<a href=ogj.pennnet.com>Oil & Gas Journal Sam Fletcher Senior Writer

HOUSTON, Mar. 25 -- Energy futures prices rebounded Monday, reversing last week's downward trend amid new indications that the war in Iraq likely will take longer and be more costly than traders originally anticipated.

The US stock market, which had been on an upswing since the start of hostilities, was adversely affected by new developments in that war.

Nigerian production falls "Following a 23% decline last week primarily driven by what was hoped to be a quick war in Iraq, crude oil prices have moved higher early this week, fueled by increased resistance by Iraqi troops and escalating political unrest in Nigeria," said analysts Tuesday at Jefferies & Co. Inc. in New York. "Over the past few days, approximately 835,000 b/d, or 38% of Nigeria's crude oil production, has been shut down due to political unrest," they reported.

At its previous capacity of 2.18 million b/d, Nigeria was the third largest active producer in the Organization of Petroleum Exporting Countries and the fifth largest exporter of oil to US markets.

Therefore, analysts said, "At a time when Iraq exports have been shut down, Venezuela is pushing to boost production back toward pre-strike levels, and OPEC is nearing its capacity, Nigeria's problems are of high concern. The positive is that we are entering the seasonally weak demand period; worldwide oil demand is expected to decline about 1.6 million b/d in the second quarter vs. the first quarter."

Current problems in Iraq, Venezuela, and Nigeria "highlight the risks behind US reliance on unfriendly and unstable countries for our crude oil needs," analysts said. "Although the US would remain dependent on oil imports, it would seem logical that the US government pushes—perhaps through royalty relief or opening up environmentally sensitive areas—to increase domestic production."

Tanker traffic PetroLogistics—the European think tank that monitors oil tanker traffic—estimated Tuesday that production among the 10 active OPEC members increased by 780,000 b/d to 26.08 million b/d in March from its revised February estimate. However, it said that increase was more than offset by the decline in Iraq's estimated production to 1.45 million b/d in March, from 2.6 million b/d earlier.

Since the start of the war, Iraq's oil exports have halted. London-based Tankerworld reported through its website Tuesday that tanker activity in the Mediterranean has declined as a result. However, it said tanker traffic is increasing in the Caribbean as Venezuela's exports pick up volume after the protracted strike.

Another industry source Tuesday told OGJ online that "a handful of US and European shipping firms are now loading crude and products" for export from Venezuela, although many of those shipments still are limited to vessels owned and operated by Petroleos de Venezuela SA. "Accurate and credible information on what's going on inside the poststrike Venezuelan oil industry is really hard to obtain," the source said. However, he said, loadings of oil and petroleum products for export remain "considerably lower" than before the strike.

Meanwhile, insurance rates for tankers operating in the Persian Gulf were reported "jumping all over the place" Tuesday, following the discovery of explosive mines in those waterways.

Market prices The May contract for benchmark US sweet, light crudes rebounded by $1.75 to $28.66/bbl Monday on the New York Mercantile Exchange, while the June position advanced by $1.36 to $27.54/bbl. Unleaded gasoline for April delivery jumped by 4.54¢ to 89.79¢/gal. Heating oil for the same month rose 2.81¢ to 78.37¢/gal.

The April natural gas contract gained 12.5¢ to $5.25/Mcf Monday on NYMEX. That market was "moving upward with crude oil prices amid cooler late-week weather forecasts that could increase demand," said analysts Tuesday at Enerfax Daily. "Look for the natural gas market to head back toward mid-range, continuing a consolidation pattern in a sideways market over the short-term," they advised. "A dip below $5.08(/Mcf) could take the market down in a big move. Prices have fallen 45% since late February, reflecting moderating temperatures and the coming of spring weather."

In London, the May contract for North Sea Brent oil climbed by $1.74 to $26.09/bbl Monday on the International Petroleum Exchange. However, the April natural gas contract lost 3.4¢ to the equivalent of $2.72/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes increased by 89¢ Monday to $25.70/bbl.

Contact Sam Fletcher at samf@ogjonline.com

<a href=asia.reuters.com>Reuters Tue March 25, 2003 01:24 PM ET

NEW YORK (Reuters) - World oil prices extended gains on Tuesday as Iraqi forces resisted a U.S. military thrust toward Baghdad while tribal violence in Nigeria kept nearly 40 percent of the country's crude output shut.

U.S. light crude CLc1 gained 67 cents to $29.33 a barrel after a $1.75 jump on Monday. London Brent crude LCOc1 added 11 cents to $26.20 a barrel.

U.S. and British forces faced tough resistance from Iraqi fighters as they opened an assault on Republican Guards defending approaches to Baghdad in a campaign aimed to oust Iraqi President Saddam Hussein.

