www.menafn.com Middle East Economic Survey - 17/03/2003

Walid Khadduri and Bill Farren-Price of MEES report on the OPEC Ministerial Conference held in Vienna on 11 March.

OPEC ministers meeting in Vienna on 11 March agreed to maintain present oil production levels and reiterated their collective commitment to supplying global markets as required in an effort to bring stability to oil prices. In a communiqué issued at the conclusion of the ordinary ministerial meeting, OPEC said its decision was motivated by the view that present oil supplies were adequate to meet current market requirements, after taking into account the supply/demand picture for the first and second quarters. The organization said it continued to watch geopolitical developments closely and underlined its readiness to supply the market as required. Ministers welcomed the return of Venezuelan production but insisted that while cold weather and low OECD stocks had contributed to high prices so far in 2003, "the current high price levels above the OPEC price band are predominantly a reflection of uncertainties resulting from prevailing geopolitical tensions." Ministers announced plans for an extraordinary meeting in Doha on 11 June and a subsequent ordinary meeting to be held in Vienna on 24 September.

While there was no mention of Iraq in the final communiqué - marking the desire of ministers to avoid signalling that policy was being formed in expectation of military conflict against a member state - the opening speech by OPEC President and Qatari Oil Minister 'Abd Allah al-'Attiyah was more specific on this count. He said that the Iraq crisis had reduced OPEC's influence on oil prices, even though the group's output decithough the group's output decisions in January had prevented oil prices from even greater rises. Mr 'Attiyah stressed that OPEC was ready to respond to any change in market conditions, whether by bringing remaining group production capacity on-stream in the event of fresh supply disruption or by cutting production should the market become oversupplied in the second quarter as a result of the seasonal drop in global demand and the continued resumption of Venezuelan production.

The ministerial meeting itself, which was not attended by either the Kuwaiti or Iraqi oil ministers, dealt with nominations for the post of OPEC Secretary General, which will become vacant at the end of the year. Ministers also discussed nominations for the post of Secretary General of the International Energy Forum, which is being established in a permanent secretariat in Riyadh. Nominations for the post have been submitted by Norway, Mexico and Italy. Delegations representing non-OPEC oil producers Angola, Egypt, Mexico, Oman and Russia also met with ministers.

OPEC Close To Full Production Capacity The subtext to OPEC's central commitment to keep global markets well supplied was that the group is already producing close to capacity, with only Saudi Arabia and to a much lesser extent several other countries able to mobilize additional production from present levels if required. This was the main reason that the issue of quotas - which are de facto in abeyance during this period - was not a subject for official discussion at the meeting, despite persistent media reports to the contrary. While MEES understands that additional Saudi capacity is being de-mothballed in preparation for use towards the end of March, OPEC's options for substantial new additions to production capacity are now limited. Ministers also now appear resigned to the fact that pure supply fundamentals are no longer sufficient to bring prices back down towards OPEC's preferred $22-28/B price band. In comments made ahead of the ministerial meeting Saudi Oil Minister Ali Naimi conceded that the only way to bring prices down was "to eliminate the drums of war". This point was also made by UAE Oil Minister Obaid al-Nasseri, who pointed to the fact that OPEC had added 3mn b/d of production in the last two months. "This will take care of the market for the time being," he said.

In recent bilateral meetings, OPEC ministers and officials appear to have extracted a commitment from the IEA and the US that the organization will be given the opportunity to address any fresh supply problems - in the event of a war with Iraq - before strategic stocks are released. However, on several recent occasions, OPEC has indicated that it has already proved its commitment to market stability, through its swift ramp-up of production in late 2002 and in January this year, and that any fresh requirement for supply will have to be met by a release of strategic reserves.

