www.signonsandiego.com By Frank Green  UNION-TRIBUNE STAFF WRITER

March 14, 2003

San Diego County's short, pricey gasoline supply just got tighter.

Arco said it stopped selling unleaded regular on Wednesday at 59 of its 120 or so stations in the region after equipment at a local terminal failed to mix the additive ethanol in 420,000 gallons of gas.

Federal and state laws require a 5.75 percent level of the cleaner-burning additive in fuel sold in California.

The Los Angeles company said it delivered the ethanol-less gas to the stations before the malfunction was discovered. Arco then dispatched tanker trucks to retrieve the fuel, leaving some stations without any unleaded regular for as long as three days.

The amount of gas involved is enough to fill 28,000 15-gallon gas tanks.

"We contracted with virtually all the pump trucks in Southern California to pump the gas out of service station tanks," said BP Arco spokesman Daniel Cummings.

Cummings characterized the shortage as minor, adding that all of the affected Arco stations would again be selling unleaded regular by tonight.

By noon yesterday, 46 Arco stations were waiting to have their tanks refilled with reformulated fuel, Cummings said.

Consumer activists who follow the gasoline crisis in California said it appeared Arco was acting responsibly in trying not to ignite panic buying by motorists.

But Charles Langley, who manages the gasoline project for the Utility Consumers' Action Network, stressed that a supply glitch of as little as 3 percent has in the past caused prices to spike by as much as 30 cents a gallon.

UCAN said Tuesday that the average price for a gallon of unleaded regular was $2.14 a gallon, up 7 cents from last Friday.

Statewide, prices reached $2.127 a gallon this week, according to the American Automobile Association. Prices in San Francisco reached a record $2.251 yesterday. The nationwide average is $1.708.

Soaring prices largely reflect shrinking crude-oil supplies, analysts said.

Crude stocks have fallen near 28-year lows after a nationwide strike in Venezuela slashed shipments from the world's fifth-largest oil exporter.

The prospect that a U.S. war against Iraq could disrupt oil shipments from the Persian Gulf have also fueled a surge in the cost of oil, helping send crude prices to 12-year highs this week.

Meanwhile, Gov. Gray Davis said yesterday that oil companies may be manipulating gasoline supplies to cause record-high prices in California and gouge consumers

Recent "unexplained" surges in pump prices may be the result of a "deliberate withholding of supply" by oil companies, Davis said in letters to the state's energy and public utilities regulators.

"As we well know from past experience, many energy companies would rather use Enron-style tricks to fuel their bottom lines, than to fuel California homes and businesses," Davis said in the letter.

Energy companies "have no qualms about using world events, such as the Venezuelan oil strike and an unusually cold winter on the East Coast, to their advantage," Davis said. "In light of a possible war with Iraq, I hope that none of these companies are engaging in war profiteering or any other types of illegal activity."

The supply shortage at local Arco stations this week have only added to motorists' frustrations with spiraling prices.

Arco's Cummings said some of the company's local franchisees were accommodating customers by offering higher-grade fuel at unleaded regular prices.

"We apologize to customers who were inconvenienced" by the shortage, Cummings said.

Frank Green: (619) 293-1233; frank.green@uniontrib.com

www.forbes.com Reuters, 03.14.03, 8:55 AM ET 

NEW YORK, March 14 (Reuters) - The following is comment on from stock market analysts on Friday after the Labor Department reported the producer price index rose 1 percent in February. Overall producer prices climbed higher than analyst forecasts for a 0.7 percent rise, after a 1.6 percent increase the previous month. Stripping out volatile food and energy costs, prices dropped 0.5 percent, pulled down by falling car, truck and computer prices. Analysts were expecting so-called core inflation to be unchanged.

