Business today.com by Donna Goodison Tuesday, April 8, 2003

Optimism about the United States' success in its war with Iraq continued to put a damper on the crude oil and gasoline markets yesterday.

Meantime, an unexpected April cold snap ran up natural gas prices that had been plummeting steadily.

Commodity crude oil prices fell 66 cents, or 2.3 percent, to $27.96 a barrel in day 20 of the Iraq conflict.

``I think that the market also took into account that Venezuela has been successful in resuscitating their production, as well as Nigeria (doing the same),'' said Mike Fitzpatrick, an energy analyst at Fimat USA Inc. in New York.

News from the OPEC oil cartel sparked a rally shortly before noon.

Crude oil prices on the New York Mercantile Exchange revved up to a high for the day of $28.70 a barrel, after OPEC's leader said the group was considering an emergency April 24 meeting to possibly cut output.

The market is facing a glut, not a shortage,'' Abdullah Hamad bin Al-Attiyah, OPEC's president, told reporters in Paris. We are seeing the oil price drop dramatically.''

Oil prices have plunged 30 percent from a $39.99 high on Feb. 27, as OPEC members boosted production, and market jitters about the war eased.

It's going to be a tough time restraining inventory in the second quarter,'' Fitzpatrick said. Traditionally, demand is lowest in the second quarter.''

Commodity gasoline prices were down 2.93 cents, or 3.4 percent, at 84.10 cents a gallon yesterday. Crude oil prices account for between 40 and 50 percent of gasoline prices.

Retail prices at the gasoline pumps also are dropping.

Massachusetts' average price for unleaded regular has eased 1.5 cents from a month ago, falling to $1.662 cents a gallon on Friday, from $1.677 a gallon, according to the American Automobile Association.

Friday's price was still 18 percent higher than a year ago, however, when gas in the Bay State cost $1.388 a gallon.

``Clearly you're starting to see more reasonable prices available, but it tends to go down a little more slowly than prices go up,'' said Arthur Kinsman, a spokesman for AAA Southern New England.

Seven out of 10 Americans say this year's higher gas prices have not prompted them to change their driving habits, according to an AAA survey released last week.

``Among the approximately one third who said they did alter their plans, it was a matter of consolidating errands and trips made by car,'' Kinsman said.

Natural gas prices went up 19 cents, or 3.8 percent, to $5.13 per million thermal units yesterday after hitting a low of $4.88 last week.

The fundamental behind this was bigger demand than they thought, because the weather turned cold this past three days,'' said Lannie Cohen, of Capitol Commodity Services Inc. in Indianapolis. The supplies were kind of low, and it caught everyone off guard.''

By Seattle Times news services

LONDON — OPEC members plan an emergency meeting this month aimed at curbing runaway crude production to avert a possible price crash.

Oil ministers at the Organization of Petroleum Exporting Countries have agreed to meet April 24 in Vienna, Austria.

OPEC President Abdullah al-Attiyah said he had proposed the emergency meeting to prevent a postwar fall in oil prices.

"My main worry is how to deal with the dramatic price drop," said al-Attiyah, the oil minister for Qatar, after discussions with OPEC Secretary-General Alvaro Silva. "The market is full of oil, it's facing a glut not a shortage."

Most OPEC members have been producing at maximum capacity to keep world oil supplies plentiful during the war. However, oil ministers are increasingly worried that OPEC might be oversupplying the market just as demand starts falling to its seasonal low.

The group has decided not to wait until OPEC's benchmark price for oil falls below the group's minimum threshold of $22 a barrel.

Oil prices have fallen sharply since peaking at $37.64 a barrel on March 12. Yesterday, oil was at $27.76 in U.S. trading.

Kevin Norrish, head of commodities research at Barclays Capital, said OPEC is right to be concerned about weak prices.

Saudi Arabia, the group's biggest member, has made "a massive increase" in output, while exports from Venezuela are growing steadily after the recent collapse of a nationwide strike. Output in Nigeria is starting to recover from disruptions caused by social unrest, and Iraq will eventually resume production, Norrish said.

Demand typically falls in the second quarter due to declining sales of winter heating oil in the Northern Hemisphere. Demand for gasoline often doesn't pick up until the peak summer driving season.

This year, springtime demand is expected to fall more sharply than usual. With a wartime supply shortage looking unlikely, oil-importing countries will stop buying crude for their strategic reserves, Norrish said.

