seattlepi.nwsource.com Tuesday, March 18, 2003 SEATTLE POST-INTELLIGENCER STAFF AND NEWS SERVICES

Washington state has the sixth-highest gasoline prices in the country on a day when the nation's average price of regular gas was at its highest in history.

The average price of regular gas was $1.728 a gallon, the Energy Department said. AAA, which tracks thousands of stations across the country, also saw a national record.

Washington's average was $1.862 a gallon for regular. Only California, Hawaii, Nevada, Oregon and Arizona had higher average gas prices, according to the automobile association.

In the Puget Sound region, a gallon of regular gas was selling for an average of $1.897 yesterday, topping the state. That compares with $1.270 a year ago.

Gasoline prices have increased as crude oil inventories have dropped to their lowest levels in nearly three decades, drawn down by a strike in Venezuela that curtailed exports and boosted prices. The possibility of a further supply disruption from a war in Iraq has also raised crude oil and gasoline prices.

The previous high in both national surveys came in May 2001, amid low supplies of cleaner-burning reformulated gasoline in many urban areas and a spate of refinery disruptions. Prices usually peak nationally in May and June when demand rises as the weather warms.

The average nationwide price for regular-grade gasoline rose 1.6 cents in the week ended yesterday, the government data showed. It has climbed for 13 of the past 14 weeks and added 34 percent from $1.288 a year ago. The Energy Department surveys about 900 gas stations.

AAA, which updates its prices daily with data from the previous business day's credit card transactions at more than 60,000 gasoline stations, said prices reached $1.719 a gallon

www.detnews.com Tuesday, March 18, 2003 By Mike Hudson / The Detroit News

Possible quick confrontation with Iraq sends market ahead, drops crude oil prices

DETROIT -- Wall Street saw major rallies on all of its major indexes in response to the U.S., Spanish and British withdrawal from diplomacy efforts at the United Nations.

The Dow Jones industrial average rose 282 points to close at 8,141. The Nasdaq jumped 51 points to close at 1,392. And the Standard & Poor's 500 index rose 29 points to close at 862.

"Removing this cloud of uncertainty is as regarded as a positive development to investors," said Patrick Anderson, principal of Anderson Economic Group, a Lansing-based economic consulting firm. "It's a crazy world we live in when we talk about war and the stock market goes up, but that's how it is in this instance."

The idea that a quick war will help the economy may prevent the Federal Reserve from cutting interest rates at its meeting today, economists said.

Sung Won Sohn, chief economist at Wells Fargo Bank in Minnesota, said Fed chairman Alan Greenspan and his colleagues will start cutting interest rates only if they believe an Iraq war was harming the economy or threatening to disrupt financial markets.

"If the war goes badly, the Fed is going to need all the ammunition it has," Sohn said. "I would expect the Fed to cut interest rates to zero in an extreme situation."

The stock market has been hurt by more than just tensions in the Middle East. It has been fighting off a number of negative factors, including the down economy, a dicey diplomatic environment and lingering effects from the 2001 and 2002 corporate accounting scandals. Because of the complexity of the down market, analysts say, the market will have to see substantial evidence of improvement for Monday's rally to become permanent.

"There will have to be a seismic shift in the current environment," said Dennis M. Nally, chairman of PricewaterhouseCoopers LLP, speaking to the Detroit Economic Club on Monday. "Many factors will have to change before we see a meaningful, long-term turnaround in the market."

In another bright but potentially temporary development, oil prices fell 45 cents per barrel to $34.93 on the West Texas Intermediate market. Prices had topped out at $37.83 per barrel Wednesday.

Energy prices have been the major point of concern for economists because of the damaging effects on consumer spending that high gasoline, natural gas and diesel prices tend to have.

"History would suggest that oil prices would go down fairly rapidly (after war begins), maybe $5-$7 a barrel, probably within one day," said Angus McPhail, an analyst at ING Financial Markets in Edinburgh, Scotland.