Three of the key players in this discussion - Mr Naimi, US Energy Secretary Abraham Spencer and the newly-appointed Executive Director of the IEA Claude Mandil - have all held bilateral meetings in recent days to reiterate their common understanding on this point. At their meeting in Riyadh on 5 March, Mr Naimi and Mr Mandil conveyed their agreement on the use of reserves only after producers had been given an opportunity to address a supply shortfall (MEES, 10 March). Meeting in Brussels on 7 March, Mr Mandil and Mr Abraham stressed their appreciation of producer action already taken to stabilize markets. "The US Government and IEA appreciate the actions of producer nations, which have already increased production to mitigate the effects of the Venezuelan disruption. In light of tight markets, we also appreciate producers' willingness to increase production if necessary to address any further supply disruption," they said in a joint statement, adding that they were committed to ongoing close consultations with producers and would "make additional volumes of oil available to the market to reinforce producers' efforts if needed." After a brief meeting with the Saudi delegation in Vienna, Mr Abraham reiterated US policy that its Strategic Petroleum Reserve would only be tapped if there was a serious supply disruption. He said that he viewed OPEC's commitment to supply the market as positive and added: "We view the reserves as a backstop, an emergency capability to deal with severe supply disruptions."

Supply Scenarios Present Distinct Challenges For OPEC Yet privately, OPEC officials are more concerned about the need to manage the downside pressures on oil prices as they are likely to emerge in the coming weeks and months. A number of possible scenarios each present the organization with different challenges and potential solutions. The first scenario, thought to be the least likely but most benign, would see Saddam Husain step down or be removed internally, short-circuiting US plans for military action. Under this scenario, the war premium would be expected to disappear very swiftly, requiring OPEC to reduce production immediately in order to prevent oversupply and a resulting crash in prices.

A much more likely scenario, under which military action against Iraq is delayed through into 2Q would see the war premium, estimated at $4-6/B, continue, with increased volatility as markets remain under the influence of news headlines. A third scenario sees military action closing Iraqi production for a few weeks if not months. The assumption here is that US forces would need some time to establish security in the country and subsequently mobilize the tens of thousands of Iraqi oil employees. This also assumes vessel nominations and market operations would proceed smoothly enough to provide confidence to customers of Iraqi crudes. OPEC would take up the slack as much as able and reiterate its assurances of supplying the market as needed. Under this scenario, MEES understands that ministers would be unlikely to feel the need to meet until the Doha meeting, where they would be able to take stock of the situation. Certainly, there is a desire among members to avoid politicising what is already a very sensitive situation - which would likely be the effect of an emergency meeting held while any attack on Iraq was underway. This third scenario, if coupled with a continuation of Venezuela's increase in production, would probably require some reduction in group output into 2Q in order to address the seasonal drop in demand. Clearly, further variables to all three basic scenarios - including the precarious state of the global economy - will make OPEC's task in devising appropriate policy responses all the more difficult.

Overall 1Mn B/D Implied Stockbuild In 1Q MEES understands that while the supply/demand balance in January was tight due to the Venezuelan strike, cold weather and US fuel substitution, February and March have seen the market well supplied to the extent that buyers have turned away some extra Gulf cargoes. Moreover, based on initial data for March production and demand, the balance has produced an average contra-seasonal stockbuild of some 1mn b/d in 1Q. According to MEES soundings, OPEC estimated average production of 27mn b/d in 1Q is at least 1mn b/d above the call on OPEC crude in the period, estimated at just less than 26mn b/d. This implied stockbuild has been most pronounced towards the end of the quarter as OPEC production has risen and is expected to start showing up in US stocks data over the coming two to three weeks. For 2Q, the call on OPEC crude is expected to fall to 23-24mn b/d, which on current OPEC production rates would produce an implied stock build of around 4mn b/d. This level of stockbuilding would pressure prices if there was no threat to Iraqi production, since it is well above the more normal seasonal stockbuild of 1.0-1.5mn b/d in 2Q. However, if Iraqi production of some 2.7mn b/d is taken out of the market during the second quarter, then the surplus to call is in line with the seasonal average. Obviously, if Iraqi production continues unhindered, then member states will have to alter their present flat-out production policies and OPEC will have to review its current production ceiling.

www.workingforchange.com Paul Loeb workingforchange.com 03.17.03

With millions marching worldwide, we might still avert Bush's war on Iraq. But given one of the most insular administrations in America's history, we may also fail. No matter how powerful our arguments, and the unprecedented breadth and strength of our movement, Bush and his cohorts may still go ahead with a war they've wanted for years. So we're working not only to stop this war, but to lay the groundwork to prevent it from leading to wars on Iran, North Korea, Colombia, Venezuela, Brazil -- maybe even France. This means we'll need those now surging into the movement to stick around for the long haul, and not melt away when times get hard.

