supplies. A refiner who plans to stay in business will have to replace any oil used up in current gas production, so that the relevant cost of that oil is what it is expected to cost in the near future, not what the oil they are now processing cost yesterday. But no investigator can know what that cost "really" is in the face of the present uncertainty (where war jitters add to weather forecasting, the proper timing for seasonal gasoline blend switchovers, etc., as complicating factors) . As a result, no possible relationship between the present or past cost of oil and current retail gasoline prices can demonstrate gouging or collusion.      California's cleaner gas mandate has also raised refining costs, as well as isolating California from most short-term outside sources of gasoline, since they do not conform to California's "recipe." Again, there is no way to establish exactly how much prices per gallon should rise to cover the added billions of refining costs, because that would require knowing how many total gallons will be sold, the rate of return companies "should" earn on investment, how long before California forces them to reformulate again, throwing some refinery investment away, etc.      These changes and more would have to be both understood and accurately quantified before any analysis of gasoline prices capable of establishing collusion could be done. This has not and probably cannot be done, given the multiple interacting market forces at work. But that has not stopped the political scapegoating of "big oil" in search of the conspiracy theory vote, for a simple reason. The mere accusation puts the burden of proof on oil companies, who cannot disprove the ill-defined charges beyond a shadow of a doubt any more than their accusers can prove them. But the posturing buys politicians more exposure and more votes in the next election.      If there is collusion, it should also show up in unusually high profits for refiners. But oil-refining profits have long been marginal, at best, which is also demonstrated by the substantial fall in U.S. refining capacity over the past two decades ("greedy" firms don't rush for the exits of highly profitable lines of business). This is anything but proof of successful collusion. As Salomon Brothers oil industry analyst Paul Ting said during an earlier episode of gouging and collusion accusations that recur every time gas prices spike: "Are oil companies gouging, making unconscionable profits? The indications are that on the refining and marketing side, the earnings have actually been abysmal."      What should we make of a government collusion witch hunt that cannot possibly prove what it is looking for, and which ignores clear evidence of abnormally low profits? It seems, more than anything else, to demonstrate that rather than relying on the government to protect us against the evils of the market, we need to rely more on the market to protect us against the evils of grandstanding government policies.      And after the 1970s, we shouldn't need this reminder. After all, while the market price of gas rises when underlying conditions of supply and demand warrant, only the government can create blocklong gas lines.             Gary M. Galles is a professor of economics at Pepperdine University in Malibu, Calif.

edition.cnn.com Thursday, March 13, 2003 Posted: 0626 GMT ( 2:26 PM HKT)

TOKYO, Tokyo (Reuters) -- Japan's corporate goods price index (CGPI), a measure of companies' costs, showed Thursday that wholesale prices declined at their slowest rate in two years in February.

The domestic CGPI, a revamped version of the wholesale price index, was down 0.9 percent from February 2002 and up a preliminary 0.2 percent from January, the Bank of Japan said on Thursday.

Analysts had forecast on average a year-on-year fall of 1.0 percent and a month-on-month rise of 0.1 percent.

"The main reason is the rise in oil prices," a BOJ official told a briefing. He added that a rise in the cost of other raw materials had also helped the slowdown in the year-on-year fall.

Japan's manufacturers are entirely dependent on imports for oil supplies. Recent tension in Iraq and a strike in Venezuela have pushed oil prices up about 11 percent in the past two months.

Commodity prices worldwide have also risen about seven percent this year, having knock-on effects on costs at Japanese companies ranging from food processors to metals firms.

Though the rate of decline in Japan's wholesale prices slowed, Thursday's figures show that deflation still reigns in the world's second-largest economy.

"There has been some hope that higher raw material prices could lead to inflation at home," said Seiji Adachi, economist at Credit Suisse First Boston.

"But with domestic demand poor and the supply-demand gap getting bigger, companies will struggle to pass on the rises to their selling prices."

The government has identified falling domestic prices as the top problem facing the economy.

Now into its fourth year, deflation is crimping profits at manufacturers and means that bad loans at Japan's banks are getting bigger almost as fast as the banks are managing to reduce them.

The government has called on the Bank of Japan to take new measures to help in the fight against deflation, increasing the pressure on incoming governor Toshihiko Fukui, whose appointment was approved by Japan's lower house of parliament on Thursday.

biz.yahoo.com Thursday March 13, 3:07 pm ET

NEW YORK (Reuters) - World oil prices plunged more than 4 percent on Thursday as the United States said efforts to garner support for a new U.N. resolution on Iraq could extend into next week, potentially further delaying a Middle East war.

News that the Japanese government plans to sell 300,000 barrels per day from its state reserves should U.S.-led forces begin attacking Iraq, according to a Nihon Keizai Shimbun report, added to the day's slide, traders said.