RICK MECKLER, PRESIDENT OF LIBERTYVIEW, JERSEY CITY, NEW JERSEY: "I don't think it will have much of an impact. The numbers have been moved around quite a lot by the unusual energy price movement, but I don't think the treasury market currently is as dominated by these types of numbers as it is by the potential for war with Iraq. While the number could have had meaning in another time, at this point it goes virtually unnoticed. I think it will be a non-factor to the market. "People had expected energy prices are much more volatile than they're likely to be in he future. Production is very weak and it's very hard for companies to raise prices. It's certainly part of the reason why the stock markets had trouble as companies are pressured by higher commodity prices but can't raise prices and pass it on. "It just shows excess capacity and the difficulty companies have in raising prices. I think that the danger is in lower profits rather than there is in greater inflation because of no ability to pass commodity price increases on."

TIMOTHY GHRISKEY, MONEY MANAGER WITH GHRISKEY CAPITAL PARTNERS LLC: "The month-over-month PPI was well above expectations, though excluding the volatile food and energy it was negative, showing deflation at the producer level. The year-over-year PPI is calculated at 3.5 percent, showing a moderate level of inflation, though again excluding food and energy it is showing only a measly 0.1 percent. "The data shows a significant jump in energy costs which have been caused by short-term factors like Iraq and Venezuela. But at the core level, excluding food and energy, producer price increases remain virtually no-existent. "No price increases means no inflation and clearly this is a no-inflation report when excluding food and energy. The stock market appreciates a low interest rate environment, as does the bond market, and this report leaves room for the Fed to lower interest rates again if they so choose."

PAUL CHERNEY, CHIEF REAL-TIME MARKET ANALYST AT S&P MARKETSCOPE: "I don't think (the numbers) will have material impact on the markets. When you look at the ex-food and energy, which was down 0.5 percent, there's plenty of people willing to discount the rise in the headline number due to the surge in energy prices related to the Iraq situatation. "When you look at ex-food and energy, it tells you inflation is not a problem, and that it doesn't appear that manufacturers are able to expand margins and pass costs on to consumers. So it's somewhat of an indication that the economy remains weak. But what's driving the markets now is hopes for a delay or an animation of military action in Iraq. Thats' what spurred the markets yesterday."

sfgate.com Verne Kopytoff, Vanessa Hua, Chronicle Staff Writers Friday, March 14, 2003

Gov. Gray Davis ordered an investigation Thursday into soaring gasoline, diesel and natural gas prices, questioning whether the oil industry is engaged in illegal profiteering.

Davis asked the California Energy Commission and the state's Public Utilities Commission to examine what he called unexplained price spikes. He suggested that the sticker shock consumers are feeling at the pump and from their heating bills may actually be due to manipulation and a deliberate withholding of supplies.

"The prices are extraordinarily high and don't need to be," Davis said in announcing the investigations at a meeting in Sunnyvale of the Silicon Valley Manufacturing Group, a technology trade association.

The Energy Commission and the PUC are expected to report back to the governor within 15 days. If the commissions discover anything suspicious, the information could be referred to state Attorney General Bill Lockyer for further investigation and possible prosecution.

The governor's call for investigations into fuel costs coincides with gasoline prices hitting all-time highs across the state. A survey this month by the AAA of Northern California shows that the average price for a gallon of regular unleaded Thursday in San Francisco was $2.25, up 71 cents from a year ago.

Natural gas prices are also spiking. An average Pacific Gas and Electric Co.

customer will pay $69.27 in monthly gas bills for March, about 80 percent more than a year ago.

GOUGING DENIALS

John Felmy, an economist for the American Petroleum Institute, the oil industry trade group, rejected the notion that drivers are being gouged.

Increases in gasoline prices, he insisted, are a consequence of a "perfect storm" of factors ranging from tensions in Iraq to a strike by workers in Venezuela to extra costs associated with California's switch of the smog- reducing fuel additive MTBE to ethanol.

"This is the market at work," Felmy said.

His comments echo what natural gas suppliers are saying. They blame the high prices on a cold winter in the East Coast, in addition to the other factors affecting gasoline.

The rising fuel prices in California elicit obvious comparisons to the state's past electricity crisis in 2000 and 2001, after which suppliers and middlemen were found to have manipulated the market. Davis, who faced stinging criticism for his initial handling of that situation, cast himself as an aggressive consumer advocate this time around.

