washingtontimes.com March 21, 2003 Ben Lieberman

     Gas prices have surged, as have the demands for the government to do something about it. But only a few of the factors affecting gasoline prices are within federal control. It is these things — particularly taxes and regulations — that should be, but aren't, the focus of efforts to reduce the pain at the pumps.      One factor that is hard for Washington to influence is the market price of oil, which is set by global supply and demand. Strikes in oil-producing Venezuela and uncertainty surrounding Iraq increased the price per barrel of crude by 50 percent since Jan. 1. Unfortunately, episodes of instability in oil-producing regions are unavoidable, as are the resultant price spikes.      Domestic oil has the advantage of flowing free of foreign tyrants and turmoil, but the supply is currently limited to 42 percent of the nation's needs. Allowing production in the Arctic National Wildlife Refuge (ANWR) and other new U.S. sites would only dent, but not substantially reduce, our dependence on foreign crude.      Government efforts to reduce demand have limits as well. Past federal fuel economy standards for cars and trucks have failed to deliver the predicted declines in energy use. Setting stringent new standards would only hurt consumers by forcing them into smaller, less safe vehicles. And, feasible alternatives to petroleum-powered cars and trucks are still at least a decade away, despite many years of federally funded research.      Thus, the price of oil, which is responsible for about 40 percent of the price we see at the pumps, is largely outside of government control. On the other hand, a good chunk of the other 60 percent can be reduced. The most obvious target is taxes, including the 18.4 cents per gallon federal excise tax, as well as state and local taxes averaging 24 cents per gallon.      But rather than consider gas tax relief, Reps. Don Young, Alaska Republican, and James Oberstar, Minnesota Democrat, just announced a proposal to increase the federal tax by a nickel a gallon.      Beyond direct taxes is the hidden tax of federal regulations. This includes reformulated gasoline (RFG), a specialized blend required by federal law in nine major metropolitan areas. RFG currently costs nearly 15 cents per gallon more than already pricey conventional gasoline.      During the summer driving season, refiners face the dual challenge of meeting higher demand while producing fuel that meets the tougher warm weather regulations designed to combat smog. Assuming the cost of crude remains high over the next few months, this summer could be a record-breaker for gas prices.      Here too, Congress is headed in the wrong direction, adding new gas regulations instead of streamlining the existing ones. For example, the pending energy bill contains provisions requiring the addition of ethanol to gasoline. While a boon for Midwestern corn farmers and ethanol producers like Archer Daniels Midland, an ethanol mandate can only increase the price at the pumps. And Sens. John McCain, Arizona Republican, and Joseph Lieberman, Connecticut Democrat, recently introduced a bill designed to fight global warming that would further boost the cost of petroleum and other fossil fuels.      Oil prices fluctuate over time, but the tax and regulatory burden seems headed in only one direction — up. Since Washington created this burden, Washington can also reduce it. If the federal government wants to get serious about dealing with high gasoline prices, this should be the place to start.            Ben Lieberman is the director of Clean Air Policy with the Competitive Enterprise Institute.

www.miami.com Posted on Fri, Mar. 21, 2003 BY CHRISTINA HOAG choag@herald.com

As the United States intensified its military assault on Iraq, crude-oil prices tumbled Thursday to three-month lows in a day of swings sparked by reports of fires at oil wells.

Crude-oil futures sank for the sixth consecutive trading session, to $28.61 per barrel, a slide of $1.27 from Wednesday. But prices swung between a high of $30.60 and a low of $28, a volatility caused by military reports that three or four wells in Rumaila, in southern Iraq, had been set ablaze.

''The market is pricing based on a best-case scenario of a pristine military operation by U.S.-led forces,'' said John Kilduff, energy-risk management analyst at Fimat USA. ``But the volatility is incredible.''

Experts warned that oil-field sabotage and shipping-lane disruption could easily cause prices to skyrocket. As a result, motorists are unlikely to see any immediate relief at the pump.

Miami's average for regular gas remained at a record $1.761 Thursday, while Fort Lauderdale stations averaged a penny below Wednesday's all-time high of $1.767, according to AAA.

''Things are looking a lot better,'' said Lawrence J. Goldstein, president of the Petroleum Research Industry Foundation. ``. . . But there will be a lag before we see that in the gasoline on the street.''

Over the last week, the so-called ''war premium'' that had added $5 to $8 to oil prices since last fall has been almost wiped out. Despite the loss of almost all Iraqi production of 2.5 million barrels a day, prices have plunged 28 percent since hitting a 12-year high of $39.99 on Feb. 27. On Monday, the United Nations shuttered its Food for Oil program.

''The irony of the situation is that Iraq's exports have been cut off,'' said John Kingston, global director of oil for Platts.

A similar price plunge occurred in January 1991, when U.S.-led forces launched air raids on Iraq. Oil plummeted by a third, from the prewar escalation that had jacked up prices to $41.15 in October 1990 after Iraq invaded Kuwait.

This time, analysts say, factors other than the anticipation of an easy defeat of Saddam Hussein are softening prices. These include:

• OPEC's pledge to goose output should supplies be disrupted for a prolonged period.

