www.washingtonpost.com By Peter Behr Washington Post Staff Writer Thursday, March 6, 2003; Page E02

The Bush administration's decision to buy oil for the nation's strategic petroleum reserve last year, as oil prices were climbing, raised U.S. energy costs without significantly improving the nation's energy security, a report by Senate Democrats said yesterday.

Although the administration last year added 41 million barrels of oil to the reserve, kept in salt domes along the Gulf of Mexico, U.S. energy companies cut back comparably on their own oil inventories, resulting in no net increase in nationwide oil supplies, said the report by the Democratic staff of the Senate Permanent Subcommittee on Investigations.

The strategy "appears to have backfired," said Sen. Carl M. Levin (D-Mich.), the subcommittee's top-ranking Democrat. His staff's 268-page report on the strategic oil reserve follows a year-long inquiry, most of it done while Levin was the subcommittee's chairman.

Energy Secretary Spencer Abraham rejected the report's conclusions, saying he did not believe the U.S. strategy affected prices.

Some industry analysts challenged the report's conclusion, saying the escalating tensions over Iraq created a strong reason for increasing the oil stockpile.

"If things go horribly wrong in the [Persian] Gulf, it means they have a bit more of an insurance policy," said George Beranek, manager of market analysis with PFC Energy in the District.

"With the current Iraqi situation, the value of the strategic petroleum reserve is priceless," said Adam Sieminski, an energy analyst with Deutsche Bank in London.

Once a decision has been made to buy oil for the reserve, it's hard to know what is the "right" price, Sieminski said. The administration's error is in failing to use the oil stockpiles now, he said, to increase supplies and lower current oil prices, which have risen by more than 60 percent over the past year. "They keep waiting for some sign from heaven," he said.

In November 2001, President Bush set a goal of increasing the reserve from about 550 million barrels to its full capacity of 700 million barrels, about a 45-day supply. Before that, the Energy Department had deferred purchases for the reserve when prices were moving higher.

Abraham said yesterday the administration is monitoring the oil supply situation "very closely" but does not intend to use the reserve to restrain price increases. It would be used if a war with Iraq cut seriously into oil supplies.

The administration has been postponing purchases for the reserve since mid-December, a move that Levin's staff said supports its claim that the old Energy Department policy was correct.

Beranek said the subcommittee was wrong in concluding that oil companies refrained from increasing their crude oil inventories because the Bush administration was filling the petroleum reserve.

As oil prices rose in 2002, energy company executives were feeling pressure to cut operating costs, and that led to their shrinking inventories, he said. The committee's analysis also underestimates the impact on inventories of production cutbacks early in 2002 by the Organization of Petroleum Exporting Countries, and the sharp drop in oil imports late last year when Venezuela's oil fields were closed by a national strike, he added.

"I don't think somebody at Exxon is saying, 'DOE has more oil, so we need less,' " Beranek said.

Levin's report also said it looked into the possibility that prices of North Sea oil purchased for the reserve were manipulated, but could not prove it, because of the large volumes of oil traded on unregulated over-the-counter energy markets.

The risk was disputed by Neal L. Wolkoff, executive vice president of the New York Mercantile Exchange, the primary regulated market for energy trades.

"I'm not saying that a market absolutely can't be manipulated," Wolkoff said. "But if anyone does try to manipulate the [oil] market, we have the power to investigate and punish it." The exchange "takes that responsibility seriously."

Wolkoff said that despite the oil market's volatility there are many competing traders. "I don't see anything unusual. I don't see any dominant positions."

sg.biz.yahoo.com Thursday March 6, 1:24 AM By David Bird A Dow Jones Newswires Column

NEW YORK (Dow Jones)--"If" is quickly becoming "when" as the U.S. marches ahead with plans for an assault on Iraq to oust Saddam Hussein.

For oil traders, the issue of whether the U.S. and its International Energy Agency partners pry open emergency oil stockpiles with the start of war remains the big question, even as commercial stockpiles plunge to their lowest levels in a generation.

But Energy Matters soundings suggest we'll know the answer fairly soon.

The sands of last-minute diplomacy are trickling through the U.N. Security Council's hourglass, with apparently little chance of averting war.

On the other side of the world, an emergency Arab meeting aimed at a peaceful solution degenerated into a vicious shouting match between Iraq and Kuwait. Iraq's vice president called Kuwait's foreign minister "a monkey," and further impugned his honor by cursing his mustache.

That sideshow in Qatar notwithstanding, there's little monkeying around at the U.N., where the clear attitude from the U.S. seems to be, as we've long held, that Security Council support for an attack on Iraq would be a nice fig leaf, but the U.S. and U.K. fully intend to go ahead without it.