"As we well know from past experience, many energy companies would rather use Enron-style tricks to fuel their bottom lines, than to fuel California homes and businesses," Davis wrote. "These companies have no qualms about using world events, such as the Venezuelan oil strike and an unusually cold winter on the East Coast, to their advantage."

Felmy, the petroleum industry economist, gave a emphatic response: "It's simply disappointing for the governor to say we're using Enron-style tricks. To lump us in with those well-known problems is unacceptable."

Over the years, the oil industry has been investigated by at least two dozen local and state governments related to price manipulation. Felmy said that it has yet to be found guilty.

On Wednesday, the Energy Information Administration, an arm of the federal Department of Energy, said in a weekly report that it believes the current spike is driven by market forces, not gouging.

Sen. Barbara Boxer, D-Calif., has asked the General Accounting Office to look into the price increases. Other senators have asked the Federal Trade Commission for a similar inquiry.

California is among those governments that have pursued the oil industry. In 1999, Lockyer began an investigation of gasoline price spikes after a particularly strong episode here.

He ultimately reported that California was highly susceptible to a volatile fuel market due to a limited number of companies owning the vast majority of refinery capacity.

He also said that the state's requirement for a special clean-burning fuel blend made gas imports difficult to get in times of need.

No criminal or civil charges were brought against the oil industry by Lockyer. The investigation is still open, according to Tom Dresslar, a Lockyer spokesman.

"We'll be happy to take whatever evidence or information the PUC or Energy Commission come up with as part of their investigation," he said. "We haven't found anything yet, but that doesn't mean it doesn't exist."

Davis vetoed a part of a state Senate bill that would have given the attorney general $1 million to investigate the oil industry in 1999.

Gabriel Sanchez, a Davis spokesman, said the governor merely thought the attorney general's office could do the investigation with existing funds.

"He does want to get to the bottom of things," Sanchez insisted. "It shows that even back in '99, he was just trying to be a very good fiscal manager."

Davis has accepted $1.27 million in campaign contributions from the oil and gas industry since 1997, according to the National Institute on Money and State Politics, a political watchdog group. Lockyer has received $279,562 in similar contributions during that time, according to the the institute.

HARD TO PROVE

At the event in Sunnyvale Thursday, Davis acknowledged that proving an antitrust case against the oil industry will be difficult. But he added that an industry's high prices tend to moderate or go down when that industry is being investigated.

"Do I have proof, any evidence?" Davis said of the possibility of fuel prices being manipulated. "No. But as governor, I have an obligation to do something about it. Prices do not just go down, and that is my goal, whatever the reason."

Robert Pringle, head of antitrust matters for the Thelen Reid & Priest law firm in San Francisco, said of Davis' call to arms Thursday: "It's highly political. If the government doesn't do anything, it looks like they're not doing their job."

One wrinkle mentioned by Sandy Litvak, an attorney for the Quinn Emanuel law firm in Los Angeles, is that drivers will have to wait a long time before even a successful case against the oil industry pays off.

"It's too difficult to prove," Litvak said. "And if it was really the case, it would be decided four years from now -- a lot of good that will do."

Still, consumer groups praised the governor.

''Consumers feel bent over the oil barrel," said Charles Langley, who oversees the gasoline price issue for the Utility Consumers' Action Network in San Diego. "People need to know, are we paying a fair price or not?"

WHAT THEY DO

California Energy Commission: Oversees energy planning and policy. Duties include forecasting the state's energy needs, advocating energy efficiency and keeping historical energy data such as prices, production and consumption.

California Public Utilities Commission: Regulates natural gas, electricity, telecommunications and private water suppliers. Sets rates and rules for utilities; monitors complaints.

