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Hotels and restaurants should brace themselves for sharp rises in their fuel bills, as both domestic and global events have made the markets for oil, gas and electricity "unstable and volatile".

Chris Arnold, senior purchasing executive for Best Western buying consortium Beacon, warned that the crisis in Iraq, the labour strike in Venezuela and the poor performance of the FTSE could all drive fuel prices higher.

"They all lead to a perceived nervousness that there could be a shortage of supply in the market, and the risk of a supply shortage drives prices up," he said.

Closer to home, consolidation in the UK utility market meant there were fewer players and therefore less competition to keep prices down.

Arnold said oil and natural gas prices had risen by 10% in the past few weeks. The price of gas, the most volatile fuel, almost doubled between 1999 and early 2002, at a time when hotels were suffering from the impact of the foot-and-mouth epidemic, the 11 September tragedy and widespread flooding.

"In 1999, prices were very stable and people did not feel the need to shop around," he added. "Now, they have to, in order to get the best rates."

Arnold said the demand for Beacon to use its buying power to negotiate utility rates for members has risen by 75% in the past year. Beacon currently buys for 320 Best Western hotel members, plus 2,000 other leisure firms including hotels, restaurants, golf clubs, nursing homes and pubs and clubs.

Beacon's utility consultant, Inenco, is advising members not to renew contracts until the war in Iraq is over, but to do so afterwards before prices climb any higher.

They should also consider fixing rates across two-year rather than one-year deals, to remove the risk and allow them to budget with more confidence - although they could lose out if prices did fall during the period.

24 March 2003

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Australia would find itself with severe oil and gas shortages in the next decade if billions of dollars were not invested in exploration, a key industry body said.

The Australian Petroleum Production and Exploration Association (APPEA) said $A14.5 billion was needed to discover and develop oil and gas fields in Australia to replace depleting supplies in Bass Strait.

Another $A20 billion was needed if Australia wanted to find enough oil and gas to be self-sufficient, said APPEA executive director Barry Jones.

"We have to either make it more attractive to invest, or make it safer to import from overseas," Jones said.

"The Australian government will have to help to do both.

"The idea that somehow we might be able to attract $35 billion of new capital in Australia in the next 12 years to take us from the lowest supply curve to the demand curve is pretty close to impossible, so we are going to have to import.

"To import you have to make it safer, with less political risk."

Jones said increased investment and safe trade links required the government to stop "tinkering" with ethanol and renewable energy issues and focus on ways to improve exploration, tax and foreign policy.

The government needed to simplify the exploration approval process, cutting down on environmental and native title bureaucracy, he said.

It had to realise the tax regime was not set in stone and make changes to ensure exploration, development and production of Australian reserves were competitive with areas such as the Gulf of Mexico and the Caribbean.

And it had to review its foreign policy, to secure increased trade with the Middle East.

Jones said capital in the oil and gas industry would be spread thin in the years ahead as oil companies injected money into clearing up trouble spots such as Venezuela and Iraq after the war.

While Australia was 40% self sufficient in oil, it imported 40% of its supply from Asia and 20% from the Middle East.

More attention would have to be paid to the Middle East region if Australia wanted to ensure long-term secure supply, Jones said.

"Our foreign policy needs to take into account our long-term liquid energy needs," he said.

And with the Middle East holding 60 per cent of the world's reserves, mostly in Saudi Arabia and Iraq, Australia had little choice but to ensure trade continued unencumbered and with minimal risk.

"All governments agree that the cost of energy is the essential underpinning of Australia's international trade and our lifestyle, and that coal, oil and gas will be the prime source for energy for the foreseeable future," he said.

The APPEA is holding its 2003 conference in Melbourne from March 23 to March 26.

Source: AAP

IN THE U.S., the long-awaited war rally is in full gear. Monday March 24, 5:32 AM (From The Asian Wall Street Journal) By Craig Karmin

The Dow Jones Industrial Average and the Standard & Poor's 500-stock index each are on an eight-session streak, the first time the Dow industrials have had such a run-up since 1998, and the S&P's first since 1997.

Since war in Iraq became imminent, the Dow industrials have risen 997.56 points, or 13%, and the Nasdaq Composite Index is up 12%, enough to wipe out earlier losses and send both benchmarks up so far this year. Last week's gain for the industrials was 8.4%, the biggest weekly advance in more than 20 years, going back to October 1982.