Oil fell 25 percent last week as traders bet on a short war with little damage to Iraq's oil industry. Before the conflict, Iraq exported about 1.7 million barrels per day (bpd) to the 77 million bpd world market.

But confidence in a quick war waned after the weekend as U.S. and British forces suffered casualties and saw slower progress.

"While there are few who doubt the outcome of the conflict in Iraq, given the technological superiority of coalition forces, Iraq's oil infrastructure escaping damage is not as certain," said John Kilduff of Fimat bank in a report.

Oil's gains lost some steam on unconfirmed reports of a popular uprising against troops loyal to Saddam Hussein in Iraq's second largest city, Basra.

Meanwhile, a series of bloody clashes in Nigeria forced closure at the weekend of just over 800,000 bpd of the 2.2 million bpd produced by Western oil firms in the West African OPEC nation.

Ethnic groups in the oil-rich Niger Delta have said they were battling for a greater share of the country's oil wealth.

Nigeria is one of the top six oil exporters to the United States, where fuel supplies have been running at 27-year lows partly due to an oil workers' strike in Venezuela.

Nigeria, which averaged 560,000 bpd to U.S. refiners last year, where its crude is valued for its high gasoline content, also exports to Europe and Asia.

"Nigerian crude is not the kind of stuff you want to be short of," said Paul Horsnell, oil analyst at J.P. Morgan. "It's very serious. It's not a little local disturbance."

The Organization of the Petroleum Exporting Countries said on Monday it could make up any shortfall in supply from Nigeria, OPEC's fifth largest producer.

The group has also pledged to make up for the disruption to Iraqi exports but now has only the slimmest of spare capacity cushions.

URL 11:08 AM CST Tuesday 

Houston-based energy company ConocoPhillips has restored its oil ventures in Venezuela to full production after disruption from an oil workers' strike, Reuters reported on Tuesday.

"We're back at full capacity at Petrozuata and Hamaca," ConocoPhillips CEO Jim Mulva old reporters on the sidelines of the annual National Petrochemical and Refiners Association conference.

ConocoPhillips' Hamaca project, which had been producing about 50,000 barrels per day of extra heavy oil, halted operations during a two-month strike which started in early December.

The Petrozuata joint venture between ConocoPhillips and state Venezuelan oil firm Petroleos de Venezuela, which normally processes 120,000 barrels per day of Orinoco crude into 102,000 bpd of synthetic oil, also halted production.

The two projects restarted late last month and have since then steadily increased production.

"We see no permanent problems operating in Venezuela," Mulva said.

Venezuelan Vice President Jose Vicente Rangel said on Monday that Venezuela was producing 3.2 million bpd, above the official pre-strike level of 3.1 million bpd.

According to Reuters, opposition oil strikers in Venezuela, more than 16,000 of whom have since been fired by the government, question the accuracy of the government's figures and peg current production at 2.45 million bpd.

Venezuela at one point saw its oil output plummet to below 150,000 bpd during the strike.

Wednesday March 26, 12:37 AM By Erik T. Burns A DOW JONES NEWSWIRES COLUMN

LISBON (Dow Jones)--Central bankers would do well to pay special attention to the fancy footwork and rhetorical twists of OPEC ministers, and not just because of fears a war-driven oil price could choke growth in Western economies.

No, the current OPEC shuffle illustrates something different: how to deal with two opposing messages under extraordinary pressure.

OPEC's problem is very like what faces the major central banks: a whopping surplus of supply, but a market that's scared of scarcity and begging for more.

With OPEC, the group repeatedly pledges to deliver as much crude oil as necessary to cool prices, while the market bids up nearby oil futures to near-record levels. At the same time, OPEC is worried about prices crashing, because of traditionally weak demand in the second quarter, and because the countries are pumping near capacity, sloshing more oil into the market than real demand merits.

It's an unusual situation - the Iraq war, the turmoil in Venezuela, and the growing unrest in Nigeria all present real threats to supply - but also one that's short-lived, not structural. When uncertainty fades, the premium will disappear, and quickly, as with the near 30% drop in crude prices as Operation Iraqi Freedom took wing.

Then OPEC will race to cut production - a much harder task for the group renowned for talking a collective game but acting individually, pumping as much as possible in order to garner market share.

Central banks, funnily enough, face the same slippery dilemma, though perhaps on a more metaphysical level.

Interest rates in the U.S., Japan and Europe are near historic lows, meaning it's cheaper than ever to print money by taking out loans or selling bonds. Indeed, monetarist Europe, stuck with the Bundesbank legacy, has staunchly ignored blistering growth in M3 money supply - it's up 7.4% in January, far above the ECB's 4.5% reference rate.

Meanwhile, M3 in the U.S., where there's less obsessing over the figure, is also on the rise.

