<a href=quote.bloomberg.com>Bloomber.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 two of Saddam Hussein's six Republican Guard divisions.

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 $1.18, or 4 percent, at $28.60 a barrel at the 2:30 p.m. close of floor trading 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 on Feb. 27. The 1991 Gulf War lasted six weeks.

In London, the May Brent crude-oil futures contract fell $1.15, or 4.4 percent, to $25.21 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

``This week's report shows crude-oil imports are at the highest ever,'' said Doug MacIntyre, a senior oil market analyst with the department's Energy Information Administration. The department began compiling weekly figures in 1990.

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

Allied forces have driven to within 30 miles of Baghdad, U.S. General Stanley McChrystal, vice director of operations for the Joint Chiefs of Staff, told reporters at a Pentagon briefing.

``We're now engaging the Republican Guard divisions defending the outskirts of Baghdad, and irregular forces throughout the south supporting the Iraqi regime,'' McChrystal said.

U.S. air and ground attacks have destroyed two of six Republican Guard divisions, McChrystal said.

In Nigeria, international oil companies have halted production of about 800,000 barrels a day in the past two weeks, 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.

<a href=www.business-standard.com>The Business Standard, India Pradeep Puri in New Delhi Published : April 3, 2003

With the war in Iraq threatening to enter the third week, the petroleum ministry has decided to review its contingency plans to meet the country's oil requirements.

"The plans will be reviewed every 15 days to fine-tune them according to the situation on the ground," Petroleum Minister Ram Naik said today.

The government will look for suppliers outside the war zone if the war spreads and blocks the supply routes.

In case the supply of oil is disrupted, the petroleum ministry will explore the alternatives for crude imports, including spot purchases from sources outside the Gulf region.

In the case of a crisis, the government will also try to source crude from countries outside the Persian Gulf, including Egypt, Yemen, Nigeria, Russia, Malaysia, Norway, Angola, Venezuela, Oman and Australia.

The minister said some contracts had already been signed with suppliers far away from the conflict zone. He, however, refused to divulge the names of the suppliers or the quantity of crude to be sourced from them.

Naik said the war had not yet affected the availability of oil in the country. Crude supplies had not been disrupted and the oil tanks were full, he said.

The country would start getting ONGC Videsh Ltd’s 25 per cent share of oil production from the Greater Nile project in Sudan from next month, the minister added.

ONGC Videsh, a subsidiary of the Oil and Natural Gas Corporation, is also trying to buy out the other two partners in the project—the National Oil Company of China and Petronas of Malaysia.

India has 12 days’ stock of crude and another 11 days’ requirement in transit. It imports less than 5 per cent of its crude requirement of 78.7 million tonnes from Iraq.

The country also has a stock of petrol to last 33 days, diesel 29 days, kerosene 32 days, aviation turbine fuel 47 days and liquefied petroleum gas (LPG) 15 days.

<a href=www.upi.com>By Hil Anderson UPI Chief Energy Correspondent From the National Desk Published 4/2/2003 5:47 PM View printer-friendly version

LOS ANGELES, April 2 (UPI) -- The final push by coalition troops into Baghdad got under way in Iraq Wednesday although oil traders appeared to be more focused with the latest weekly supply reports showing an equally dramatic jump in U.S. oil inventories.

May crude prices fell more than $1 per barrel on the New York Mercantile Exchange for the second consecutive day following the release of the U.S. Energy Information Administration's inventory report that this week included a major increase in the amounts of crude imported into the country and run through the refinery stream.

"With the high level of imports, U.S. commercial crude oil inventories ... increased by 6.8 million barrels," the EIA reported. "Over the last two weeks, crude oil inventories have increased by 10.5 million barrels."

The growing inventories coupled with continued coalition successes on the battlefield sent crude down by $1.22 to $28.56 per barrel. May Brent crude on the International Petroleum Exchange in London was down $1.15 at $25.21 per barrel.

May NYMEX gasoline lost a hefty 5 cents and dipped to 86.39 cents per gallon while heating oil, which reflects diesel prices, fell 2.23 cents to 71.86 cents a gallon.

The other closely watched weekly inventory report, which is issued by the American Petroleum Institute, pegged the build in crude stocks at more than 9 million barrels.

Saudi Arabia and Venezuela were the primary sources of the higher import flow. Ethnic turmoil in Nigeria's oil-rich Niger Delta appeared to be relatively quiet this week, although some 800,000 barrels per day of production remained shut down with no indications the major oil companies planned to restart their operations in the region any time soon.