During the first Gulf War, one arguably more justified, the U.S. peace movement got kicked in the gut. Then as well, major protests surged through American and European cities, hoping to stop the war before it started. But once the war began, mainstream debate over the wisdom of war quickly became supplanted by the insistence that anything other than relentless cheerleading was disloyal to the troops -- and to the country. In previous fights against Contra aid and the nuclear arms race, polls said our fellow citizens were with us. But Americans overwhelmingly supported the first Gulf War, because it worked militarily, and because the hundred thousand Iraqis who died were faceless and anonymous. Those who continued speaking out for peace quickly felt marginalized, isolated, and silenced. Some blamed their compatriots for not doing enough. Most quickly retreated into private life, many entering a political cocoon they would stay in for years. Either way, visible public opposition quickly faded.

Yet for some who've been active working for justice and peace ever since, that war was their entry point to involvement. What made the difference between the people who retreated and those who stayed engaged? What will make the difference now that many more ordinary citizens are outraged enough to speak out -- opposing both the war and Bush's broader assault on democracy?

Those who persisted back then promptly learned that their actions could matter whether or not they produced immediate results. Connecting with fellow activists, they saw themselves as part of a long-term movement for change -- fighting for basic principles that mattered more than how fast the largest military power in human history could crush a relatively small nation whose dictator it had armed and supported. They retained hope and courage even when the political tides seemed to run against them.

So how do we encourage the newly engaged to continue? How do we keep on ourselves, and keep reaching beyond the core converted? History never fully repeats itself, a lesson that the Bush administration seems to forget. But if Bush does go to war despite massive global opposition, the peace movement needs to be prepared for some unsettling possibilities.

The initial military phase may go quickly. Iraq today poses far less of a military threat to American troops than it did in 1991, when the phrase "turkey shoot" came into popular use. The march to Baghdad -- following massive bombing of the city and its inhabitants -- will likely encounter little substantial opposition; as was true in the first Gulf War, far more U.S. troops will probably die due to cancer from their uranium-enriched arsenals than from any initial Iraqi attacks. But once U.S. troops reach Baghdad, there's major potential for bloody urban warfare, followed by a protracted occupation.

If the war goes well militarily, Americans are likely to rally behind Bush, as their worst fears seem to be averted. The mainline media will praise our President's heroic leadership and largely avoid covering civilian deaths, though tens of thousands will certainly die, if not several hundred thousand. Most Americans will hesitate to speak out, once again fearful of undermining the troops or too discouraged to think it will matter. The administration will brand those who challenge their policies as disloyal and irrelevant cowards.

But the same casualties that our media minimize will be highly visible to the Islamic world. Our planes may "accidentally" bomb Al Jazeera in the first raids, but this will only further inflame the Arab street. Whether through satellite image or word of mouth, Muslims worldwide will hear of the dead and wounded, the fleeing refugees, the destruction of homes, power stations, and sewage plants. Just as our conduct in the first Gulf War helped shift Osama bin Laden from an ally to a murderous foe, so attacking Iraq now will create further enemies, in ways we can only hope we'll never realize.

Perhaps the results of this rage will be delayed. But an uglier immediate scenario is also possible -- that the attack on Baghdad, and the crackdown on Palestinians that Israel is likely to launch at the same time, will trigger counterattacks on American and allied targets throughout the world -- including on U.S. soil. Forgotten in the Bush II administration's relentless propaganda campaign, equating Saddam and his weapons of mass destruction with terror and 9/11, is that many of the actual perpetrators of 9/11 are still out there -- quite possibly including Osama bin Laden himself. And Islamic terror groups have been planning for this invasion at least as long as the Pentagon.

If terrorist bombs do go off in Chicago, Des Moines, or Philadelphia, America will no longer simply be conducting an invisible war in a faraway land. We will be at war with an enemy that fights back here at home. If bombs are killing innocent American civilians, most citizens are likely to feel overwhelmed with anger and fear. Just as was true after 9/11, they'll hardly be receptive to the difficult truth that America's own actions will have helped set those terrible events in motion. And that we as well have taken innocent lives, again and again. It will be hard to resist the administration's permanent evisceration of due process, the Bill of Rights, and other inconvenient nuisances. If unprepared, the peace movement risks being isolated and obliterated.