For most investors and traders, the template for the rally has been clear: By studying what happened to stocks the last time the U.S. took on Saddam Hussein in 1991, they can see a blueprint for what to expect this time around. So far, the comparisons have held up. Then, as now, the U.S. economy was facing a severe strain. Oil prices were high, and the financial system was working through a period of excess that ended with the bursting of a financial bubble and stock-market decline.

But many analysts and economists now are worried the analogy is being carried too far. Despite these apparent similarities, analysts warn that the U.S. economy and the stock market face a number of important challenges and uncertainties that were missing at the start of the previous Gulf War. They add those differences could be substantial enough to make comparisons to 1991 irrelevant. "Today's world is a far more unstable and much scarier place than it was in the aftermath of the Gulf War of 1991," says Stephen Roach, Morgan Stanley's chief global economist.

All of this has produced some fears the current U.S. stock-market rally may soon run it course, perhaps even faster than the rally sparked by the Gulf War. In 1991, the Dow industrials jumped 15% from Jan. 17, the day Operation Desert Storm was launched, to Feb. 28, when a cease-fire was declared. From there, the market was stuck in a trading range and ended the year down 10% from when the war ended.

This time, the markets have entered the war in a much weaker position. Despite the recent rally, the Dow industrials are down by nearly 20% during the past year and the Nasdaq composite is down about 25%. On Friday, stocks closed up sharply on news of an intensive air campaign in Baghdad and more rumors Mr. Hussein may have been killed or injured. In the New York Stock Exchange's most active session of the year, the Dow industrials rose 235.37 points, or 2.8%, to 8521.97, while the Nasdaq was up 1.4%,or 19.07 points, to 1421.84.

Yet many traders already worry this rally could soon fade. The military task was clearer in the previous war, when the goal was to expel invading Iraqi troops from Kuwait. Today, military planners are facing the much more complicated task of removing Mr. Hussein's regime from power and rebuilding the country.

Even once that happens, U.S. military challenges won't be over. The U.S. still faces a threat from global terrorism, and other potential international crises loom in North Korea and Iran.

Nor should investors count on an economic rebound in the U.S. once the guns fall silent. The economy in 1991 was in the middle of a recession and continued to struggle long after the first Gulf War was over. Although the economy is further along in the economic cycle than it was 12 years ago, a number of analysts warn that the recovery lag could take as long, and perhaps longer.

Many U.S. companies are trying to reduce debt, a strain that has discouraged new capital spending. State and local governments -- compelled by law in many states to balance their budgets -- have been raising taxes and cutting spending programs, providing another drag on the economy. American household debt is at record levels, and economists say the savings rate is inadequate. "All these factors will still be in play even if the war gets resolved in a favorable way," says Bill Dudley, chief U.S. economist for Goldman Sachs. "The economy looks weak and vulnerable to a shock."

The global economy is in worse shape today than a dozen years ago, meaning U.S. companies can't count on demand in Europe or Japan to compensate for a weaker domestic market. Since the U.S. is launching this fight without clear backing from the United Nations, Washington will be responsible for a bulk of the war costs.

"The only thing that looks better today than 12 years ago is that U.S. productivity numbers are up," says David Rosenberg, chief North American economist for Merrill Lynch.

From a valuation perspective, stocks were more attractive then. The current price-to-earnings ratio based on trailing 12-month earnings for the S&P 500-stock index is 31 -- about double that of 1991. Many economists say the stock-market excesses of the late 1990s were so spectacular it is going to take much longer to work through the excess than it did earlier in the decade. "This is a bigger bubble and with more pernicious effects," Mr. Rosenberg says.

While the U.S. Federal Reserve aggressively cut interest rates in 1991 and 1992 -- cutting the federal-funds rate 13 times, to 3% from 7% -- the situation today is much trickier. Now, that rate is at 1.25%, leaving the Fed little room to cut rates again if the war runs into trouble or if the economy weakens further. Mr. Rosenberg notes the 12 interest-rate cuts for the current easing cycle haven't done much to revive the U.S. economy because business overcapacity, rather than prohibitively high rates, is responsible for the downturn.

A U.S. slowdown would be less of a worry if markets in other countries looked healthy. But as in 1991, that isn't the case. "The world wasn't helping much then, and it isn't helping much now," says Carl Weinberg, chief economist for High Frequency Economics in Valhalla, New York. "Actually, it's bit worse today."