The problem? Companies and individuals aren't taking the bait - they aren't snapping up that loose money and converting it into capital investment or goods and services. This may reflect a general lack of confidence, or it may reflect the hangover of the stock market bubble, with folks loathe to get fooled again.

It could, however, also reflect the notion - so patent during the dotcom boom - that investors are waiting for a final Fed or ECB move before resuming the investment cycle.

At this point, that's ridiculous. Another quarter point or half point off rates will make little difference. Even the psychological effects are nearly zero. The ratesetters' ammunition is all but depleted - they could probably boost confidence more by making it crystal clear no more cuts are in the offing.

And just as at OPEC, there's trouble looming. All the world needs is a catalyst and all that liquidity sloshing around the financial system will suddenly be tapped.

Pundits politely call this "reflation," which is just dandy if the result is an orderly resumption of growth. But just as oil prices could easily crash, so could consumer prices soar toward danger levels, if the money in the system is suddenly and forcefully channeled into the real market.

And the two effects together - cheap oil and cheap money - could kick off a new round of global growth ... but not without threatening a new round of global overheating.

That means central banks should take a tip from OPEC and pay attention to the huge reservoirs of liquidity they've built up to fend off fears of an emergency. The dam could burst quickly, letting the oil - or the money - flood the plains.

-By Erik T. Burns, Dow Jones Newswires; (351-21) 319-1863; erik.burns@dowjones.com

<a href=www.chicagotribune.com>WAR WITH IRAQ From the Los Angeles Times By Warren Vieth and Aparna Kumar Times Staff Writers Published March 25, 2003

WASHINGTON -- Like a slow-acting toxin, higher energy costs are seeping through the economy.

Gerald Lasseigne, a 53-year-old information systems technician in Donaldsonville, La., lost his job last month when steep natural gas prices forced Triad Nitrogen to shut down its fertilizer plant on the banks of the Mississippi River.

Daylight Transport, a freight company in Long Beach, recently boosted the diesel fuel surcharge it adds to customers' bills. At DuPont Inc. in Delaware, higher energy costs are woven into every strand of Lycra, Dacron and Kevlar the company produces.

Crude oil and natural gas prices have been volatile this year, buffeted by anxiety over war in Iraq and supply concerns related to a cold winter in much of the U.S. Crude prices, which had peaked at nearly $38 a barrel before the conflict started, did beat a retreat when it seemed a vigorous U.S.-led military offensive could bring a quick end to the standoff with Saddam Hussein without severe damage to Iraq's oil fields.

But oil prices rebounded Monday, climbing to more than $28 a barrel, marking their biggest gain in 15 months. By contrast, for most of the 1990s, oil traded below $22 a barrel. And natural gas futures prices now are more than double their average during the 1990s.

A few pennies a gallon here, a few dollars a barrel there, and pretty soon a million jobs are hanging in the balance.

If there's no relief from high prices, Americans could find work harder to come by because the economy will grow more slowly, and a double-dip recession won't be out of the question. Layoffs already have hit airlines and might reach other hard-hit sectors such as chemicals. Profits are bound to be squeezed elsewhere, from automakers to fast-food chains. Pump prices and utility bills could remain stubbornly high, leaving consumers with less money to spend on everything else.

"The energy shocks of the '70s and early '80s arguably were more significant," said chief economist Mark Zandi of Economy.com. "But this is significant enough to make a difference, certainly enough to push us back into a recession."

In Louisiana, Triad needs to keep its natural gas costs below about $3.50 per thousand cubic feet to break even, Lasseigne said. At the time he and 40 others were laid off, natural gas was selling somewhere north of $5.

"Nobody wants to lose their job, especially the way we lost ours, but I can't say I'm bitter to the company," said Lasseigne, a 29-year veteran of Triad who was earning about $60,000 annually when the well went dry.

"I think the government should have stepped in a couple of years ago when they had that energy fiasco in California. And I think the oil companies should have opened up some of those wells they capped back during the energy crisis years, knowing that if they held back production, prices were gonna rise."

And rise they did. In the early 1970s, U.S. refiners were paying about $3.50 a barrel for crude oil, while industrial natural gas users such as Triad were paying about 40 cents per thousand cubic feet. Then came the Arab oil embargo in 1973, the Iranian revolution in 1978 and the Iran-Iraq war in 1980.

Both crude oil and natural gas prices have increased tenfold over the years, bouncing up and down in response to periodic wars, recessions, natural gas "bubbles" and OPEC production decrees.

Last week, many oil traders were betting on a "perfect war" scenario: Hussein's forces would be quickly vanquished, Middle East oil exports wouldn't be disrupted and the price of crude would fall back to the low $20s.

Some experts have been less sanguine. At Goldman Sachs, for example, analysts and economists concluded that even if the war were to go well, crude oil would still cost an average of $30 or more this year.