McPhail believes markets will be awash in crude after a swift war, particularly if Venezuela continues to recover from an oil industry strike and other members of the Organization of Petroleum Exporting Countries keep producing more than their output quotas. For the second half of the year, ING Financial Markets foresees an average crude price to be around $18.50 a barrel. But the recent drop in oil prices hasn't been reflected at the gas pump.

AAA Michigan reported prices for regular unleaded averaged $1.72 on Monday, unchanged from last week. Across Michigan prices averaged $1.76, up 1 cent from last week. Nationwide, gasoline averaged $1.72 per gallon, AAA said.

"Retail gasoline records are being blown out," said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York, which markets gasoline and heating oil to local distributors. "We can expect prices to rise by another dime in the short term."

A colder-than-normal winter in the United States that sapped heating-fuel supplies exacerbated the problem, forcing some refiners to keep producing heating oil when they might have begun to make gasoline in anticipation of the peak driving season this summer.

Furthermore, the U.S. economy can expect a few days of doldrums if war breaks out. Millions of consumers will spend their free time at home watching news developments, economists say.

The auto industry will be particularly impacted by this phenomenon, Anderson said, although the extent of which will be determined by the length or brevity of the war.

You can reach Mike Hudson at (313) 222-2293 or mhudson@detnews.com. The Associated Press contributed to this report.

edition.cnn.com Tuesday, March 18, 2003 Posted: 0634 GMT ( 2:34 PM HKT)

SINGAPORE (Reuters) -- Oil prices fell sharply Tuesday as U.S. President George W. Bush gave Iraqi leader Saddam Hussein 48 hours to leave Iraq or face an invasion.

Analysts said Bush's ultimatum, in a televised address to the American public, firmed up the timing of a possible attack and took away uncertainty in the market, which drove oil close to $40 a barrel in February, a level not seen since the Gulf War.

"Saddam Hussein and his sons must leave Iraq within 48 hours," Bush said. "Their failure to do so will result in military conflict, commenced at a time of our choosing."

U.S. light crude fell to a near six-week low at $33.80 a barrel, down $1.13 cents. London's Brent crude dropped 78 cents to $28.70 a barrel, the lowest level since early January.

"Bush has confirmed that the United States is 48 hours away from starting an invasion and that means that the end of uncertainty for the market is near. No market likes uncertainty," said David Thurtell at Commonwealth Bank in Sydney.

Expectations of a quick allied victory with little chance of major disruptions to crude supplies from other Middle East producers also helped cool oil prices, which gained 60 percent in just over three months from the beginning of December.

"The oil market is working on the basis there will be an overwhelming allied victory. The only surprise in the market is for that [victory] not to happen," said Sydney-based independent oil analyst Simon Games-Thomas.

Selling by speculative investors has driven crude down 10 percent in the last four trading days. Investors want to avoid being caught out by a sudden price slide if Middle East oil flows escape severe disruption.

In the first Gulf War, prices dropped from over $30 to barely $20 when the United States launched its January 1991 offensive as it became clear Iraq would not harm oilfields in Saudi Arabia, the world's biggest oil exporter.

The Middle East supplies about 40 percent of global crude exports.

Analysts warn, however, that the main risk to crude oil remains to the upside if Iraq should destroy its own oilfields or any war is difficult and drawn out.

Iraq near standstill An invasion would almost certainly close Iraqi crude output for a period and its southern neighbour, Kuwait, may also be forced to halt pumping at some fields close to its borders with Iraq. Kuwait pumps roughly two million barrels daily.

Iraq's U.N. supervised oil exports, which until recently were running at about two million barrels per day (bpd), have already slowed to a trickle with traders unwilling to take a risk on uncertain supplies due to war fears.

U.N. officials said on Monday exports would come to a standstill when U.N. staff are pulled out of the country, which could happen as early as Tuesday.

The OPEC producers' cartel has pledged to meet any supply gap stemming from hostilities, but a prolonged outage of Iraqi or Kuwaiti crude would test the group's spare capacity to the limit.