The best way to avoid this nightmare scenario, of course, is to apply enough public pressure -- globally and here at home -- that the Bush Administration feels unable to proceed with its invasion. Failing that, the anti-war movement needs a Plan B. It needs a message that will play well after an invasion begins, even if terrorist counterattacks begin; it needs a plan for getting that message out to the public despite all the media cheerleading; and it needs a strategy for not only retaining its current massive numbers, but expanding them to the point where we can reverse government policy. We need to take account of these possibilities now, in our message and approach, doing our best to prevent the coming war, but also anticipating the public mood, so our actions still count no matter what happens.

In the face of such grim possibilities, we might begin by connecting the waves of new participants just beginning to speak out with communities of longtime activists. That sounds almost trivial, but there's nothing more demoralizing than staying home in isolation, watching Bush, Cheney, and Rumsfeld on TV. Even with supportive communities, keeping on will be difficult. But the more disconnected we are, the harder it will be. And if we're connected with enough sympathetic people, we can support each other, pass on alternative perspectives, and talk about all the issues that will remain whether or not Saddam Hussein gets removed from the Baghdad palaces where we helped install and maintain him.

Community also lets us gather to mourn. We did this far too little during the first Gulf War, and suffered as a result. It's sometimes necessary to admit that we feel angry and powerless. Then we can remember that we still have the power to act, and that our actions still matter, even when things seem bleakest. Supportive community reminds us that, whatever men like John Ashcroft may think, true patriotism means engagement, not silence.

This past December, a Seattle antiwar coalition called SNOW gathered 2,000 people from the city and suburbs at a local high school, and divided them in neighborhood groups. The resulting 80 groups are now operating on their own with local facilitators and email listservs. Some are conducting vigils and neighborhood marches, others door-to-door canvassing and handing out yard signs, others peace fairs, petition drives and potlucks. These efforts reach people who'd never go near a downtown march.

We could build this infrastructure at every point we speak out. Our marches and rallies have grown, in nearly every city in the country, to create carnivals of homemade signs, stilt-walkers, puppets, belly-dancers, marching bands, grandmothers, ministers, punks, and all manner of ordinary citizens. But they've also missed opportunities. Speakers have focused, with reason, on how Bush has failed to make the case for a war that will make us less safe, not more. But they've talked little about what it means to work in an ongoing way to address the root causes of the crises we now face. They've taken for granted the need to give people psychological bread for their journey.

Our marches and rallies have also done far too little to connect the tide of new participants to concrete networks that could support their involvement. Some of us are linked with a hundred different groups, juggling endless invitations to act. But most in America, including most participants in the huge recent marches, aren't connected in this fashion. Despite the growing involvement of religious and labor groups, most march as individuals, not through organized institutions. Except when local peace and justice efforts are most visible, those newly involved can easily miss them, particularly if they live, like most Americans, in neighborhoods outside the urban core which is the focus of so much visible alternative politics. When the propaganda barrage escalates into a full-scale blitz, those just beginning to act will find it particularly hard to resist isolation.

But peace movement participants don't have to be disconnected. We now have the technologies to keep people involved. Imagine if at every march, rally, or door-to-door campaign, organizers put major volunteer energy into gathering names, emails, and zip codes, then used the Seattle model to set up local meetings. Organizers could at least do their best to ensure that no one left a major march without knowing about the key local websites that could allow them to plug in and get connected. Integrating the flood of new participants would take serious volunteer energy, but if we can link even a fraction of those just coming in to each other and to existing communities of concern, far more will persist when the going gets tough. That's also an argument for continuing our coordinated local protests, in ways that can keep reaching new communities. Encouraging this kind of connection should be as high a priority as getting people to march to begin with.

If war comes, we'll need to remind ourselves and our fellow citizens that no matter how "well" it goes militarily, it's a betrayal of law and of justice, and an incitement to bitterness and terror. That's why, for all the need to build community, we also need visions sufficiently compelling to help participants new and old keep going no matter what happens. We need to raise these visions to all just beginning to raise their concerns, including those who backed Bush's war in Afghanistan, served in other wars, or even consider themselves honorable Republicans.

Given how continually Bush plays the fear card, we might acknowledge that Americans have some reasons for fear. And then make clear that reckless zealotry and a willingness to make entire populations expendable does nothing to bring real security. That's part of why so many major military figures -- like retired Generals Anthony Zinni, Wesley Clark, and even Norman Schwarzkopf -- have expressed strong reservations about this war.