"I think OPEC is correct to identify the possibility of a sharp fall," he said. Compiled from The Associated Press and Bloomberg News.

Tuesday, April 8, 2003 12:00AM EDT News observer From Wire Reports

PARIS -- The Organization of Petroleum Exporting Countries will hold a special meeting to consider a production cut, after a 30 percent drop in oil prices caused by the progress of the U.S.-led coalition in Iraq.

"The market is facing a glut, not a shortage," OPEC President Abdullah bin Hamad al-Attiyah, who is also Qatar's oil minister, said. "The market is full of oil," he said in announcing the April 24 meeting.

Oil prices have fallen sharply since peaking at almost $40 a barrel on Feb. 27, before the war began in Iraq. Contracts for May delivery fell 66 cents Monday to $27.96 barrel on the New York Mercantile Exchange. Crude prices have tumbled 30 percent from a 12-year high of $39.99 a barrel Feb. 27

Only last month, OPEC signaled that it would pump more oil to make up for any supply disruption caused by hostilities in Iraq. Although members agreed in March to stick with their production target of 24.5 million barrels a day, some analysts say that rampant quota-busting has boosted OPEC's current output to about 27 million barrels a day.

Kevin Norrish, head of commodities research at Barclays Capital, said OPEC is right to be concerned about weak prices.

Saudi Arabia, the group's biggest member, has made "a massive increase" in output, while exports from Venezuela are growing after the recent collapse there of a nationwide strike. Output in Nigeria is starting to recover from disruptions caused by social unrest, and Iraq will eventually resume production, Norrish said.

Demand typically falls in the second quarter because of declining sales of winter heating oil in the Northern Hemisphere.

This year, springtime demand is expected to fall more sharply than usual. With a wartime supply shortage looking unlikely, oil-importing countries will stop buying crude for their strategic reserves, Norrish said.

"I think OPEC is correct to identify the possibility of a sharp fall," he said. "They're being pre-emptive because once the market starts to get away from them, it could be very difficult to bring it back."

Posted on Tue, Apr. 08, 2003 By Trebor Banstetter Star-Telegram Staff Writer

FORT WORTH - American Airlines will file for bankruptcy protection next week if any of its three unions rejects plans for $1.6 billion in concessions, union leaders told members Monday.

Airline employees are pondering whether to approve the new contracts, which will mean hefty pay cuts, layoffs and tightened work rules. For pilots and ground workers, voting is expected to be completed on Monday. Flight attendants will have until 10 a.m. on April 15, union officials said.

"A 'no' vote will trigger a bankruptcy filing the day following the voting deadline," Jim Little, international vice president of the Transport Workers Union, told members Monday. "This is a fact that has been bluntly stated by the company, without reservation."

Also Monday, American announced that it will cut its May flight schedule more deeply than expected. Bookings have been down because of the war in Iraq as well as the continued economic slowdown, airline officials said.

The airline's domestic routes will be cut 2 percent more than originally planned next month, and international flights will be down 13 percent more than planned, airline officials said.

It was another sign that despite the recent progress with labor, American's ability to stay out of bankruptcy court remains uncertain.

"The network carriers will have to be restructured," Ray Neidl, airline analyst for Blaylock & Partners, said in a note to investors. "The question is will it be in or outside of bankruptcy."

Union officials said that American has given them little reason to doubt that a bankruptcy filing will soon follow if union members reject the concessions.

"The company has alluded to the fact that if one of the employee groups were to fail to ratify the agreements, they would certainly file," said George Price, a spokesman for the Association of Professional Flight Attendants.

Although American executives have raised the specter of bankruptcy before, airline officials have declined to disclose when a filing might take place.

But Little of the Transport Workers Union, which represents 34,000 mechanics and other ground workers, said the airline has informed the union that a Chapter 11 filing would take place almost immediately after any negative vote.

"Anyone who thinks a 'no' vote will result in additional negotiations or, better yet, an unchanged contract, has ignored the news and ignored the facts," he said in his message to union members. "Bankruptcy is certain without these concessions in place."

American has warned its unions that bankruptcy lenders would demand an additional $500 million in annual labor concessions in a Chapter 11 case.

"We have made it clear that we need ratification from all three unions in order to continue to avert bankruptcy," said Bruce Hicks, an American spokesman. "If the union members don't ratify [the concessions], there won't be any return to the negotiating table."