The United States, the world's biggest oil guzzler, has made preparations to release strategic oil reserves to prevent any interruption to deliveries if needed, said Republican Rep. Billy Tauzin, who is also chairman of the U.S. House Energy and Commerce Committee.

Analysts said confidence had grown that it was unlikely there would be any major supply crunch in the second quarter, which sees a seasonal downturn in oil demand with the end of winter.

"OPEC has been storing crude for some months and there is a significant amount of OPEC crude already on the water heading to western ports. Venezuela production looks to be increasing," said Games-Thomas.

"It looks like there could be a surplus of crude in the short term, if there's no serious damage to oil facilities during the war," he said.

Production in OPEC-member Venezuela, whose oil exports were slashed by an anti-government strike since December 2, continued to recover with government officials putting output near to three million bpd. Rebel oil workers say output is closer to two million bpd.

www.chronwatch.com

Posted by the ChronWatch Founder, Jim Sparkman Tuesday, March 18, 2003

   What should we make of current gasoline prices?  We have a governor who assumes every energy problem is the result of gouging by greedy oil companies.  And he says so repeatedly, just in case California's reputation as the most anti-business state begins to slip.  He admits he has no proof, but says it anyway.  What a stateman!  Destroying California's business reputation is one job he has done well.

   On the other hand, the Chronicle doesn't have a single soul on the staff who can add anything of any value to our understanding. The Chron ranks are filled with journalists who don't know anything about anything.  As the song in the GM commercial goes, ''Nothing from nothing is nothing.''  As a result, they are forced to write article after article by quoting ''experts say'' and ''critics say.'' By definition, that's the only contribution they can make.  Of course, they throw in their bias in imitation of the governor.

   So, we have to go elsewhere for real information. This article is from the Wall Street Journal, written by Alexei Barrionuevo.

Oil prices are sliding as more crude moves toward a thirsty U.S. market, but gasoline prices aren't expected to follow them down anytime soon.

The reason: tight crude-oil supplies and production problems, particularly on the West Coast.

In California, where prices now average $2.08 a gallon, gasoline supply continues to be dogged by refinery-maintenance issues and complications surrounding the production of a new ethanol-gasoline blend.

Nationally, gasoline prices are expected to reach highs, before adjusting for inflation, when the latest survey comes out Monday. They most recently averaged $1.71 a gallon of regular, just below the previous record. A prolonged oil workers' strike in Venezuela this year and fears about the impact of a possible U.S. invasion of Iraq have contributed to the bulk of the price run-up.

Inventories have dropped dangerously low in some parts of the country and will be hard to replenish quickly. The crude on the way from the Middle East won't help inventories for a month or more, and weeks more will pass before the oil is refined into gasoline and transported to service stations. The Energy Information Administration, an arm of the Department of Energy, predicts that pump prices will peak at $1.76 this year.

In California, the mix of problems are ''adding up,'' said Joanne Shore, a senior analyst for the Energy Information Administration. Refiners in the state are struggling to comply with new rules requiring them to switch to a new fuel mix that uses corn-based ethanol rather than MTBE, a common gasoline additive produced in refineries that has been linked to some environmental problems. While refiners produce MTBE, or methyl tertiary butyl ether, and blend it into gasoline early on, ethanol must be added at the end of the process. And because less ethanol is required per gallon than MTBE, refiners are producing, overall, less volume.

''The potential for spikes today are greater today because we are starting the season with lower inventories and the voluntary switch is removing volume from the market,'' Mr. Goldstein said.

During a protracted political battle over ethanol use, California's Energy Commission and outside consultants warned of potential complications with the transition. But refiners comprising about 80% of California's gasoline production voluntarily decided last year to switch to ethanol one year ahead of a federally mandated changeover, believing they could make the transition smoothly.

California also is short of refinery production. Some 10% of the state's production is sidelined for annual maintenance work. BP's Carson refinery, which supplies about 25% of Los Angeles's gasoline, is a week late in returning from 50 days of planned maintenance. A BP spokeswoman said the long-planned maintenance work cost almost $100 million. ''We are working 24 hours a day to get the plant back up because we realize its importance to the market,'' the spokeswoman said.