He notes Europe's economy was slumping in 1991, too. But European governments were taking much more aggressive steps to stimulate their economies through fiscal and monetary policy, so that Germany and the U.K. enjoyed healthy rebounds by 1993. Moreover, Japan's economy, now moribund, was strong, growing at a rate of 5% during the first quarter of 1991, compared with essentially no growth expected today.

U.S. corporations are in the process of repairing their balance sheets by reducing debt. Even as many companies cut costs to the bone, the profit downturn is lasting much longer, and has been much deeper, than in 1991 because of an inability to raise prices following a long period of corporate overinvestment.

Borrowing by U.S. consumers is another concern. Household debt as a percentage of gross domestic product stands at a record 83%, compared with 64% in 1991. Lower interest rates today take some of the sting out of the debt load, but many analysts say the burden is greater this time around.

At the same time, the U.S. has moved from a current-account surplus for the first quarter of 1991 to a widening current-account deficit that amounts to about 5% of GDP. This increases U.S. dependency on foreign capital, but it suggests the dollar will continue to weaken, which discourages foreign investors from buying U.S. stocks.

As in the fourth quarter of 1990, oil prices have been rising and approached $40 a barrel this month. In the weeks following Kuwait's liberation, prices sank to around $20 as supply concerns eased. This time, oil has fallen to below $27, and analysts say there could be further declines when the conflict in Iraq is over, though not to the same levels seen in 1991 because circumstances have changed. Venezuela has yet to return to full production following its recent oil-workers strike, and many other suppliers are near their capacity for pumping oil. Refining companies and other large oil consumers face low stock inventories. Higher energy costs, of course, hit the bottom line of U.S. companies.

Friday's Market Activity

Hopes that the war could be decisive and short helped drive strength in a number of stocks and sectors in the U.S. market. Airlines were the top performers Friday, with Southwest Airlines up $1.04, or 7.3%, to $15.28 even though analysts point out that the majority of stocks in the group remain significantly below levels of 18 months ago and a short war doesn't necessarily remove the threat of a bankruptcy-law filing for some of these companies.

Walt Disney gained 1.60, or 9.3%, to 18.74 as market participants speculated a short war would ease concerns about visiting tourist spots such as Disney's theme parks. Strategists also see a short timeline for a war benefiting advertising revenue.

Disney and nearly all of the 30 members of the Dow industrials finished in the black for the day; the only decliner was SBC Communications.

Intuit slid 12.17, or 24%, to 38.72 on the Nasdaq after the tax-software company said it expects pro forma earnings of $1.30 to $1.35 a share for the fiscal year ending July 31, down from its February estimate of $1.38 to $1.42 a share.

State Street fell 4.39, or 11%, to 34.11 after the financial custodial firm warned first-quarter operating results will come in between 45 cents to 47 cents a share, short of the 54-cent projection from Wall Street analysts surveyed by Thomson First Call.

Bank of New York, weighed down by State Street's warning, dropped 22 cents, or 1%, to 22.20. Bear Stearns and Prudential Securities lowered their earnings-per-share estimates for the company on concerns that the bank, which derives most of its income from fees tied to behind-the-scenes business like clearing stock trades, will suffer from continuing difficult business conditions.

-- Shaheen Pasha

Read source. Posted on Sun, Mar. 23, 2003
Associated Press

CAMARILLO, Calif. - After weeks of big increases, gas prices rose less than a penny nationwide over the past two weeks as oil markets calmed with the beginning of U.S. military action against Iraq, an industry analyst said Sunday.

The average price for gas nationwide, including all grades and taxes, was about $1.76 a gallon on Friday, according to the Lundberg survey of 8,000 stations.

That was an increase of just 0.71 cents from March 7, the date of the last Lundberg survey.

"Right now it appears possible that this year may already have seen its peak pump price," said analyst Trilby Lundberg.

War fears and uncertainty over the outcome of the Iraq crisis combined with a strike in Venezuela to send gas prices up more than 25 cents a gallon so far this year.

The price is leveling off now due to factors including the perception that the war will not substantially impact Iraqi oil production, Venezuela's comeback after the strike, and production increases by Saudi Arabia, Kuwait and others, Lundberg said.

"There was a lot of jargon such as war premium - it was more like an uncertainty premium," Lundberg said.

"The perception changed in favor of supply security enough so that oil futures prices have tumbled down," she said.