• Saudi Arabia's production of an extra million barrels a day and the fact that the Saudis said this week that they were harboring a 50 million-barrel emergency reserve.

• An increased flexibility on the part of the United States and Europe in releasing their strategic supplies.

• The realization that demand will likely start dropping as the Northern Hemisphere moves into spring.

• The knowledge that Venezuela's crude-oil output is being ramped up following a crippling workers' strike.

• And the fact that U.S. crude stocks, which had reached record lows as refiners drew down inventories rather than buy supplies at premium prices, are starting to swell, although they remain at uncomfortably low levels unseen since the 1970s.

Still, the rosy picture could dim overnight. Key to keeping the oil market stable is the allied forces' capture of the Iraqi oil fields in order to prevent sabotage that could sideline production for an extended period.

In February 1991, retreating Iraqi forces set alight more than half of Kuwait's 1,200 oil wells. With that in hindsight, current military plans call for quickly seizing the southern oil area of Basra and the nearby port of Umm Qasr. The oil fields lie only 29 miles over the Kuwaiti border. A special ground force has been designated to secure the area.

U.S.-led forces hope that a warm welcome from the region's inhabitants will make the job easier. Historically, there has been no love lost between Basra's approximately one million Shiite Muslims and Baghdad's ruling Sunni Muslims. At the end of the Persian Gulf War in 1991, Basra staged an uprising against Hussein.

But Basra's is a small field. The real prizes would be the giant fields surrounding Kirkuk, a Kurdish stronghold near the Turkish border.

And since Turkey has granted the United States access to airspace alone, that, Kilduff said, ``will definitely be a trickier proposition.''

www.denverpost.com By Steve Raabe Denver Post Business Writer Friday, March 21, 2003

Forget the "war premium."

Oil prices fell Thursday for the sixth consecutive day, despite the outbreak of war in Iraq.

Energy analysts had coined the war-premium phrase to describe a run-up in oil and gasoline prices since the start of the year, when conflict with Iraq began to seem likely.

But crude oil fell to a three- month low Thursday on market perceptions that the war won't have a big impact on petroleum supplies.

Crude for April delivery fell $1.27, or 4.3 percent, to $28.61 a barrel on the New York Mercantile Exchange, the lowest closing price since Dec. 13.

"We may be looking at some relatively stable prices," said Marc Smith, executive director of the Denver-based Independent Petroleum Association of Mountain States. "The marketplace believes that there are going to be steady supplies of oil."

That bodes well for consumers, analysts said, although it will take weeks for falling oil prices to show up at gasoline pumps.

The price swing parallels a similar shift that occurred during the first Gulf War.

After Iraq invaded Kuwait in August 1990, crude prices reached all-time highs of nearly $41 a barrel, with gasoline prices rising to a then-record national average of $1.35 a gallon.

But on Jan. 16, 1991, the first day of American air attacks on Iraqi targets, oil fell $10 a barrel, a record 33 percent one-day decline.

While crude oil prices are volatile and hard to predict, some analysts see further price declines.

"Part of the war premium is coming off, and I believe there is still more of the premium that could come off," said Peter Mueller, senior director in Denver of the R.W. Beck Oil and Gas Group. "I think we'll see downward pressure on oil prices and associated downward pressure on natural gas."

Thursday's trading in oil markets was volatile, first rising on reports that Iraq had begun torching oil wells.

But prices fell later in the day after reports that damage so far was limited to just a handful of wells in southern Iraq. Iraq has nearly 1,700 wells.

The National Oceanic and Atmospheric Administration said its polar-orbiting satellites recorded images of smoke plumes that appeared to confirm reports of oil fires.

U.S. government officials have speculated for weeks that Iraq is placing explosives on oil wells, as it did in Kuwait before blowing up 700 wellheads during the first Gulf War.

Several oil-field firms that specialize in extinguishing well fires are preparing to send crews to Iraq.

Yet even if all Iraqi oil production stops, as most industry experts expect, the Organization of Petroleum Exporting Countries has said it will increase oil pumping to make up the deficit.

Until recently, analysts had been skeptical of OPEC's ability to make up for Iraqi production because of lingering supply deficits from the recent oil strike in Venezuela.

But Venezuelan exports have increased in the past month, leaving more of a supply cushion to cover Iraqi shortfalls.

Oil prices also could ease because warmer weather will reduce demand for heating oil, a crude-oil byproduct used for home heating by millions of households in the eastern United States.

Energy economist John Falmy of the Washington-based American Petroleum Institute said an $8 decline in crude oil prices over the past week should translate into a 19-cent-a-gallon decrease in retail gasoline prices.

But the price drop won't be seen until imported crude makes its way from overseas producers to the U.S., and then through refining and distribution channels.

"It may take about five weeks to see it at the pump," Falmy said.

news.mysanantonio.com By Elizabeth Allen Express-News Business Writer Web Posted : 03/21/2003 12:00 AM   Oil prices fluctuated on the first day of the U.S. war on Iraq after dropping sharply on the eve of the conflict.

The price may drop further based on an optimistic view of a short conflict, industry experts said, but consumers aren't likely to see lower prices at the pump for some time.