The problems are producing some unseen price discrepancies. The average pump price in San Francisco has risen to $2.27, the highest level in the country, according to the American Automobile Association.

Write to Alexei Barrionuevo at alexei.barrionuevo@wsj.com

reuters.com Tue March 18, 2003 01:02 AM ET

SINGAPORE (Reuters) - Oil prices fell sharply on Tuesday as President Bush gave Iraqi leader Saddam Hussein 48 hours to leave Iraq or face an invasion. Analysts said Bush's ultimatum, in a televised address to the American public, firmed up the timing of a possible attack and took away uncertainty in the market, which had driven oil close to $40 a barrel in February, a level not seen since the Gulf War.

"Saddam Hussein and his sons must leave Iraq within 48 hours," Bush said. "Their failure to do so will result in military conflict, commenced at a time of our choosing."

U.S. light crude CLc1 fell to a six-week low at $33.57 a barrel before recovering to $33.77, down $1.16. London's Brent crude dropped 83 cents to $28.65 a barrel, the lowest level since early January.

"Bush has confirmed that the United States is 48 hours away from starting an invasion and that means that the end of uncertainty for the market is near. No market likes uncertainty," said David Thurtell at Commonwealth Bank in Sydney.

Witnesses said a convoy of minibuses carrying U.N. weapons inspectors left their Baghdad headquarters on Tuesday for the city's airport. U.N. secretary-general Kofi Annan ordered all international U.N. staff on Monday to evacuate ahead of a likely U.S. invasion.

Expectations of a quick allied victory with little chance of major disruptions to crude supplies from other Middle East producers also helped cool oil prices, which gained 60 percent in just over three months from the beginning of December.

"The oil market is working on the basis there will be an overwhelming allied victory. The only surprise in the market is for that (victory) not to happen," said Sydney-based independent oil analyst Simon Games-Thomas.

Selling by speculative investors has driven crude down 10 percent in the last four trading days. Investors want to avoid being caught out by a sudden price slide if Middle East oil flows escape severe disruption.

In the first Gulf War, prices dropped from more than $30 to barely $20 when the United States launched its January 1991 offensive as it became clear Iraq would not harm oilfields in Saudi Arabia, the world's biggest oil exporter.

The Middle East supplies 40 percent of global crude exports.

Analysts warn, however, that the main risk to crude oil remains to the upside if Iraq should destroy its own oilfields or any war is difficult and drawn out.

IRAQI EXPORTS NEAR STANDSTILL

An invasion would almost certainly close Iraqi crude output for a period and its southern neighbor, Kuwait, may also be forced to halt pumping at some fields close to its borders with Iraq. Kuwait pumps roughly two million barrels a day.

Iraq's U.N. supervised oil exports, which until recently were running at about two million barrels per day, have already come to a near standstill with traders unwilling to take a risk on uncertain supplies due to war fears.

The OPEC producers' cartel has pledged to meet any supply gap stemming from hostilities, but a prolonged outage of Iraqi or Kuwaiti crude would test the group's spare capacity to the limit.

The United States, the world's biggest oil guzzler, has made preparations to release strategic oil reserves to prevent any interruption to deliveries if needed, said Republican Rep. Billy Tauzin, who is also chairman of the U.S. House Energy and Commerce Committee.

Analysts said confidence had grown that it was unlikely there would be any major supply crunch in the second quarter, which sees a seasonal downturn in oil demand with the end of winter.

"OPEC has been storing crude for some months and there is a significant amount of OPEC crude already on the water heading to western ports. Venezuela production looks to be increasing," said Games-Thomas.

"It looks like there could be a surplus of crude in the short term, if there's no serious damage to oil facilities during the war," he said.

Production in OPEC-member Venezuela, whose oil exports were slashed by an anti-government strike since December 2, continued to recover with government officials putting output near to three million bpd. Rebel oil workers say output is closer to two million bpd.