Think of bin Laden's original vision. His Al Qaeda militants justified their anti-American jihad on three grounds: American military desecration of the Islamic holy land of Saudi Arabia; American support for Israel's brutal military occupation of Palestine; and (despite Al Qaeda's loathing for Saddam Hussein himself) the massive suffering of ordinary Iraqis during the Gulf War and the medieval economic siege, punctuated by occasional bombings, that America has led ever since.

From every indication, bin Laden hoped 9/11 would provoke the United States into perpetrating such atrocities against Muslims to inspire a global Islamic holy war against the Western oppressors. Or at least that it would trigger a regional jihad bringing militant Islam to power in the Middle East. After some initial bows to multilateral restraint, the Bush Administration has complied more fully than bin Laden could ever have dreamed. It has given a blank check to unprecedented levels of Israeli brutality; it has openly plotted for a widespread, permanent military presence in the Middle East; it now proposes to incinerate vast numbers of Baghdad residents just in the first few days of our invasion.

Add to that the renewed American allegiance to brutal dictators from Saudi Arabia to Pakistan, Uzbekistan, Georgia, and all points between; a pointed campaign for America to dominate energy resources in every country with Islamic populations, from Nigeria, to Indonesia, to the Caspian Sea; the re-installation into power of Afghanistan's Northern Alliance warlords; and the targeting of Islamic minority communities in the United States itself. The Bush administration has already handed a wealth of arguments to Islamic terrorist groups worldwide. As an Arab diplomat recently told Reuters, "With Bush as a recruiting sergeant these people will be in business for another generation."

We need to remind people that the terrorists whose attacks Bush has used to give his efforts legitimacy wear no uniform, answer to no central authority, and work from no single national state. And that their efforts were fueled in part by past American actions, like supporting bin Laden in Afghanistan. As a result, their efforts can ultimately be prevented, not by war, but a combination of police work and persuasion -- ensuring that such tactics are embraced by dozens, not millions, and then working to render those dozens as ineffectual as possible. Ignoring this not only puts our soldiers at risk, it risks the lives of ordinary Americans at home. We need to talk about this now and if an invasion starts. We need to be clear that those who've rushed to war, not those of us who oppose it, are the real betrayers of trust and security.

From its embrace of might-makes-right to its rejection of international treaties and norms, to its crude taunting of the elected leaders and populations of America's historic allies, the Bush Administration has taken the United States from being the object of the world's sympathy and solidarity to inspiring global resentment and anger. That, in turn, not only helps isolate the U.S. from its historic allies and undermines international law. It also incites the violent fringe who are willing to kill more innocent American civilians. And it invites other countries to follow the path of preemptive war, including a nuclear-armed India and Pakistan.

Facing crises that have built on own government's actions, we have no magic solutions to resolve every possible global problem. But at any point our country can make the world safer or more dangerous, more respectful or more brutal, more sustainable or more environmentally destructive. And in every one of these choices, this administration is inviting the worst possible consequences. The more we elaborate this, the more we'll have credibility even if the nightmare scenario occurs and 9/11 turns out to be just an opening act for further death and carnage.

But we can't just appeal to fear. Two themes link the millions who recently marched worldwide: They recognize that war on Iraq would be a practical and moral disaster. And they reject the Bush administration's attempts to impose their vision on the world. Which means we also need to challenge this administration's raw arrogance, the contempt with which they view not only those who challenge their vision, but also the process of democracy itself. We need to do this in a way that reaches even to those who once called themselves administration supporters. If Saddam's armies fold quickly, we'll need even more to challenge the apostles of empire, who insist that because our armies dwarf those of every other nation, we have the right to impose our will however we choose. We need particularly to resist scenarios where the US turns military victory into regional economic and political dominance.

We might point out that Bush's disregard of world opinion on Iraq has ample precedent. From the moment it took office, this administration has sought more power and less accountability than any U.S. administration in living memory. The assault on democracy began with the 2000 election, emerged early on through Enron-crafted secret energy policies and massive wealth transfers masked as tax reform, and has continued with the gutting of core civil liberties and laws requiring government openness. Since this government's relationship to both the world and its own citizens is bullying arrogance, we need to make challenging that arrogance a central focus.