In crucial steps in coming days, Gen. Tommy Franks, who will lead the war, meets U.S. President George Bush and Pentagon leaders to finalize plans. The timeframe already has slipped from the preferred days around the dark skies of the New Moon, which was March 3.

U.N. chief weapons inspector Hans Blix gives his next - and possibly final - report to the Security Council on Friday. Early indications are that Blix will note recent increased Iraqi cooperation with disarmament requirements, but overall disappointment. Blix won't change minds on the sharply divided Council.

That will leave the U.S. to push for a de facto endorsement of war in the early part of next week, if it believes it can muster nine votes from the 15-member council and avoid a veto from France, Russia or China, who favor more inspections.

Should Saddam Beware The Ides Of March?

The U.S. will abandon efforts to get U.N. endorsement if it doesn't have the votes, effectively starting a clock ticking for action on, or before, March 15, the fateful Ides of March, on which Caesar met his death. The key sign that the fuse is lit will be when U.N. weapons inspectors clear out.

The head of the U.S. joint chiefs of staff, Gen. Richard B. Myers, says plans already drawn up call for an assault "much, much, much different" than the January 1991 attack to drive Iraq out of Kuwait. The punishing attack aims at knocking the Baghdad leadership into submission within 48 hours, in sharp contrast to the 43-day battle then.

But will oil markets see a "much, much, much different" scenario than in January 1991, when the U.S. and others in the IEA opened their Strategic Petroleum Reserves coincident with the start of the war and prices plunged by one-third in a single day?

We still believe the Bush administration, mindful that retail gasoline prices are within pennies of record levels and inventories are scraping bottom, won't be able to resist opening the taps to drive prices down.

With a month left in the heating oil season, our analysis of Energy Information Administration data shows commercial stocks at their lowest since 1991 in New England and at their lowest-ever end-February level in the New York harbor region.

So far, the administration sticks to its mantra that the 600-million-barrel emergency stockpile is meant to be used in the event of severe supply disruptions, not to cool down prices. But the loss of Iraq's 2.4 million barrels a day of production and war in the world's oil patch provides the dictionary definition of "severe supply disruption" that will open the taps, even if record low U.S. inventories don't.

With much recent dialogue between OPEC and IEA officials, there's evidence of a strong coordinated plan for both an endorsement of still-higher output from OPEC - essentially Saudi Arabia - and an opening of consumer nations' strategic stocks.

OPEC's Easy Decision In Difficult Times

While ministers of the Organization of Petroleum Exporting Countries face one of their most important meetings next Tuesday in Vienna, their impending decision couldn't be easier.

OPEC will pledge that, when needed, they will agree to supply the market with what's needed. In OPEC parlance, that would likely mean a suspension of output quotas, but widespread cheating by those with the ability to do so already has poked holes in the group's 24.5 million b/d production ceiling.

OPEC has enlisted six non-OPEC exporters to join in, with Russia, Norway, Oman, Egypt, Mexico and Syria expected to attend and endorse the plan, even though none of these countries can add significant volumes to the market in the near term.

At the risk of seeming to write the group's communique in advance, we'd expect a strong message from OPEC that stabilizing the market at reasonable prices is in the mutual interest and mutual responsibility of producer and consumer nations. That translates to an acknowledgment that consumer stockpiles will be opened, a de facto admission that OPEC doesn't have the spare capacity - at least immediately - to cool down prices. But the combination of OPEC and IEA should send prices from near $37 now for Nymex crude to around $25-$28 in the near term.

U.S. officials admit part of the reason the SPR wasn't opened after Venezuela's oil workers mounted a strike in December was that they anticipate the need to draw down emergency reserves at the start of the war.

Although stocks are historically low in the U.S., refiners aren't shutting down operations due to lack of supplies, meaning there isn't need to open the SPR prior to the start of the war, U.S. officials say. The Energy Department continues to take baby steps toward easing supply worries by deferring shipments into the SPR to keep more oil in the open market, with some 18.5 million barrels freed up since December.

But officials point to an IEA statement of Feb. 20 for guidance on coming actions regarding strategic reserves. After a meeting of the group's governing board, IEA "noted the arrival in world markets of supplementary volumes of crude from Middle East producers. It welcomed producers' decisions to replace supplies lost through reduced exports from Venezuela.

"In light of the tight oil market, the governing board welcomed oil producers' demonstrated commitment to increase production to offset any further disruption in supply. IEA members remain firm in their commitment to make additional volumes of oil available to the market to reinforce producers' efforts if needed."

While this may appear to give producers the first crack at stabilizing markets, it really speaks of a tandem approach, which doesn't require producers to squeeze out every last barrel of spare capacity before the strategic stocks are tapped.

