NBCSandiego.com POSTED: 11:21 a.m. EST April 2, 2003 UPDATED: 11:21 a.m. EST April 2, 2003

State Will Continue To Monitor Natural Gas, Gasoline Markets

SACRAMENTO, Calif. -- Recent price spikes in gasoline and natural gas prices were not the result of market manipulation, two state agencies concluded in a report, but officials say they'll continue to watch California's prices closely

Gasoline and natural gas prices rose sharply in March, prompting Gov. Gray Davis to order the California Energy Commission and the California Public Utilities Commission to investigate.

Retail gasoline prices peaked mid-March at an average of $2.15 per gallon, said William Keese, chairman of the California Energy Commission. Even though wholesale prices have dropped about 42 cents per gallon since then, retail prices have only dropped an average of one cent, he said.

Prices should be under $2 at most pumps at the end of this week, and "if they are not, we'll be concerned," Keese said, adding that it's not uncommon for prices to rise more rapidly than they fall.

The spike in gasoline was due to several factors, including the doubling of crude oil prices because of uncertainty about war in the Middle East.

"The cost increases that we have seen from crude oil shouldn't reflect that high a price," Keese said.

Other factors included an oil strike in Venezuela last year that cut supplies, a cold winter in the eastern states increased demand for heating oil and delays in refinery maintenance in California.

Natural gas prices generally run higher in the winter when demand is greater, said PUC Commissioner Michael Peevey.

"We didn't find any manipulation in natural gas prices," Peevey said. "But (we did find) a repetition of a pattern we've seen in California before, where there's a sharp price spike due to conditions outside the state."

The cold weather conditions in the East also contributed to California's higher natural gas prices, officials said. When consumers there are willing to pay higher prices "that sucks the gas in that direction rapidly, and California ends up having to pay," Keese said.

The report doesn't recommend the attorney general investigate the price increases, saying "the Energy Commission has no evidence to claim that any refiners are exercising market power."

Davis said the state would continue to monitor natural gas and gasoline markets "to ensure that no energy companies pull Enron-like tricks to artificially drive up the price of energy."