An ethic of accountability would link the casual way this administration approaches this war's potential human and political consequences with the ease with which they make other lives and communities expendable. We should connect the dots between Bush's tax cuts for the wealthiest, his cuts in every program that serves the poor and vulnerable, and his cavalier dismissal of every major environmental crisis that we face. We need to highlight the broad-spectrum recklessness of such choices, then challenge the distracted powerlessness that makes too many citizens accept in resigned silence whatever is handed down.

When we're challenging this recklessness, we need more than ever to express our vision in human terms, not abstract rhetoric, to put human stories and faces on the issues we address. We need to do this without self-righteousness or ideological abstraction, and with compassion for how easy it is to feel overwhelmed by a world spinning out of control. We need to stand up and not be intimidated.

We also need long-term perspective, for the perseverance that creates real change. Contrary to the prevailing myth, Rosa Parks didn't just step onto a bus in Montgomery, but had been an NAACP activist for a dozen years, part of a supportive community that taught people to persist despite every setback. Because we can't foresee every twist and turn, we need to view our involvement as a long-term process. If we give up simply because things get difficult, we create self-fulfilling prophecies of despair.

If war comes, it will be particularly important to not berate ourselves or our activist compatriots for having failed to stop it. We did this during the first Gulf War. That was part of what burned people out. We need the faith that if we keep on long enough and keep raising critical questions, our actions will have an impact, in ways we can rarely foresee. We need to remember this even when our efforts appear utterly futile, when we seem to be rolling the proverbial rock up a hill only to watch it roll back again and again.

Even if we succeed, we may never know when our actions are mattering most. The heads of the Eastern European police states insisted their hold on power was secure until almost the moment peaceful revolutions erupted and the Berlin Wall came down. So did the white rulers of South Africa, almost until the moment when Nelson Mandela was freed. During Vietnam, Richard Nixon seriously considered using nuclear weapons and at one point threatened their use -- then backed down in the face of the nationwide Moratorium demonstrations and a huge march in Washington DC. Publicly, Nixon responded to the protests by watching the Washington Redskins football game and declaring that the marchers weren't affecting his policies in the slightest -- sentiments that fed the frustration and demoralization of far too many in the peace movement. Yet privately, Nixon decided the movement had, in his words, so "polarized" American opinion that he couldn't carry out his threat. Participants had no idea that their efforts may have helped stopped a nuclear attack.

Whatever the impact of our protests on an administration drunk on its own power, they show the rest of the world that vast numbers of ordinary Americans disagree. They help deflect anti-American sentiment, perhaps even violence, away from U.S. citizens. They give us back our dignity as we resist attempts to intimidate and silence us, and they challenge and change us at a personal level.

Global protests have already handed the White House major United Nations setbacks, prompting daily anti-Europe tirades that sound an awful lot like those of a petulant child finally being told "no." If enough ordinary citizens here at home have the courage to keep on saying "no" to reckless actions, there's no telling what we can stop. And if we accompany that "no" with a "yes" that demands a world where humans are treated with respect, there's no telling what we can create. For only by persisting do we have a chance to break the cycles of endless enemies, retaliations, and deaths of ordinary people caught in the crossfire. Paul Loeb is the author of Soul of a Citizen: Living With Conviction in a Cynical Time (St Martin's Press) and three other books on citizen involvement. See www.soulofacitizen.org. Geov Parrish is a columnist for www.workingforchange.com, the Seattle Weekly, and In These Times. To get Paul Loeb's articles email list@soulofacitizen.org

www.sentinelandenterprise.com49921250232,00.htmlArticle Last Updated: Monday, March 17, 2003 - 10:37:55 AM EST By Megan Blaney

LEOMINSTER -- Henry Muldoon of Fitchburg remembers when a dollar would buy three gallons of gas.

But these days, Muldoon is spending more than $20 to fill his gas tank, and he is none too happy about it.

"These prices are horrendous," he said. "And I don't think they are justified."

Muldoon, a retired bookkeeper at the former Junkala Car Dealership, which has since been renamed Chapdelaine, described "a different age" where a thrifty shopper could find a better deal.