U.S. light crude was $1.68 down at $36.15 a barrel. London benchmark Brent crude oil fell $1.44 a barrel to $32.47 a barrel.

Oil prices are still up 16 percent this year on concerns that a war in Iraq, which itself ships around 4 percent of world oil exports, could upset oil supplies from other producers in the Middle East.

Prices fell as the White House said on Thursday diplomatic efforts to secure U.N consensus on a new resolution on Iraq could spill over into next week.

Secretary of State Colin Powell told a congressional committee there may be no vote at all on the resolution, a sign that Washington fears it may not get enough support.

A German government source said compromise in the U.N. Security Council on Iraq was unlikely, even if a vote is put off until next week.

Further relief for soaring prices came from an end to freezing U.S. temperatures which have supported heating oil prices at near record levels in recent weeks.

Prices rose on Wednesday as the fall in U.S. stocks combined with worries that oil cartel OPEC (News - Websites)would not be able to compensate for lost Iraqi exports in event of war.

Latest U.S. data showed crude inventories falling last week to a 27-year low. There were also sharp drops in gasoline inventories, which ought to be growing as stockbuilding starts for the summer driving season.

Analysts say core oil stocks are now 89 million barrels below normal. "Given the reported ramping of OPEC production and the continued recovery of Venezuelan production, the shortfall is shocking," SG Securities said in a research note.

OPEC STEPS UP OUTPUT

The Organization of the Petroleum Exporting Countries has stepped up output this year to cover an outage of crude from Venezuela, where an anti-government strike brought production to little more than a trickle in December and January.

Venezuela, normally the fifth-biggest exporter providing about 13 percent of U.S. oil imports, has increased shipments of crude and oil products though rebel oil workers say production is still less than half of normal levels.

Analysts say timing is now key for the war because oil demand is generally two million barrels lower in the second quarter of the year as spring advances and the loss of Iraqi crude will not be as acutely felt as now.

The West's energy watchdog, the International Energy Agency (IEA), says the OPEC cartel likely lacks enough capacity to compensate immediately for the loss of Iraqi and Kuwaiti oil.

OPEC, however, has pledged to guarantee supplies should war break out and Saudi Oil Minister Ali al-Naimi reiterated on Thursday OPEC's ability to deliver oil in case of war in Iraq.

The Nihon Kezai report said Japan will consider releasing oil with the United States, regardless of what the (IEA) advises. Japan and the U.S. are members of the 26-nation IEA, the energy watchdog for industrialized nations that is based in Paris.

The IEA has said that it will allow OPEC to try to cover any shortages in war before it considers, as a last resort, releasing inventories from emergency stockpiles held in consumer nations.

Those reserves, built after the 1974 Arab oil embargo, were last used in the 1990-91 Gulf war after Iraq's invasion of Kuwait.

www.tcpalm.com By Nadia Gergis staff writer March 13, 2003

Anthony Dalle isn't taking his family out to dinner anymore.

Cutting corners and watching the family's budget is becoming more of an obsession for the owner of Coastal One Maintenance in Stuart -- all because of higher gasoline prices.

"Gas used to cost me $500 a month," said Dalle, who specializes in home repairs. "Then it became $700, now it is $1,000. I have to watch my expenses so much now."

Dalle, whose territory stretches from Wellington to Fort Pierce, is considering charging customers an extra 5 percent to 10 percent surcharge just to keep his business afloat.

"It makes me depressed, I don't know what is going to happen next," said Dalle, as he filled up his Ford truck Wednesday at a 7-Eleven at High Meadow and Martin Highway in Palm City.

Dalle isn't alone in making adjustments to his budget and transportation costs. Soaring gas prices are causing more and more Treasure Coast residents to pinch their pennies and make fewer trips, especially those who own sport utility vehicles and large trucks.

"I try to get rides to and from work whenever I can," said Kathy Santilli, a manager at the 7-Eleven who owns a Nissan SUV.

Prices for regular unleaded, self-serve gasoline on Wednesday shot up to an average of $1.704 per gallon -- the highest ever recorded by AAA Auto South Club. That's 10.5 cents higher than the same date last month. Compared to a year ago, consumers in Florida now are paying 50 cents more for a gallon of gas.

Other gasoline grades also jumped in Florida. Mid-grade climbed 11.4 cents to a statewide average of $1.846 per gallon. Premium rose 11.6 cents to an average of $1.88, while diesel rocketed 21.5 cents to an average of $1.892 per gallon.

Topping the state in prices at the pump was the West Palm Beach-Boca Raton market, where the average cost of regular unleaded was $1.78 per gallon.