Copyright 2003 by The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Reuters,, 04.02.03, 12:00 PM ET By Missy Ryan LIMA, Peru, April 2 (Reuters) - Housekeeper Dulia Aguilar has heard President Alejandro Toledo's promises of cheap, subsidized houses for thousands of poor Peruvians, but she can't come up with the $164 a month she would need to buy her own. That means she continues to take the daily hour-and-a-half bus ride to work from the humble neighborhood where she and her daughter rent a sparsely furnished room and share a bathroom with a dozen others for 200 soles ($57) a month. Aguilar is just one of the millions of Peruvians who shake their heads in dismay as they listen to the Toledo government boast that Peru has Latin America's fastest growing and most promising economy. "They say that to look good outside of Peru, but things at home are different," she said. "We don't feel (growth)." The Peruvian economy has indeed shown signs of strength and potential -- growing 5.2 percent in 2002 -- and the Toledo government is hoping those figures will attract needed trade and investment. But it remains to be seen if the nation can fully turn the page and attract new business only three years after being rocked by a corruption scandal that ended the 10-year presidency of Alberto Fujimori and a decades-long rebel conflict involving the Maoist Shining Path. Dark as parts of Peru's political side have been, opportunities to capitalize on the country's growth may help to shroud its past. "The numbers don't lie. Peru's doing extremely well by Latin American standards and better than anyone, even government officials, had anticipated," said Mauro Leos, sovereign credit analyst at Moody's ratings agency. But it's "difficult to get a sense of what lies ahead," he added, echoing other analysts' warnings that Peru must work hard to keep fiscal and political challenges in line to fend off world economy woes and sustain growth. They insist that Peru -- which has long relied on exporting raw materials like minerals and marine products -- must create more jobs, boost private investment and resist the temptation to take on too much debt. NEW LIFE AFTER SLUMP The Toledo government says Latin America's No. 7 economy is booming after a four-year slump, thanks to rekindled consumer demand, manufacturing growth, a state housing push, strong mining output and prospects for increased trade. Peru's strong showing last year contrasts those of neighbors like Argentina, whose economy contracted an estimated 11 percent last year amid currency and debt woes. Peru shares borders with violence-ridden Colombia and Brazil, which last year elected left-leaning Luiz Inacio Lula da Silva as president. In oil-rich Venezuela, the economy shrank 8.9 percent last year amid political unrest and a crippling two-month-long nationwide strike that aimed to oust President Hugo Chavez. The region's biggest economy, Brazil, grew just 1.5 percent in 2002 and the entire region shrank around 0.5 percent last year, according to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). The Peruvian government forecasts 4 to 5 percent economic growth for this year -- almost double the region-wide growth estimate of 2.1 percent for 2003. But some economists say the country will fall short of its projection. "There is an economic advance, but unfortunately it's not sustainable over time and doesn't enhance people's quality of life because it isn't creating jobs," said Enrique Cornejo, an adviser to the main opposition party APRA in Peru's Congress. Peru grew at a brisk pace in the early 1990s, but in 1998 was hit by fallout from the Asian financial crisis and the devastating weather phenomenon El Nino. Then came the downfall of Fujimori, who had been praised for bringing economic reform and growth to Peru in the 1990s. Fujimori's chief of secret police and close adviser, Vladimiro Montesinos, was also accused of corruption, bribery and lesser crimes. Montesinos fled the country in 2000, but was back earlier this year to stand trial. On March 24, he was sentenced to five years and four months in jail for arranging favors for his former mistress' relatives. The Fujimori/Montesinos debacle, as well as a bloody rebel conflict that killed 30,000 people and inflicted $25 billion in damages in the 1980s and 1990s, rattled some investors. The Shining Path, Peru's fiercest rebel group, is now a shadow of its former self but the government says rebel die-hards still pose a threat. All this has left President Toledo with the task of restoring Peru's patina with the international community. POLISHING THE IMAGE Analysts say that even now Peru cannot let strong headline economic figures distract it from such critical issues as tax reforms and making sure that the country's labor laws favor companies and not just workers. They say Toledo, whose popularity dipped to 21 percent in a recent poll, must remain focused on political issues that could create distractions for him if they go unattended. Toledo's Peru Posible party boasts the largest bloc in Congress, but the leader has faced divisions, such as a heated debate over phone rates, even among party loyalists. Toledo sparred with Congress over a bill to eliminate a fixed monthly telephone fee, which would have altered a 1994 privatization contract and reduced revenue for telecoms leader Telefonica del Peru (nyse: TDP - news - people). Some analysts say that kind of legislative action could frighten investors. "There is a perceived risk from Congress ... but it can be minimized because of the executive's tendency to reject laws that could cloud the long-term outlook for investment risk," said Jorge Luis Rodriguez, an analyst at Centura brokerage. Peru must kindle private investment, which the Central Bank says should grow 5.4 percent in 2003, to sustain growth, while increasing export capacity to take advantage of trade deals. Last year, the country cheered inclusion of new products like apparel in a trade deal that gives duty-free access to U.S. markets for certain goods from Peru, Bolivia, Ecuador and Colombia. Peru is also seeking a bilateral U.S. trade deal. Debt, which worries investors, must also be kept under control, analysts say. The Toledo government has faced fiscal shortfalls after failing as planned to privatize state assets. Peru has sold $750 million in bonds on world capital markets so far this year. "(The new debt) solves a problem in the short term, but in 10 years, will Peru have the cash it needs to meet those obligations?" APRA economist Cornejo said, warning that debt service costs were out of proportion with exports. Peru generally pays $2.5 billion a year in debt service while exports grew to $7.68 billion in 2002. But the government says the new debt will help shelter it from the effects of war and a shaky world economy. "We're about to enter a period of heightened uncertainty ... and if there's one thing we've learned in Latin America, it's how sensitive and vulnerable economies are. Peru is no exception to external shocks," Moody's analyst Leos added.

<a href=quote.bloomberg.com>Bloomberg.com By Mark Shenk

New York, April 2 (Bloomberg) -- Crude oil fell on expectations the war in Iraq is moving closer to an end, after the U.S. said coalition forces advancing toward Baghdad destroyed a division of Saddam Hussein's Republican Guard.

Fourteen days of fighting haven't slowed shipments from neighboring Saudi Arabia, the world's top exporter, said Lamees al- Ali, a spokeswoman at state-owned Saudi Aramco. Kuwait and Qatar also said shipments are normal. Persian Gulf countries pump about a quarter of the world's oil. Price declines accelerated after the U.S. said oil imports rose to a record last week.