That's because there is more propping up oil prices than just Iraq: Inventories of oil and petroleum products are dangerously low, the strike in Venezuela has taken some production off-line and political unrest in Nigeria is reducing exports from one of OPEC's biggest producers.

Meanwhile, a long-term imbalance in natural gas markets is expected to keep pushing that commodity's price up.

Higher energy prices sap the economy because they force consumers and businesses to pay more for purchases over which they have relatively little control, leaving them with less to spend on discretionary goods and services. Petroleum price spikes are particularly pernicious because America imports nearly 60% of its crude oil; that money goes straight into foreigners' pockets and is not recycled into the U.S. economy.

Economists say a $10-per-barrel increase in oil prices, if sustained for a year, slows the economy's growth rate by about half a percentage point and reduces disposable income by $50 billion, or about $400 per household. That's enough to add a percentage point or so to the unemployment rate as some hard-hit industries lay off workers and others create fewer new jobs.

"By themselves these impacts aren't all that large," said Goldman Sachs economist Jan Hatzius. "The big question is whether we're approaching the tipping point. We're dealing with an economy that's already pretty weak."

For some industries, higher energy prices could be toxic. Jet fuel accounts for 12% of U.S. airlines' operating costs, and analysts say higher prices, combined with post-Sept. 11 declines in passenger traffic, could push additional carriers into bankruptcy. Ground shippers, railroads and air freight companies feel the pinch, too.

Higher prices already have taken a toll on manufacturers of chemicals, plastics, textiles, paper, fertilizer, soap, paint, synthetic rubber and other products that use petroleum and natural gas as feedstocks and energy sources.

A number of chemical and plastics companies have reported lower profits, announced product price hikes or shut down production.

DuPont says a 10% increase in crude oil prices increases its raw material costs by about $100 million a year, while a 10% increase in natural gas adds about $65 million.

"The run-ups in oil and gas prices from last November and December are now flowing through to the prices of some of our feedstocks," said Ray Anderson, DuPont's director of investor relations.

In the last 30 days, family-run Beardsley and Son Inc., an agricultural services fertilizer company in Oxnard, has been paying $10 to $20 more per ton for fertilizer. "I'm passing along the price -- all of it," said President Tom Beardsley. "I've talked to growers about these prices. Their typical take is, 'What choice do we have?'"

A $1-per-barrel increase in the price of crude oil costs Goodyear Tire & Rubber Co.'s North American Tire division $20 million a year, after a similar lag period of up to six months. "In the past, we have sought price increases to cover our raw material costs," said Goodyear spokesman Clint Smith. "We did that last year."

Less directly affected, but still vulnerable, are industries that depend on consumers' discretionary dollars, including hotels, casinos, restaurants, clothing chains and other retail outlets.

Analysts say the businesses hit hardest are those that cater to low and middle-income consumers because gasoline and utility bills claim a bigger share of their disposable income.

The Goldman Sachs analysis noted that Wal-Mart Stores Inc.'s same-store sales fell between 2% and 4% in recent months as energy prices increased 30%. While all restaurants could be hurt, the firm predicted a potentially bigger effect at KFC and other fast-food chains with higher numbers of inner-city patrons. Similarly, profits could be squeezed at lenders such as Providian Financial Corp. that extend credit to low-income borrowers.

Manufacturers of many brands of automobiles and everything that goes into them are expected to suffer as car purchases and vacation travel are put on hold.

As with any spin of the economy's big wheel, however, there are always some who profit from others' losses. In this case, it's makers of fuel-efficient cars.

Jerry Daniels, general manager of Coggin Honda in Jacksonville, Fla., said he expects to sell between 300 and 350 new Hondas in March, compared with about 185 in a normal month. That would be the best sales month in the dealership's 20-year history.

There is even a waiting list for the Honda Insight, a gas-electric hybrid that gets 48 miles per gallon. "We've had considerably more trade-ins of V-8s in the last couple of weeks than we're used to getting," Daniels said.

Why? "Because of the gas prices, absolutely."

For Daylight Transport in Long Beach, the problem is the price of diesel, which in the last month topped $1.70 a gallon. Scott Riddle, vice president of sales and marketing, said Daylight charges customers a fuel surcharge of 6% -- up from the 1% surcharge of last year.

Fuel for the hundreds of trucks and trailers that haul freight around the country is a "huge expense," Riddle said. "Fortunately for us, we have a component to recover some of the costs. We're passing along the increase in costs to our customers to help bear some of the burden."

One customer, Peter Pepper Products Inc., a Compton-based office supplies maker, does the same: It passes the surcharge right along. But Bob Caseres, vice president of manufacturing, said clients understand.

"Everyone is accepting it as a course of business," he said. "Since we don't have a way around it, we just deal with it."

Times staff writers Elizabeth Levin and Hanah Cho contributed to this report.