"A combination of crude oil prices, low inventories, bad weather up North and the volatile situation with Iraq are making gas prices horrendous for consumers," said Gregg Laskoski, managing director of public and government relations for AAA Auto Club South.

The American Petroleum Institute says the lack of crude oil imports from Venezuela, one of the biggest importers of oil to the United States, is the largest factor contributing to the gasoline price increases.

"We had a supply disruption from Venezuela because of workers going on strike," said Bill Bush, a spokesman for the API. "Any severe disruption will affect crude oil prices."

Also contributing to the problem is the unusually cold weather gripping the Northeast and Midwest. Refineries, industry officials say, have been forced to stop making gasoline in order to produce more heating fuel.

And, to make matters worse, prices of crude oil may keep increasing, said Ron Planting, manager of information and analysis at the API.

"Retail prices usually lag behind crude oil prices, so who knows what we are in for in the future," he said.

That means motorists looking for relief may be in for a long wait.

"It is absurd," said Michael Colella, a Palm City resident. "Every day it [gas] gets higher. It's ridiculous."

Paul Parrott, a 49-year-old Vero Beach resident, echoes that sentiment.

"I never really cared about the price before because I only drive about 6,000 miles per year," said Parrott, who is disabled, lives on Social Security and budgets $35 a month for gas.

"I'm basically a shut-in ... but when I looked up and saw $1.92 for premium, I went, 'Whew,' " Parrot said as he pumped gas at a Speedway station. "If I had to drive to Fort Pierce or Melbourne every day, I'd be outraged."

Staff writer Chris Kauffmann contributed to this report

• nadia.gergis@scripps.com

www.quicken.com Thursday, March 13, 2003 00:27 AM ET  Printer-friendly version   VIENNA -- Undermining the Organization of Petroleum Exporting Countries' reassurances that the cartel can keep the world adequately supplied with oil, the International Energy Agency says OPEC alone can't immediately make up for lost Iraqi exports in the event of a war in coming weeks.

The world's energy watchdog said the global oil market is extremely tight. The agency's latest data, released Wednesday, suggest that in case of a war in Iraq later this month, oil may have to be released from strategic stocks held by the U.S., Germany, Japan and other members of the 26-nation IEA to keep already-high prices in check.

The IEA's assessment irked OPEC ministers who decided Tuesday to leave the group's output limits unchanged. These officials, gathered in Vienna this week, had sought Tuesday to reassure oil consumers the cartel can and will increase supplies to offset a disruption in case a war cuts some two million barrels a day of exports from Iraq. On Wednesday, OPEC officials disputed the IEA's findings.

"There are many figures, but I think we have enough" oil-production capacity, Bijan Namdar Zangeneh, Iran's oil minister, said.

The IEA data showed a complex, moving picture of oil markets, where rising oil supply and a coming seasonal dip in demand will result in markedly different conditions at different points in time. The bottom line: OPEC can't cover a disruption of Iraqi supplies later this month. But its ability to cover such losses increases in April, and by May it can fully offset the loss of Iraqi supplies as well as a small reduction in Kuwaiti production. The reasons have to do with certain assumptions: a seasonal decline in demand for OPEC oil, rising output from Venezuela and capacity increases undertaken by Saudi Arabia, the world's largest oil exporter.

For the moment, though, the situation is dicey. The IEA reckons if war knocked off Iraqi exports from mid-March until May, and some 300,000 barrels a day of production were lost in Kuwait, the world faces a potential oil-supply shortfall of 1.68 million barrels a day during the second half of this month. For April, the shortfall in supply is reduced to 580,000 barrels a day. In May, OPEC can once again meet expected market needs in full.

This assessment may irk Ali Naimi, the influential oil minister of Saudi Arabia. Mr. Naimi pledged "there will be no shortage of oil," because Saudi Arabia and others in OPEC had the ability and the will to raise production to levels that might be needed. Saudi Arabia is believed to be the only country that has significant unused capacity. Yet the IEA data showed Saudi capacity to offset losses was less than many had thought. With output already at some 9.1 million barrels a day, the IEA figured Saudi Arabia can only pump an extra 400, 000 barrels of oil for March. This will rise to 600,000 barrels a day in April, and 900,000 barrels a day in May, assuming early March production levels and a buildup of capacity during the next six weeks.

Saudi Arabia's output capacity is likely to have featured in discussions the IEA's executive director, Claude Mandil, had earlier this month with Mr. Naimi in Riyadh. Mr. Mandil has promised the IEA will act swiftly to release oil from strategic stocks, if needed. But Mr. Mandil has also made clear the IEA will only act after it consults with OPEC and determines whether it needs to act because the exporters' group can't fully make up for any lost supplies.