Traders are betting that the war will be over in a matter of a couple of weeks, with Iraqi exports back to normal in about three months,'' said Phil Flynn, a senior energy trader at Alaron Trading Corp. in Chicago. We've heard that there are people working on the southern fields now, so it could be even sooner.''

Crude oil for May delivery was down $1.28, or 4.3 percent, at $28.50 a barrel as of 11:48 a.m. on the New York Mercantile Exchange. Easing concern of disruptions to Persian Gulf exports has sent prices down 28 percent from a 12-year high of $39.99 a barrel reached on Feb. 27. The 1991 Gulf War lasted six weeks.

In London, the May Brent crude-oil futures contract was down $1.04, or 4 percent, at $25.32 a barrel on the International Petroleum Exchange.

The Energy Department in a weekly report said U.S. inventories rose a greater-than-expected 6.8 million barrels, or 2.5 percent, to 280.7 million barrels in the week ended March 28. A Bloomberg survey of analysts predicted an increase of about 2 million barrels.

Record Imports

U.S. crude-oil imports were the highest recorded by the Energy Department since it began compiling weekly figures in 1990, said Doug MacIntyre, a senior oil market analyst with the department's Energy Information Administration.

Imports rose 7.3 percent to 10.36 million barrels a day. Venezuelan shipments were close to normal, the department said. A strike that began Dec. 2 had disrupted exports from the South American country, which in November provided about 10 percent of the oil used by U.S. refineries.

Saudi Arabia and Venezuela ``said they were increasing production and we are now seeing it reflected in inventories,'' said Jay Saunders, an analyst at Deutsche Bank Securities in New York.

Iraq, the third-largest producer in the Persian Gulf region, pumped about 3 percent of global supply in February, before the war started. The nation shipped about 7 percent of the oil imported by the U.S. in January.

Baghdad Guard Division

The Republican Guard's Baghdad Division is no longer able to operate as a fighting force, U.S. Army Brigadier General Vincent Brooks said, without providing details, during a televised briefing at the U.S. Central Command's Qatar headquarters.

Two other divisions, each numbering about 12,000 men at full strength, are under ``serious attack'' near Karbala, 50 miles southwest of the capital, he said.

In Nigeria, international oil companies have halted production of about 800,000 barrels a day in the past two weeks, or more than a third of the country's output, because of fighting between government troops and ethnic Ijaw militants before presidential elections on April 19. Last Updated: April 2, 2003 12:10 EST

<a href=reuters.com>Reuters Wed April 2, 2003 12:04 PM ET By Susan Schneider

NEW YORK, April 2 (Reuters) - Brazil's sovereign bonds trotted higher on Wednesday as investors expected Congress to approve a bill paving the way to Central Bank autonomy, a vote widely viewed as a litmus test of the government's ability to push through more radical economic reforms.

Brazil's share of J.P. Morgan's Emerging Market Bond Index Plus, about one-fifth of the total index, added 0.56 percent in early New York trading. The benchmark C bond BRAZILC=RR drooped 0.125 points lower to 81.25 bid.

Brazilian bonds built on their impressive surge of the last three months as optimism continued to run strong for President Luiz Inacio Lula da Silva's plans to overhaul the social security and tax regimes. Lula has said he would send Congress the legislation on the two reforms this month.

In the meantime, Congress was set for an afternoon vote on an amendment changing the financial system's legal framework, a necessary step in the government's effort to give the Central Bank more independence. Investors are watching the vote for signals that Lula has the influence to pull off other politically sensitive reforms, said analysts.

"What people are beginning to focus on is what kind of majority the government will be able to muster," said Suhas Ketkar, senior economist and head of emerging markets analysis at Royal Bank of Scotland.

"This is a constitutional amendment, which requires 308 votes. If they get a significantly larger number of deputies supporting the government, say they get 400 votes, that would be very positive because that would indicate the government has the ability to put together coalitions, and that spells good news for the reforms to follow," said Ketkar.

Since taking office on Jan. 1, Lula's pledges to keep a tight rein on public finances and to pursue reforms have won over investors, who paled at the thought of the former union boss in power just a few months ago. Lula had spooked Wall Street with talk of debt renegotiation in previous campaigns.