"I don't think there's going to be any need for people to wait in line to buy gasoline any time soon," said Tod Bryant, spokesman for the Interstate Oil and Gas Compact Commission, a trade group that represents the major oil-producing states. "I expect prices to stay the same or go a little higher for the next couple of months."

Bryant noted the return of Venezuelan crude to the market after a general strike will help keep gas prices stable.

Thursday's crude price volatility was partly due to reports that some Iraqi wells were on fire in the southern part of the country, but reports of the damage have been mixed and most people are waiting to see if further sabotage occurs.

Crude oil for April delivery fell $1.27 to $28.61 a barrel on the New York Mercantile Exchange, the lowest level since Dec. 13, as the industry moves out of one waiting stage and into another.

"People are happy to see that something is happening and some of this uncertainty is being removed," said Jacques Rousseau of Virginia-based Friedman, Billings, Ramsey & Co.

"The next stage is, what will happen with these oil wells," he said, "and are they able to damage anybody else's oil production?"

Rousseau said it's too soon to predict whether gas prices would rise in the next few months, but he said he wouldn't be surprised if they go higher.

"Oil prices are OK now, but next week is it going to shoot back up because Iraqi fields are burning?" Rousseau said, adding that U.S. crude oil inventories are still very low.

Other analysts have noted that a lot of oil is in tankers headed for refiners, and that should help bring up the inventories.

In a worst-case scenario, the United States and other countries have strategic petroleum reserves, but Rousseau said it's difficult to predict what would cause the United States to tap its own, since that didn't happen during the Venezuelan strike.

OPEC officials have given assurances that they will not let the oil supply or price get too disrupted.

"They have essentially the control on the faucet," said Colm McDermott of energy research and consulting firm John S. Herold Inc. in Connecticut. "They are the swing producer that can make up for that shortfall."

The U.S. attack on Iraq is also well-timed to reduce its effect on the market, Rousseau said.

The second quarter is seasonally the weakest for crude oil demand, which drops by about 2 million barrels a day.

"Quite coincidentally, that's how much Iraq exports out onto the market," he said.

Iraq normally produces between 2.5 million and 3 million barrels of oil per day, about 3 percent of the 77 million barrels of the world's daily consumption.

The United Nations suspended the oil-for-food program that allowed companies to buy Iraqi oil earlier this week, although some Iraqi oil reportedly still is flowing through a pipeline to Turkey.

The companies that were buying through the program have been able to turn elsewhere, said Mary Rose Brown, spokeswoman for San Antonio-based refiner Valero Energy Corp., particularly since Venezuelan production has come back up after a strike.

"We buy crude everywhere — Mexico, Latin America, Canada, Venezuela," she said.

Valero had been a major buyer and became Iraq's biggest crude customer in January, importing 124,000 barrels per day, after Exxon Mobil and Chevron Texaco stopped buying from that country.

It remained a small part of the refiner's overall purchases, Brown said.

She also noted that "one of the companies that said they weren't going to buy from Iraq bought part of the last cargo from us," but declined to name the company.

eallen@express-news.net 03/21/2003

www.indystar.com By Gregory Weaver gregory.weaver@indystar.com March 21, 2003   In response to the war with Iraq, companies with business interests overseas are restricting international travel and moving employees out of harm's way. RCI, a provider of time-share condominiums throughout the world, imposed travel restrictions for its employees early Thursday, shortly after American missiles began pounding Baghdad. Company spokesman John R. Barrows said only "critical business travel" will be allowed to Israel, Bahrain, Qatar, Jordan, Saudi Arabia, Kuwait, United Arab Emirates, Oman and Venezuela. Last week, it relocated an employee based in Kuwait City. The company, with 1,100 workers in Carmel, also has other employees in the Middle East who currently are not considered at risk. However, it is making preparations to move them should that become necessary, Barrows said. "There's a surprising amount of business as usual in the areas surrounding Iraq," he said. "The airport in Kuwait City has continued to be open for commercial traffic, but we are following the lead of the (U.S.) government in terms of what areas are at risk." Joel Reuter, director of communications at Roche Diagnostics, was called back early from an overseas trip Wednesday as his employer also decided to restrict international travel. He and an Indianapolis co-worker were among 24 Roche employees from throughout the United States who were quickly called home. Reuter and his colleague were in Switzerland near Roche's worldwide headquarters to discuss business plans for the coming year. The medical device maker, with 2,500 workers in Indianapolis, is restricting all noncritical international business travel as a precaution. Reuter said improvements made in Roche's travel tracking system in the aftermath of the Sept. 11 terrorist attacks facilitated the quick recall. "We have new software in place that makes it easy to determine in real time where everyone is -- which is critical in these times," he said. He said the company will encourage the increased use of video and telephone conferencing to accomplish some international business. Other businesses -- including Indianapolis-based Eli Lilly and Co. -- have remained under similar international travel restrictions since the terrorist attacks in 2001. "There are circumstances where you would prefer to meet face to face, but it can be done another way," said Lilly spokeswoman Joan Todd. "We would look to see if there were other ways to accomplish the same end."

Call Star reporter Gregory Weaver at 1-317-444-6415.