E-mail the writers at Verne Kopytoff at vkopytoff@sfchronicle.com and Vanessa Hua at vahua@sfchronicle.com.

www.msnbc.com

LONDON, March 14 — OPEC powerhouse Saudi Arabia has snapped up 14 tankers to move 29.5 million barrels of crude oil to the U.S. Gulf for May delivery, brokers said on Friday.            THEY SAID THE bookings, to move 4.15 million tons, represent additional spot tanker bookings over and above normal demand and term contracts.        “It’s a huge volume, yes,” one shipping broker told Reuters.        The bookings made by Vela International Marine, state oil company Saudi Aramco’s chartering arm, indicate that its own large fleet is already fully employed.        Vela owns and operates one of the largest tanker fleets in the world, with 21 VLCC and ULCC-class tankers at its disposal.        Oil traders said the volume shows Riyadh will keep supplies running high into May after a sharp increase in recent months to fill shortages from OPEC producer Venezuela and allay supply disruption fears ahead of a possible second Gulf War.          World oil prices spiral downward

       Saudi Arabia has raised output by more than a million barrels per day (bpd) since the start of the year and is likely to average more than nine million bpd in March of its 10.5 million bpd capacity.        Brokers said 11 of the tankers booked to load between March 27 and April 18 had so far been confirmed. It takes between five and six weeks to reach the United States from the Gulf.        Some four other Very Large Crude Carriers representing some 1.12 million tons of crude, booked under oil tanker pool Tankers International, were on subjects and had still to be confirmed by the charterer, brokers said.        “This is the third consecutive month Vela has come in so strongly,” said Roy Mason of UK-based consultancy Oil Movements.        “It all fits with what we think we know about production changes,” he told Reuters.        Shipping brokers said the huge volume had undoubtedly helped freight rates from the Gulf balloon higher. Some routes are now trading at fresh two-year highs amid brisk business and a tightening tonnage list.        Freight for VLCC steaming from the Gulf to the U.S. rose 10 points from W120 to W130 brokers said.

By Myra P. Saefong, CBS.MarketWatch.com Last Update: 4:16 PM ET March 14, 2003

NEW YORK (CBS.MW) -- Crude-oil futures fell briefly under $34 to their lowest level in nearly five weeks Friday with President Bush appearing to lean more toward diplomacy than an immediate war with Iraq.

The Bush administration has also indicated a willingness to release oil from the nation's reserves.

"Oil is going down [and] oil will keep going down until a war occurs," said Michael Cavanaugh, an analyst at Peak Trading Group in Chicago.

Most of the rise in oil prices these past months have been an emotional rally based on the fear of a war, but now that the U.N. is "taking a stand, and pushing the U.S. war effort back, the oil market is trading lower, and will continue to do so until the U.S. makes its move," he said. Cavanaugh expects oil prices to drop to the low $30s "soon."

The start of a war will likely trigger a quick rally, he said, but "once the smoke clears, the oil will drop again."

On Friday, crude for April delivery on the New York Mercantile Exchange traded as low as $33.85 a barrel, a level not seen since Feb. 11.

It recovered a bit to close at $35.38 a barrel, down 63 cents with officials from the U.S., Britain and Spain set to meet Sunday in an attempt to salvage a war resolution that authorizes military force against Iraq to disarm. See Special Report: Countdown to War.

The meeting will likely "result in a final deadline and end the suspense on the disarmament issue with Iraq," said John Person, head financial analyst at Infinity Brokerage Services. "Either Saddam will give up or America will lead an assault by next week."

Chile proposed a new plan for the U.N. Friday that sets five disarmament conditions for Iraq to meet within three weeks, but doesn't include a trigger for war. The White House immediately rejected the proposal.

Negotiations for the surrender of some Iraqi military units were under way, CNN reported Thursday -- raising the notion that even if war does surface, it could be a quick win for the forces allied against Iraq.

With the notion that the U.S. intelligence agencies have possibly brokered a deal with top Iraqi military commanders, "odds now favor a quick decisive end to a military operation in Iraq, if that is the course of action that is taken," said Person.

As the Iraq-related news continues to flow, "every comment from New York, Washington and Baghdad will be deconstructed by traders looking to see if war is imminent, as it is now pretty much of a day-to-day threat," said Michael Lynch, president of Winchester, Mass.-based Strategic Energy & Economic Research (SEER).