"During the Depression, the price per gallon dropped to 19 cents a gallon," he said, while filling up at the Country Farms station in Leominster, where unleaded gas prices start at $1.61.

Fitchburg resident William Velez said that only last month, he could fill up his Ford Windstar for about $20.

"Now it's at least five dollars more," he said.

Regular unleaded gas prices in Massachusetts are 54 cents higher on average than they were a year ago, rising from $1.139 to $1.679 per gallon, according to a March 10 survey by the American Automobile Association. The national average on March 10 was $1.68.

The increase in gas prices is due, in part, to the cost per barrel of crude oil, which topped $37 a this week, an increase of $7 from December 2002.

The cost of crude oil is affected by rising heat demands in the winter, the uncertain situation with Iraq and labor unrest in Venezuela, according to American Petroleum Institute analyst Ron Planting.

Gas prices are determined not only by the cost of oil, but by the cost of delivery, maintenance and taxes.

Federal and state taxes add up to 40 cents per gallon in Massachusetts.

The gas station is then allowed to set a price for gas which is gauged depending on the costs, and often on the competing filling stations in the area.

AAA spokesman John Paul said his agency keeps a watchful eye on dealers to prevent the possibility of price gouging, which would artificially inflate the prices.

"This type of increase has the potential for gouging," he said.

Manager Tina Lane of the Route 13 Leominster Hess station said she is "just trying to remain competitive."

She said she tries to keep the prices low "for her regular customers."

The Hess station is sandwiched between two filling stations that charge about 12 cents per gallon more than Hess.

Local gas station owners find themselves at a disadvantage in this economy and are forced to offer lower prices or incentives to draw in the customers.

Getty stations are offering a coupon for a free Whopper from Burger King with a fill-up, and several stations have days when premium gas is offered at a discount.

The Massachusetts average gas price falls in the middle of prices for the 50 states that range from $1.53 per gallon of "regular" unleaded gas in Georgia to $2.06 in California.

Harry Bronson, who works at the Pace Station at Kimball and Rollstone streets, said customers aren't filling up their tanks any more.

reuters.com Mon March 17, 2003 10:43 AM ET By Richard Valdmanis

NEW YORK (Reuters) - Time is running out for extra oil supplies expected from the OPEC cartel to hit U.S. shores and allow the world's biggest fuel consumer to smoothly build gasoline supplies ahead of the summer driving season.

The situation could mark a large problem for the United States, leaving it more dependent on imports than ever at a time when the White House pushes to the brink of war on Iraq and retail gasoline prices hit all-time highs, threatening an economic recovery.

"The U.S. needs large slugs of extra oil to cope with the increase in (refinery) runs, stop the erosion of inventories and to begin to claw back some cover," JP Morgan said in a research note. "The U.S. oil market is undersupplied."

U.S. oil stockpiles have fallen below 270 million barrels, the government's suggested level for seamless operations, as supply disruptions from Venezuela and an unusually long, cold winter drained supplies.

The resulting low oil inventories, near the lowest level since 1975, will prove a problem for U.S. fuel suppliers, who tend to use the brief respite in consumer demand in the second quarter to refine more crude oil and build fuel stocks ahead of higher summer gasoline demand.

"The main problem is that while global oil demand does indeed hit a minimum in (the second quarter), U.S. crude oil runs increase," said JP Morgan, meaning deeper declines in crude supply are likely if imports don't shoot higher.

The U.S. second-quarter increase in crude oil demand averaged roughly 1 million barrels per day in 2001 and 2002, and is expected to be even sharper this year as the industry struggles to buffer paper-thin inventories -- requiring a strong increase in imports.

"There's potential for trouble," said Tim Evans, senior analyst at IFR-Pegasus. "Low crude inventories limit the extent to which higher refinery rates can be sustained. But the cavalry rising up over the hillside is represented by OPEC, which has already started pumping away."

OPEC, which accounts for 60 percent of world oil exports, has signaled it will defend against global short supply by upping shipment volumes even as the group declines to lift its official production curbs due to worries over overall weakness in global demand.

OPEC powerhouse Saudi Arabia has already raised production sharply in the first two months of this year to make up for lost Venezuelan supply. Tanker brokers said on Friday the kingdom snapped up 14 tankers to move 29.5 million barrels of crude oil to the U.S. Gulf for May delivery.