The supply growth comes at an important time of the year for U.S. refiners who try to build up their supplies of gasoline in the spring in anticipation of higher summer demand. In addition, urban areas where cleaner-burning reformulated gasoline, or RFG, is sold are in the process of their annual switch from winter-formulated RFG to the summer formula.

Refined fuel supplies remained a concern, the EIA reported, as production of gasoline and jet fuel remained flat and diesel fuel production declined by around 100,000 barrels per day.

"Motor gasoline inventories rose by 1.7 million barrels last week but remain below the low end of the normal range," the agency reported.

<a href=quote.bloomberg.com>Bloomberg.com By Stephen Voss

London, April 2 (Bloomberg) -- Crude oil fell as much as 5 percent in London on expectations a push by coalition troops toward Baghdad is bringing closer the end of a war that's halted oil exports from Iraq, the Middle East's third-biggest producer.

U.S. soldiers have taken Karbala, southwest of Baghdad, and moved to within 25 miles (40 kilometers) of the Iraqi capital, Cable News Network reported, citing correspondents. Forecasts of an increase in U.S. oil stockpiles and the possibility that shut- down Nigerian fields may soon reopen, also weighed on prices.

``It looks as if the assault has started on Baghdad, so inevitably it's just a question of time'' before the war ends and oil starts pumping again, said Rob Laughlin, a director of energy broker GNI Ltd. in London. Iraq in February produced almost 2.5 million barrels a day, or 3 percent of the world's oil.

Brent crude oil for May settlement fell as much as $1.31 to $25.05 a barrel on London's International Petroleum Exchange, the biggest drop in six days. It traded 86 cents down at 2:15 p.m. Prices have slid 21 percent in the past month.

U.S. Marines seized a bridge over the Tigris river in central Iraq, the last needed for an assault on Baghdad, and took control of the main Highway 6 leading from Kut north to the capital, Reuters reported, citing an unidentified Marine officer.

A decisive engagement'' is beginning with the Republican Guard, Air Marshal Brian Burridge, the commander of U.K. forces in the Persian Gulf, said in an interview with the British Broadcasting Corp. Burridge said he wouldn't want to give the impression that within a day or two this is going to be over.''

In New York, crude oil for May delivery was down $1.02 at $28.76 a barrel in electronic trading on the New York Mercantile Exchange. New York futures dropped below the moving average for the past 200 days, helping reinforce the slide, brokers said.

Jittery

``Now we're getting reports that the war is going more in the U.S.'s favor in the advance toward Baghdad, and that triggers a bout of selling in this jittery market,'' said Keith Morris, oil equity analyst at BNP Paribas in London.

Price swings have been common as traders use war reports as reasons for buying or selling, he said. ``One day the oil market thinks the war will last forever, and then it's just a few days.''

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.

``The general impression is that this is all orchestrated ahead of the elections,'' said BNP Paribas's Morris.

No Nigerian Strike

Brent crude fell 82 cents yesterday after the Nigerian Labour Congress, the country's biggest labor federation, called off a planned three-day strike over pay, easing concern the country's exports would be cut further.

``With Nigeria, there are rumblings that we may see more exports starting next week,'' GNI's Laughlin said.

The U.S. Department of Energy is expected to report today that U.S. crude oil inventories rose by about 2.15 million barrels last week from 273.9 million barrels, according to the average estimates of eight analysts surveyed by Bloomberg. The weekly report is due at 10:30 a.m. New York time.

The survey also predicted an increase in U.S. distillate supplies, although analysts were split on whether gasoline inventories rose or fell.

Venezuelan Gasoline

Venezuela's state oil company said it resumed gasoline exports, four months after an oil strike shut down shipments. A Petroleos de Venezuela SA spokesman said the first shipment of leaded gasoline will leave later today from the Paraguana refinery complex for the U.S. East Coast, where distributors are busy building up supplies before the U.S. summer driving season.

The state news agency said 360,000 barrels will be shipped. Exports won't be affected by the shutdown yesterday of a gasoline- producing unit at Venezuela's El Palito refinery, the spokesman said.