In fact, we hear the joint plan is a recognition that it probably isn't a good idea - even if it were possible - for the Saudis to try to pump out 10.5 million b/d claimed capacity right away. The Saudis, the world's largest oil producer and exporter, haven't pumped near that level in more than a decade, and admit it will take several weeks or months to get to the peak. Standard practice of keeping 10% of production capacity idle for operational reasons speaks to flat-out Saudi output only on a five-alarm emergency basis.

U.S. officials note, too, that expected stepped-up Saudi output of a few hundred thousand barrels a day beyond current levels of above 9 million b/d is still some 50 days from U.S. shores.

And that's far longer than the Bush administration will be willing to wait for a serious drop in oil prices, which would provide a political boost.

The short-term solution is clearly the SPR.

It should just be a question of "when," not "if."

-By David Bird, Dow Jones Newswires; 201-938-4423; david.bird@dowjones.com

(David Bird is senior energy correspondent for Dow Jones Newswires.)

abcnews.go.com March 5 — By Tom Doggett

WASHINGTON (Reuters) - The Bush administration will not use the nation's crude oil stockpile except for true energy emergencies and will not "beg" OPEC to produce more oil amid worries of a U.S. military strike against Iraq, U.S. Energy Secretary Spencer Abraham said on Wednesday.

Democrats and consumer groups have urged the administration to release crude oil from the Strategic Petroleum Reserve to help ease prices that recently brushed the $40 a barrel mark.

Speaking to House lawmakers on an appropriations subcommittee, Abraham blamed high oil prices on speculation about war with Iraq -- and possibly a disruption in supplies from the oil-rich Middle East -- as well as recent frigid East Coast weather and sharply reduced oil shipments from strike-torn Venezuela.

"We do not believe that that reserve's capacity should be employed to adjust prices. We believe that it really has to be maintained to deal with energy emergencies when there is simply not supply," Abraham said.

The reserve was created by Congress in the mid-1970s and currently holds 599 million barrels in several underground salt caverns in Texas and Louisiana. The U.S. government sold 17 million barrels of oil from the stockpile in January 1991 at the start of the U.S. military offense in the Gulf War.

Abraham also said the White House would not plead with the Organization of Petroleum Exporting Countries to supply more crude oil. "We're not going to beg for oil," he said.

Rep. John Peterson, a Republican from Pennsylvania, said the administration should develop a strategy to attack oil price spikes and that it should be normal business practice to ask friendly nations to supply more oil. "That's business, that's not begging," Peterson said.

U.S. crude oil supplies recently fell to the lowest level since 1975.

Senate Democrats earlier Wednesday released a report urging the White House to suspend all 2003 scheduled deliveries to the Strategic Petroleum Reserve as a way to keep more oil available on the market.

The recommendation was part of a 268-page report from the Democratic staff at the Senate Permanent Subcommittee on Investigations. The report capped a 21-month investigation into increased volatility of U.S. gasoline prices.

www.heraldsun.news.com.au By KAREN COLLIER, consumer reporter 06mar03

VICTORIAN drivers are filling petrol tax tanks to the tune of $2.4 billion a year. Motorists using unleaded, lead replacement or premium fuel are paying almost $2 billion in excise and at least $400 million in GST, figures prepared for the Herald Sun reveal.

The tax-grab details, based on industry sales and government revenue data, were released amid calls for the Federal Government to ease the pain of drivers paying record high prices.

Peak unleaded petrol costs have bolted past $1 a litre in recent weeks as increasing oil and wholesale petrol costs flow through to the bowser.

The RACV has warned sustained high prices would damage the economy. It wants the Government to cut excise if there is no relief soon.

Fuel excise and GST swallow almost half the cost of every litre of petrol sold. In Victoria, on a litre of petrol costing $1, the excise was fixed at 37.7c. GST grabbed 9.09c.

Victorian drivers use 5.2 billion litres of petrol in a typical year. This is about one quarter of the Australian market.

Nervousness over a looming war with Iraq and a strike in Venezuela have added 10c a litre to pump prices since the start of the year.

Unleaded fuel costs at Melbourne service stations were yesterday 94.5c to 105.9c. The RACV said the average was 96.9c.

Motoring bodies say rising oil prices pump more GST into government coffers and increased the tax take from a resource rent tax levied on oil producers.

RACV government relations manager David Cumming said motorists were being treated as cash cows and were victims of war jitters.

"The Government can clearly afford to give tax relief if petrol prices do not start falling," Mr Cumming said.