So far, the increased production has yet to translate into higher U.S. crude stockpiles.

And, while Saudi Arabia has reassured the market it will continue to pump more oil in the event of a war, there are doubts whether Riyadh has enough spare capacity to compensate fully for disruptions from Iraq, which has a sustainable export capacity of 2.2 million bpd.

The International Energy Agency in a monthly report on the oil market outlook released on Wednesday estimated that OPEC in total has only 900,000 bpd to spare, with 400,000 bpd in Saudi.

If crude supplies become scarce enough to hinder the U.S. oil industry's attempt to build up gasoline supplies before summer, pump prices are likely to continue to surge, pushing through record levels.

The average retail price of gasoline in the United States on Saturday was $1.719 a gallon, a new all-time high, according to the American Automobile Association's latest survey.

The inventory situation in the U.S. has worried the White House enough to consider the use of a release of the nation's Strategic Petroleum Reserve -- a move reserved for only the most dire of supply crunches.

U.S. Energy Secretary Spencer Abraham said on Friday Washington reserved the right to make a unilateral release of crude from the emergency reserve in the event of a severe supply disruption. The statement came after a similar comment from Japan, which said it would tap its reserve if Iraq is invaded by U.S.-led forces.

reuters.com Mon March 17, 2003 10:33 AM ET By Alister Bull, European Economics Correspondent

FRANKFURT, March 17 (Reuters) - A second Gulf War could trigger recession in the euro zone, European officials said on Monday as markets braced for an imminent invasion of Iraq.

Central banks in Germany and Italy warned that the global economy was being harmed by the tension and the European Commission said a lasting spike in oil prices could heap more damage on the spluttering euro zone economy.

"A stagnation or even a recession in the euro area cannot be excluded," the Commission said in its 'worst-case' assessment of what a U.S.-led attack on Iraq could mean for the euro zone.

It has also almost halved its estimates for euro zone growth in 2003 and says hopes for a recovery next year depend on the uncertainty around Iraq being dispersed.

As a result, the Commission now expects only around one percent growth this year, from 1.8 percent forecast back in November, and that is before the fallout of a war is felt.

Countdown to the conflict is being figured in hours, not days after U.S. President George W. Bush told Iraq on Sunday it faced a 'moment of truth' and the United Nations was advised to pull its weapons inspectors out of the country.

The Bundesbank said in its monthly report on Monday that the tensions were taking a heavy toll and the Italian central bank said a prolonged fight would hit the industrial world hard.

"The rhythm of growth in the principal industrial economies could end up falling, even significantly," it said in a twice-yearly assessment of economic conditions.

Oil is the main channel through which the war will make itself felt in the pockets of the industrial world by cutting consumer spending power, although lower business and household confidence and international trade can make matters worse.

SHORT WAR GOOD

Klaus Regling, head of the European Commission's economics department, told a news conference in Brussels that a swift war would have only relatively mild implications for growth.

Outlining this benign scenario, the Commission reckoned oil prices would peak at $50 per barrel during a quick war, but be back to around $26 per barrel by the third quarter of 2003 and this would cost less than 0.1 percentage points in GDP growth.

This mirrored the experience of Gulf War One, when allies evicted Iraq from Kuwait in January, 1991 in ground fighting which was over in a matter of days and oil prices fell under $20 per barrel after peaking around $40/barrel.

Unfortunately, this time around the euro zone economy is in a much more fragile state. Germany is tilting towards another recession and business and consumer confidence has already been mauled by the steepest stock market losses for 70 years.

LONG WAR BAD

"Given that the political and economic situation currently appears more precarious than in 1990-1991, a more substantial and lasting impact on confidence is also possible," the Commission said in its quarterly economic report.

Plus, the state of world oil supplies is also much tighter following a strike in Venezuela and recent cold weather, which could prevent a repeat of 1991.

As a result, if the damage done to world oil supplies turned out to be more serious, oil prices could spike to $70 per barrel and stay high for much longer.

If this translated into a more or less permanent increase in the price of oil, the Commission estimates that the damage to growth could be up to 0.8 percentage points of GDP over the next two to three years.

"In the worst-case scenario we assume a sharp deterioration of confidence, a higher risk premium and further declines in equity markets. A negative impact on world trade, global capital flows, investment and tourism also cannot be excluded," he said.