Gasoline futures for May delivery were down 2.52 cents, or 2.8 percent, at 88.9 cents a gallon on the New York exchange. Last Updated: April 2, 2003 08:23 EST

MSN A drawn-out conflict in Iraq -- one lasting into summertime -- would further delay any recovery and hurt some companies more than others. Here's a sector-by-sector look. By Michael Brush Just two weeks into the conflict with Iraq, media commentators are already floating the dreaded Q word. Quagmire, military officials shoot back, popped up as a concern early in the conflict with Afghanistan, as well. And look how that one turned out. True. But what if this conflict does drag out through the summer because allied troops get bogged down in house-to-house combat or endless skirmishes with diehard guerilla fighters? Above all, that would be a tremendous heartache for the families of men and women fighting in Iraq or anyone else who cares deeply about them. But a drawn-out war would hurt in other ways as well, primarily by putting off the robust economic rebound needed to produce jobs and growth. Here are the highlights of how a long war might impact the economy and the market. Retail spending: more pullback? Already on shaky ground because of worries about jobs and economic growth, consumers will pull back even more as the war drags on. “This past weekend many malls did not have much foot traffic because people did not want to go out shopping amidst all this savagery they are watching in their living room,” says Kurt Barnard, president of Barnard's Retail Consulting Group. Indeed, four of the nation's biggest retailers said Monday that sales continued to suffer last week because consumers are so focused on the war. Citing what it called the "CNN effect," or shoppers staying home to watch war coverage, Wal-Mart Stores (WMT, news, msgs) warned that same-store sales -- sales at stores open at least a year -- will be at the low end of its forecast for March. Federated Department Stores (FD, news, msgs), Nordstrom (JWN, news, msgs) and J.C. Penney (JCP, news, msgs) offered similar warnings. Barnard thinks consumers will pull back even more if the war drags on. “People will start to feel guilty about buying things to make themselves feel good at a time when American men and women are in harm’s way,” he says. About the only thing to be spared will be spending on necessities. But that won’t save retailers, since most sell lots of discretionary goods even if they do stock plenty of staples. With capital spending at companies already weak, continued declines in consumer spending will raise fresh doubts about the prospects for overall economic growth. Exposure of U.S. companies abroad Opposition to the war tips in at 70% to 90% in many countries around the world. So it’s no surprise that war opponents are launching boycotts against U.S. products and leading campaigns that grab headlines and sometimes result in outright attacks on storefronts. Soon after the war started, Paris demonstrators smashed the windows of a McDonald's (MCD, news, msgs) restaurant, forcing police in riot gear to protect staff and customers. In Indonesia, war protestors have pasted signs on the doors of McDonald’s and other American fast-food restaurants to limit entry. Bars and restaurants in Germany have pulled Coca-Cola and Budweiser from menus. A Web site sponsored by Consumers Against War calls for boycotts of 26 top American companies (see link at left). It’s hard to imagine this won’t affect results at U.S. consumer companies. After all, companies such as Coca-Cola (KO, news, msgs) get some 70% of their sales from abroad. Other U.S. companies with large foreign presences include Anheuser-Busch (BUD, news, msgs), The Gap (GPS, news, msgs), Procter & Gamble (PG, news, msgs), Colgate-Palmolive (CL, news, msgs) and Starbucks (SBUX, news, msgs). So far, money managers aren’t too concerned. “We have seen this movie before,” says Rajiv Jain, an analyst with Vontobel International Equity (VNEPX). “These things normally don’t change buying habits in a dramatic fashion or have a real impact on business.” Investors may react nevertheless, selling off shares in these companies. And sustained boycotts in a drawn-out war scenario would do some damage. The companies above declined to comment on foreign sales trends since the start of the conflict with Iraq. The ailing airlines Expect more losses because a prolonged war and fears of terror strikes would ground more business travelers and tourists. As of March 23, airline traffic was off 7% domestically and 25% for cross-Atlantic flights. Domestic bookings were down more than 20%. Higher fuel prices, meanwhile, are pinching airlines on costs. Salvation for airlines could come from two corners. The government might step in with bailout packages. And unions may offer enough concessions to keep troubled airlines aloft. Just this week, unions at AMR Corp.'s (AMR, news, msgs) American Airlines offered just enough concessions to keep the company afloat, and US Airways Group (UAWGQ, news, msgs) emerged from bankruptcy protection. Without proper aid from government and unions, a big carrier like United Airlines parent UAL Corp. (UAL, news, msgs) could go under. While that would be bad for employees (and places like Chicago, Denver, Washington and San Francisco where United has major hubs), the loss of a major carrier could help survivors in the long run by reducing industry capacity. Potential winners include the more financially sound airlines that will pick up business, such as America West (AWA, news, msgs), Northwest Airlines (NWAC, news, msgs), Frontier