The RACV said if prices kept rising, the Government would reap a tax windfall of up to $750 million a year nationwide.

sg.biz.yahoo.com Wednesday March 5, 8:00 PM (This item was originally published Tuesday)

LONDON (Dow Jones)--Crude oil output by Organization of Petroleum Exporting Countries rose by 1.430 million barrels-a-day in February from January to 27.091 million b/d, with the bulk of the increase coming from the group's largest producer Saudi Arabia, and also from Venezuela, a survey by Dow Jones Newswires found Tuesday.

The survey showed that crude oil production by the OPEC-10, excluding Iraq, rose by 1.533 million b/d in February versus January to 24.701 million b/d. Iraq, whose exports are controlled by the U.N., isn't part of any OPEC output agreement.

The latest OPEC estimates by Dow Jones also show that the OPEC-10 were 201,000 b/d over their current OPEC output target of 24.500 million b/d.

The survey found that Saudi Arabia pumped some 8.733 million b/d of crude oil in February compared to 8.367 million b/d in January. The latest figures also show that OPEC's defacto leader was heavily over its current OPEC output allowance of 7.963 million b/d in February.

Oil analysts expressed no surprise at the extra Saudi barrels. Saudi Arabia, they say, is making good on its pledge to guarantee the security of oil supplies.

"Saudi Arabia is pumping enough to supply their customers, " Leo Drollas, senior economist at the London-based Centre for Global Energy Studies, said.

In recent months Saudi Arabia has made up the bulk of a shortfall in Venezuelan crude after a nationwide strike crippled the South American producer's oil production.

Concerns that Iraqi crude supplies could be disrupted by a possible U.S.-led attack will now put further pressure on Saudi Arabia to produce more oil, analysts say. But they question how much more oil the kingdom can realistically put into the market over the short-term.

"It looks as if the Saudis are getting close to their near-term production threshold, " one analyst said. He said that Saudi Arabia can produce up to 10.5 million b/d but this could take several months to achieve.

A survey by the Middle East Economic Survey Monday meanwhile, put Saudi Arabia's crude production at 9.2 million b/d in February.

Venezuela's crude production also rose sharply in February compared to January, as it showed signs of recovering from recent strike action. The latest estimates show that Venezuela pumped 1.650 million b/d in February, up from 0.660 million b/d estimated for January.

But, the latest figures still show that Venezuela was a long way off meeting its current OPEC target of 2.820 million b/d. Analysts say because of damage caused to Venezuelan oil fields during the recent strike it could take several months before it can reach its full OPEC production allowance.

Oil analysts also said that as Venezuelan production is was way below its OPEC allowance in February, this meant that the group's overall compliance to its current OPEC ceiling wasn't too poor even though most members are now producing above targets.

Most other OPEC members continue to pump way above their OPEC output targets. Analysts say this is a result of high oil prices. "They are making hay at these prices," one analyst said.

Concerns about a U.S.-led military attack on Iraq and how that would impact on oil supplies from Iraq and other producers in the region pushed crude oil prices to 12-year highs last week. In the U.S., oil futures rose to almost $40.00 a barrel; while, in the U.K., crude futures were at one stage just off $34.00/bbl.

But, analysts expressed concern as to how much more oil, OPEC can realistically produce, as most members are currently producing at full capacity.

The UAE, possibly the only other OPEC member with some spare capacity produced 2.150 million b/d of crude oil in February, according to Dow Jones estimates. It has an official OPEC target of 2.138 million b/d.

Meanwhile, Iraq's production fell by some 100,000 b/d in February from January to 2.390 million b/d, those analysts polled by Dow Jones estimated.

As U.S. and allied troops continue to gather in the Persian Gulf, analysts say February may have been the last month in which Iraq's crude supplies were at fairly stable levels.

OPEC ministers meanwhile, are preparing to gather in Vienna March 11, during which they are scheduled to discuss their oil policy amid uncertainties over future Iraqi production and concerns over the traditional second-quarter slump in crude demand.

Table of OPEC members' crude oil output by country: Feb Jan Target Current Target from Jan 1 from Feb 1 S Arabia 8.733 8.367 7.476 7.963 Iran 3.660 3.603 3.377 3.597 Venezuela 1.650 0.660 2.647 2.820 UAE 2.150 2.130 2.007 2.138 Nigeria 2.173 2.167 1.894 2.017 Kuwait 2.050 2.027 1.845 1.965 Libya 1.396 1.377 1.232 1.312 Indonesia 1.083 1.100 1.192 1.270 Algeria 1.050 1.010 0.735 0.783 Qatar 0.756 0.727 0.596 0.635 TOTAL(10) 24.701 23.168 23.001 24.500 Iraq 2.390 2.493 TOTAL (11)27.091 25.661

-By Sally Jones, Dow Jones Newswires; 44-20-7842-9347; sally.Jones@dowjones.com