The price of a barrel of oil dropped $8 last week, from $34.93 at the close of the day March 17 - the day President Bush gave Saddam Hussein 48 hours to leave Iraq - to $26.90 at the end of the day Friday.

Lower prices could lie ahead, Lundberg said, "assuming of course there is no refining problem with getting our spring and summer formulas into place."

Still, one year ago motorists were paying 38 cents less per gallon - a weighted average of $1.38.

The national weighted average price of gasoline, including taxes, at self-serve pumps Friday was about $1.73 per gallon for regular, $1.82 for mid-grade and $1.91 for premium.

<a href=www.financialexpress.com>Read Source. Shebonti Ray Dadwal

Will securing Iraq’s 112 billion barrels of oil reserves resolve the industrialised world’s and the US’ energy problem? Can a pro-west, perhaps even a democratic Iraq provide Washington with the alternative it has been seeking to replace Saudi Arabia as the linchpin of its Gulf and energy policy and, more importantly, lead to the end of an increasingly troublesome OPEC (Organisation of Petroleum Exporting Countries)?

Whether George W Bush’s leitmotif for a second Gulf War is oil or not, or whether his objectives are more ambitious vis-a-vis the entire Gulf region, there are many who are ready to believe they are. The elaborate plans that were made to ensure that Iraq’s precious oil fields were secured, both during the war and after, for the US oil companies, add grist to the rumour mill. In fact, it is even said that a certain American oil company has already been given a post-war reconstruction contract. And, after all, wasn’t the first Gulf War all about not allowing the Iraqi dictator wresting control over Kuwait’s oil and gaining access to the world’s largest reserves?

But that was a different era, when Riyadh was Washington’s most trusted ally and could be depended on to use its ability as a swing producer to keep oil prices at acceptable levels — not too high as to increase inflationary trends and impact on the global economy, yet not too low as to affect the profit margins of the producers, including the American companies.

Of course, the relationship worked both ways. The Saudis always knew that with their incredibly low cost of production and reserves close to 262 billion barrels, they could capture market share by jacking up production over and above their OPEC quota levels and flood the market with crude at prices which would render the high cost non-OPEC producers — which included the American producers — unviable. Besides, it suited Saudi Arabia, whose main source of revenue continues to remain rooted in its energy sector, to keep the world hooked on a diet of oil.

Then 9/11 happened and Washington’s greatest fears regarding Saudi reliability were confirmed. Signs of anti-Americanism that had begun to take root soon after the first Gulf war, were by and large, ignored as long as the regime was seen as loyal and Riyadh controlled and manipulated the spigots to keep renegade OPEC members, who were advocating production drawbacks to keep prices high, in line. But with evidence of some linkages between the Saudi regime and Islamic terrorist funding, Washington was ready to look for alternative allies.

Besides, Riyadh’s ability — and interest — to halt rising oil prices were also being questioned. When prices increased by 40% in a little under a year to reach $36 a barrel in January this year, a Saudi-engineered Opec production hike was instituted. But with rampant quota busting already ensuring that most cartel members were already producing to capacity, a ceiling hike only legitimised clandestine output. And with a strike in Venezuela all but wiping out that country’s 2.5 mbd exports, and tight US inventories, even a Saudi production hike could not bring about a price drop.

For a while, Moscow presented itself as a possible partner, as it not only had large energy reserves but was also a useful ally in facilitating Central Asian energy exports to the world market. With American investments pouring into the Russian oil sector, production was revved up to more than 7.5 mbd from an earlier below 6 mbd. However, Russia’s oil reserves, at 48 billion barrels, constitute only a small portion of global reserves; also, its cost of production is high and it is already pumping oil to capacity.

That leaves Iraq. With its vast oil wealth and twice as much potential reserves, plus its incredibly low cost of production, it could, if brought out of Opec, allow the world to be delivered from its price manipulations, perhaps even render the cartel ineffective. However, for this to happen, Iraq’s oil wells, already crippled by more than a decade of UN-imposed sanctions, and now perhaps by Saddam Hussein’s retreating troops, will first have to be brought back on line if a prospective oil shock is to be staved off. With US oil inventories at an all-time low, political problems in Nigeria affecting exports, and Venezuela yet to regain pre-strike production levels, the world may well have to see the International Energy Agency forced to release strategic stocks to prevent another crippling oil price hike.