Airlines (FRNT, news, msgs), and low-cost carriers Southwest Airlines (LUV, news, msgs) and JetBlue Airways (JBLU, news, msgs). (For a more detailed discussion, see my recent column, “6 airlines that win if United fails.’) The geopolitical turmoil, meanwhile, hasn’t soured the outlook among insiders at Mesa Air Group (MESA, news, msgs), notes Vickers Weekly Insider Report. Seven executives and directors bought over 68,000 shares in March at prices from $3.08 to $3.28 per share. Already, they’re winners: the stock closed Tuesday at $5.34. Bonds, gold and the dollar If the war is long, expect bonds and gold to strengthen. The dollar and cyclical stocks will weaken. “Putting aside the overriding humanitarian considerations, the market wants to see this conflict end as soon as possible so that confidence will come back for consumers and business,” says Jim Moltz, an equity strategist with International Strategy and Investment Group (ISI), a New York investment research firm. Until that happens, bonds will likely advance as investors favor fixed income holdings over stocks, which will perform poorly in a sluggish economy spooked by an ongoing war. Higher bond prices mean lower interest rates. And that would hurt the dollar as investors move money elsewhere. “In a slow economy, the two-year Treasury yield could fall through historic lows and that kind of environment would be just awful for the dollar,” says Chris Orndorff, a money manager at Payden & Rygel in Los Angeles. Lower rates might spark another mortgage refinance cycle. But where that cash ends up will depend on the mood of the consumer, says Patrick Alwell, a bond market analyst for ISI. He points out cash levels among individuals recently rose 18% over last year. Consumers may also opt to pay down debt. The dollar would also lose some of its “safe haven” status as investors worry about the effects of more terror strikes on the economy. All these factors would be positive for the euro and the Swiss franc, says Orndorff. A weak dollar, meanwhile, would nudge up the price of gold. Because gold is priced in dollars, it looks cheaper to foreigners as the dollar declines. So they buy more. Second, the worries weighing on the dollar -- from war and terrorism to U.S. economic weakness -- push investors towards hard assets like gold, says Jay Shartsis, of the brokerage R.F. Lafferty & Co. in New York. Shartsis also likes gold stocks because investors are so bearish about them. Often, groups of stocks reverse a downward trend whenever investor fear about them nears peak levels. Shartsis says investor bearishness on gold stocks recently got close, based on the large number of put options purchased on gold stocks. Investors buy puts when they are bearish about stocks, because puts give them the right to sell stocks at a pre-arranged price, even if the stocks tank. Outlook for oil Near term, the Kirkuk oil fields in Northern Iraq are the key factor to watch. “If the Republican Guard lights them up, you could see oil go up several dollars a barrel,” says Tom Petrie of Petrie Parkman, an energy-related investment bank in Denver. Not that the fields contribute that much to world production. “But you would have the yellow flames on the screen, and psychologically that would be the backdrop for oil traders.” In this scenario, oil could spike into the upper $30 range for a short period. Otherwise, several forces easing demand will keep oil prices in the $25 to $30 per barrel range -- despite war jitters and problems with supply from Venezuela and Nigeria, says Petrie. First, the home heating season is behind us. Second, if world economic growth slows because of a prolonged war, that will reduce demand for oil. Energy companies that may outperform if oil holds in the $25 to $30 per barrel range include independent producers such as Westport Resources (WRC, news, msgs), Forest Oil (FST, news, msgs) and Cimarex Energy (XEC, news, msgs), says Petrie. No cakewalk for defense sector To get the crass question out of the way, no, a prolonged war probably won’t help defense stocks. First of all, ammunition and ordnance comes out of hefty stockpiles which are replenished at a rate set awhile back -- with foreseeable conflicts in mind. Plus the war won’t increase production of the big-ticket items that account for the lion’s share of revenue, said Paul Nisbet, a defense sector analyst at JSA Research in Newport, R.I. That means planes, ships, vehicles and missile defense systems. Meantime, perhaps surprisingly, if the war drags on very long, spending on defense projects could actually drop. That’s because spending to support the troops on the ground could crowd out planned outlays for hardware. This very thing happened during the Vietnam era. To be sure, defense stocks are trading down with the market, and some believe they’re a good buy for long-term investors -- no matter what the length of the war. But ironically, a long war calls all assumptions into question. Money flow to Asian markets As investors shy away from U.S. stocks in a prolonged war scenario, some of their money will flow to parts of the world removed from the conflict and experiencing economic growth -- like China. Since the start of the year, China’s Shanghai Composite has advanced 10% while the S&P 500 is off by about 2%. “They are far from the mess,” says Orndorff. “And those markets are not typically correlated with the U.S. markets. Europe is somewhat tethered to the U.S. economically.”

At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column.

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