The sanguine reform view has helped Brazilian bonds skyrocket nearly 23 percent so far this year. Spreads over comparable U.S. Treasuries, or the premium investors demand to compensate for incurring extra risk, have steadily narrowed to close below 10 percent on Tuesday for the first time since May, 31, 2002.

Traders and analysts said approval of Wednesday's vote was largely priced into bonds, but they noted a failure to pass the measure could provide a negative shock to the market.

"I think everyone is expecting it to pass broadly so we really only have downside from it -- if it doesn't pass it will be bad (for bonds)," said an emerging debt trader.

OIL, RESTRUCTURING PINCH VENEZUELA

Venezuelan debt bucked the rising tide of Brazilian bonds with a 0.20 percent drop on the day. Venezuela's DCB bond VENDCB=RR dove 0.875 points to 70.5 bid.

The slide came amid growing optimism that an end to the U.S.-led war in Iraq may be in sight. With U.S. troops now on the outskirts of the Iraqi capital, Baghdad, investors bet the troops' progress could soon translate into a resolution.

If the war does end sooner rather than later, Middle East oil supplies would not likely see heavy disruptions, which in turn would mean that oil prices could come down. This would be negative for Venezuela, which normally relies on the commodity for about half its government revenues, said analysts.

At the same time, investors are also taking stock of Venezuelan bonds in light of the country's plans to undertake a voluntary restructuring of its debts.

Beyond the prospect for falling oil prices, there is "a realization that the market is going to have to face this voluntary restructuring," said Christian Stracke, head of emerging markets strategy at research firm CreditSights.

"While most people probably agree there won't be any (net present value) negative result, there's still uncertainty surrounding it and as we've seen Uruguay -- a similar situation -- people don't really like to hold it until details of this kind of an exchange are out," said Stracke.

Reuters, 04.02.03, 10:54 AM ET

NEW YORK (Reuters) - U.S. crude oil stocks jumped by 2.5 percent last week as a rush of new supply from top world exporter Saudi Arabia pushed imports to the highest level on record, government figures showed on Wednesday.

Crude oil stocks ballooned 6.8 million barrels to 280.7 million in the week ended March 28, the Energy Information Administration said in its weekly supply report.

Stocks swelled as U.S. crude oil imports jumped to nearly 10.4 million barrels per day (bpd), the largest average on record, the EIA said.

"Crude oil imports from Saudi Arabia increased sharply, an apparent reflection of much higher production that began in February," the EIA said.

Crude oil imports have averaged 9.1 million bpd over the last four weeks, which is more than 400,000 bpd more than averaged over the sameperiod last year, the EIA said.

"The tidal wave of crude we've been waiting for has finally hit our shores," said Bill O'Grady, analyst with A.G. Edwards.

Imports have also recovered from big regional supplier Venezuela, which is recovering from a two-month workers' strike that crippled its oil industry.

"Imports from Venezuela last week seemed to average close to normal levels," the EIA said.

The increased stocks give more of a cushion against the loss of Iraq's 1.7 million bpd of crude exports since the first days of a two-week U.S-led invasion.

Nearly 40 percent of Nigeria's oil production has also been shut in due to ethnic violence there ahead of mid-April elections. Nigeria is one of the top six U.S. oil suppliers and its high-quality crude is good for making gasoline.

Oil prices were down $1.28 at $28.50 a barrel after the report, already driven down by military advances in the U.S-led war against Iraq.

Gasoline inventories rose by 1.7 million barrels to 200.7 million barrels last week, though remain below the low end of the normal range, the EIA said.

"We're hearing Venezuela exports of gasoline are finally restarting and that's something we'll be watching very closely," O'Grady said.

Venezuela's strike also cut into gasoline supplies, and refiners have been unable to step up gasoline production as much as normal as they worked to meet heating fuel demand during a cold northern winter.

Distillate fuel inventories, including heating oil, decreased by 1.6 million barrels last week, the EIA said.

Industry group the American Petroleum Institute, which issues a supply report at the same time, said that crude stocks rose by 9.0 million barrels, distillate stocks fell 3.3 million barrels and gasoline stocks rose 2.5 million barrels.