In other news Friday, Bush delayed the release of his "road map" for Middle East peace until a credible prime minister is installed as a balance against Palestinian leader Yasser Arafat.

Supply side comments

Also pressuring oil prices were reports that U.S. Energy Secretary Spencer Abraham was more open to releasing oil from the Strategic Petroleum Reserve (SPR).

Abraham was quoted as saying the U.S. has a "unilateral right" to use the SPR, according to Phil Flynn, a senior analyst at Alaron Trading in Chicago. His reported comments indicated that more oil could be placed back into the market soon.

Reuters also reported that the Saudis have committed to 29.5 million barrels to the U.S. Gulf for May delivery.

Still, traders realized that even with the reports that Saudi Arabia was shipping "huge super cargos of oil to the U.S. ports, that will not relieve the immediate supply concerns for another 35 days or more," said Infinity's Person. And "until the supplies are here, anything could happen including a change of heart."

In Budapest Friday, Abraham said he remains confident that OPEC members will cover potential disruption to Iraqi crude supplies.

"I have all the confidence that they (OPEC) are sincere in their commitment," Abraham said according to Dow Jones. "If a severe supply reduction occurs... we have producers who have committed to come forward and step up production."

On Tuesday, OPEC decided to leave unchanged its members' aggregate production limit, excluding Iraq, at 24.5 million barrels. But some members, particularly OPEC heavyweight Saudi Arabia, have hinted broadly at a possible output hike in the event of war. See full story.

Also this week, the Energy Department and the American Petroleum Institute both reported sizable declines in the nation's weekly crude and gasoline inventories, along with mixed data on distillate supplies.

Crude inventories are now nearly 18 percent below the year-ago level, the government report, while gasoline stocks 7 percent below its year-ago level. See full story.

Retail gasoline prices continue higher

Prices for gasoline on the retail level continued to climb Friday, despite a second session of declines for the fuel's futures price.

The April gasoline contract fell by 1.73 cents to $1.0404 a gallon in recent action on Nymex.

But at the retail level, gasoline prices averaged $1.715 a gallon, up from $1.239 a year earlier and just short of the all-time high of $1.718 seen in May 2001, according to AAA's Daily Fuel Gauge Report.

In California, average price for regular gasoline was $2.142 -- the highest in the nation.

Heating oil cool off

Also on Nymex, heating-oil futures traded lower with forecasts calling for above-normal temperatures in the eastern half of the nation. Natural-gas prices, however, etched out a modest gain.

Heating oil traded well under $1 a gallon to hit a low at 91.7 cents a gallon, the lowest since Feb. 5. It closed at 94.07 cents a gallon, down 2.64 cents.

April natural gas rose 6.8 cents to close at $5.429 per million British thermal units after an intraday low at $5.08 -- the lowest since Jan. 29. On Thursday, it dropped nearly 9 percent.

"Inventories are very tight, but the heating season is almost over, said SEER's Lynch. "This makes the weather -- which is always uncertain -- of unusual importance."

Early Thursday, the Energy Department said natural-gas supplies fell by 117 billion cubic feet during the week ended March 7. Analysts at Fimat were looking for a decline of 143 billion cubic feet.

Total stocks of 721 billion cubic feet are 1.01 trillion cubic feet below the year-ago level and 655 billion cubic feet lower than the five-year average.

The Energy Department also reported Wednesday that distillates, which include heating oil, rose by 1.8 million barrels to stand at 98.3 million barrels. Despite the gain, this was still 23.6 percent below their year-ago level.

Meanwhile, gold for April delivery climbed 60 cents to close at $336.60 an ounce after losing nearly $11 a day earlier. See Metals Stocks.

In the equities arena, oil-services companies ended the session lower, with the Philadelphia Oil Service Index ($OSX: news, chart, profile) chalking up a loss of 0.4 percent. See Energy Stocks.

And the Reuters/CRB Index -- a broad-based measure of the commodity futures market -- closed at 240, down 0.1 percent, amid weakness in energy futures. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.