American came within minutes of filing last week when a vote by leaders of the pilots' union to accept a tentative concessions agreement kept the airline temporarily out of bankruptcy.

Fort Worth-based American, the largest employer in North Texas, has lost $5.2 billion in the past two years, and is expected to lose $800 million during the first three months of 2003.

The carrier, which is the world's largest, has been struggling with a steep downturn in business travel and fierce competition from discount airlines such as Southwest Airlines and AirTran Airways.

Last year, the carrier launched a campaign to cut $4 billion in annual costs and return to profitability. In addition to asking employees for $1.8 billion in labor costs, executives say they cut $900 million in operating expenses last year and hope to cut $1.1 billion more over the next several years.

American's flight schedules will be slashed even further next month, officials said. With the new cuts announced Monday, the carrier's domestic flight network will be down 10.7 percent from its size May 2002, and its international network will be down by 5.5 percent, said Tara Baten, a company spokeswoman.

Baten emphasized that none of American's routes will be eliminated.

"These are selected frequency reductions," she said. "No destination will lose service altogether."

The cuts are "in line with reductions we're seeing throughout the industry due to the war in Iraq and economic conditions," Henry Joyner, American's senior vice president of planning, said in a statement.

Baten said the airline does not yet know if the additional cuts will mean more layoffs.

The reductions will affect some routes from Dallas/Fort Worth Airport, Baten said. Fewer flights will be available to Miami; Chicago; San Jose, Calif.; San Juan, Puerto Rico; Calgary, Alberta; and LaGuardia Airport in New York.

International routes from D/FW that will be affected include Caracas, Venezuela; Tokyo; Paris; Frankfurt; London; and Mexico City.

Baten could not say how many flights to each city will be eliminated.

Posted on Tue, Apr. 08, 2003 By Alex Lawler Star Telegram-The Associated Press

PARIS - The Organization of Petroleum Exporting Countries will consider a production cut after a 28 percent drop in oil prices in the past month caused by allied progress in Iraq.

"The market is facing a glut, not a shortage," said OPEC President Abdullah bin Hamad al-Attiyah, who is also Qatar's oil minister, speaking to reporters in Paris after meeting with French Industry Minister Nicole Fontaine. "The market is full of oil," he said in announcing an April 24 meeting.

The Brent crude-oil futures contract on the International Petroleum Exchange fell 10 cents to close at $24.58 a barrel. Prices are down from $34.10 on March 7 and are down 9 percent from this time last year as U.S. forces have closed in on Baghdad in the war to oust Saddam Hussein.

OPEC oil output rose in March to the highest level in 18 months, as increases in Venezuela and Saudi Arabia made up for a drop in Iraqi output, a Bloomberg News survey showed. Reflecting the increase, U.S. inventories rose by almost 7 million barrels, or 2.5 percent, in the latest week.

Most members are ignoring their output quotas, designed to keep the group's benchmark price between $22 and $28 a barrel. OPEC exceeded its target by 1.57 million barrels a day, or 6.4 percent, in March. The OPEC president said members are seeking prices at $25 a barrel.

Saudi Arabia, OPEC's biggest producer and the world's top oil exporter, pumped 9.2 million barrels a day in March, the highest in at least 13 years, according to the Bloomberg News survey.

An end to the Iraqi conflict may cause prices to fall below $22 a barrel, the lower end of OPEC's target range, as world output climbs, said the head of Venezuela's state oil company, Ali Rodriguez.

"Iraq could be tempted to boost its production quickly," he told reporters in Caracas, Venezuela. "Prices could fall very abruptly, but I don't see a permanent price collapse."

After raising quotas twice this year, OPEC is considering a meeting at its Vienna, Austria, headquarters. The group, which pumps a third of the world's oil, had been planning its next gathering for June 11 in Doha, Qatar.

Although the attack by coalition forces in Iraq has stopped the nation's oil exports since March 20, world demand in the second quarter normally drops as the Northern Hemisphere spring reduces consumption of heating fuel, offsetting the loss.

Iraq exported 1.4 million barrels of oil a day in the week ended March 7, according to the United Nations, which oversaw the shipments. The International Energy Agency, an adviser to 26 oil-consuming nations, expects demand to slow this quarter by 1.6 million barrels, from the first three months of the year.