<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.

<a href=www.sunspot.net>URL By Warren Vieth and Aparna Kumar Times Staff Writers Originally 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.

IRAQ: Business Online Special March 25, 2003

Graham Searjeant, Finance Editor of The Times, explains the strange peaks and troughs in the cost of petrol during the war on Iraq.

Q. We are at war with a major oil producing nation in Iraq, yet the price of a litre of petrol has been cut on some foreecourts this week. How can that happen?

A. The price of crude oil went up by 50 per cent between early November and early March, taking North Sea Brent crude nearly one-quarter over the top of the $22-$28 per barrel range that Opec, the producers’ cartel, has been trying to maintain.

That was partly because of real demand and supply factors. Petrol refiners and armies were stocking up in advance in case of a war shortage or disruption to supplies. There was also a prolonged strike in Venezuela, which normally supplies three million barrels per day, more than Iraq, and is a key supplier to the United States.

At the same time, short-term traders, speculators and trend-following hedge funds joined in on financial markets such as London's International Petroleum Exchange and the New York Mercantile Exchange, using contracts for future delivery. They reckoned that buying and driving up the price was a safe, one-way bet.

But trends never last for ever and trend-following speculators are always looking for the moment when the momentum is spent to take their profits and perhaps move the other way. Since uncertainty was blamed for the turmoil on markets, the obvious trigger was the breakdown of any talks that might have delayed or even avoided war. This finally came two weeks ago. Brent crude then fell by one-quarter to less than $25 per barrel, until that trend went too far. The weekend revelation that the war was not a pushover in turn provided the opportunity for prices to turn up again, so far to $26.50 per barrel.

The sense in the oil price movements is therefore speculative rather than real.

Petrol prices should react to changes in crude oil prices several weeks earlier, since the crude has to be shipped to refineries, turned into petrol and then distributed to forecourts. But retailers often jump the gun, reckoning that rising oil prices make customers more likely to accept a price rise and, as now, that they might as well cut prices a bit early and win some business off competitors.

In this case, competition has brought quick benefits for motorists, but they might not last long if the war drags on.

Q. How does the price of oil affect world stock markets?

A. In such a volatile atmosphere as we have now, all markets can move instantly on the same news. On Monday morning, for instance, after hope was lost that force would dislodge the Iraqi regime in a few days, the oil price went up, the dollar fell, shares dropped sharply and Government bonds rallied simultaneously.

The logic, strictly limited, was that economic recovery might be put off, only in part because of oil prices. For the previous eight trading days, it had been the other way round, with oil prices tumbling, bonds edging down, the dollar recovering and shares staging their most rapid advance since early in the Second World War

Over the longer term too, there are clear links between oil prices and share prices. Big movements in oil prices have often been associated with turning points in stock markets, albeit in the opposite direction.

Oil is the most important single commodity in the world economy. It affects business costs across the globe and also affects people's spending power through the cost of fuel for cooking, heating and transport.

Historically, the impact has often been exaggerated because oil prices tend to change suddenly and violently. In 1973, for instance, a trebling of oil prices caused a world recession. In that case, however, the economy had been overheating and running into inflation and high interest rates anyway. Much the same was happening when the first Gulf War caused a spike in oil prices above $40 per barrel in 1991.

The collapse in oil prices in 1986 produced an economic boom. In that case, however, share prices started booming only many months later, in line with company profits rather than the oil price itself. In retrospect, historians will surely judge that the oil price was ultimately the trigger of the collapse of the dotcom bubble in 2000. Oil costs had remained remarkably subdued during the boom years of the late 1990s, but doubled during 1999, ensuring an end to easy economic growth. Shares then collapsed.

Q. How is the conduct of the war in Iraq likely to affect the oil price in the short to medium term?

A. On a day-to-day basis, oil will follow the mood of how the war is going. If coalition forces are  progressing fast, it will fall. If they are suffering setbacks, it will rise. If the Iraqi regime fell, there should be a short, sharp drop.

The longer military action lasts, however, the more likely it is that genuine supply shortages will arise.

To make up for Iraqi oil and for the loss of nearly one million barrels per day from the world markets due to tribal conflict in Nigeria, other Middle East producers are pumping at near to full capacity. Any further disruptions could cause a genuine shortage.

If and when the war is over, oil prices will first fall but they may later recover. Some analysts, including Goldman Sachs, the investment bank, claim that there would soon be a tight market if the United States and the rest of the world economy were growing at a reasonable pace and that oil might settle at $28 to $30 per barrel.

Iraq, which has been under-producing for the past 12 years or more, has potential to boost supplies greatly once its industry has modernised and invested. But that could take years.

Q. Are there any other important factors that may help to keep the price of oil down during the war?

A. Venezuelan oil is coming back into the market. The country's oil minister claims it is almost back to normal, though outsiders think it could take a long time to recover the final one-third of  previous output. Strife in the Niger Delta seems to be linked to upcoming federal elections, so it could fade away quickly there, but problems there have proved intractable in the past.

Saudi Arabia and other Gulf producers will produce as much as they can to replace missing supplies. An unusually large amount of oil is on ships plying their way from the Gulf.

When this arrives in the West, it should ease the market for refined products such as petrol at the pump, whatever happens to the price of crude oil on financial markets.  

<a href=www.sfgate.com>OIL: Prices rise as war outlook darkens Verne Kopytoff, Chronicle Staff Writer Tuesday, March 25, 2003

Oil prices surged Monday for the first time in eight trading sessions as fears increased over a prolonged Iraqi war and turmoil in petroleum-rich Nigeria.

Traders were reacting to news over the weekend that the U.S.-led invasion of Iraq was encountering stiff resistance. If it continues, Iraq's oil industry may take longer to return to normal production than expected, analysts said.

In addition, pumping in Nigeria has been significantly cut because of sporadic battles between ethnic militants and the Nigerian government. A handful of companies, including ChevronTexaco of San Ramon, have curtailed production in that West African nation and evacuated employees.

"The odds of a very quick resolution in Iraq fell over the weekend, or at least perception," said George Beranek, manager of market analysis for PFC Energy, a consulting and research firm in Washington. "Nigeria is also part of it."

Crude prices on the New York Mercantile Exchange for May delivery jumped Monday to $28.66, up $1.70. They had declined nearly 25 percent over the past couple of weeks from near a 12-year high of $37, as traders anticipated a quick finish to the Iraqi war.

The volatile oil market has affected consumers, as increases in oil prices naturally lead to higher gasoline prices. On Monday, a gallon of unleaded fuel in San Francisco sold for an average of $2.27, just a penny shy of the all- time record set last week, according to AAA of Northern California.

Traders are worried about how much control U.S.-led forces have over the oil fields of southern Iraq. Officials previously said they had captured the fields. Now they are indicating that Iraqis are still a threat there.

Several oil wells in southern Iraq are still burning. A major oil field in northern Iraq has yet to be captured.

Before the war, Iraq exported an average of about 2 million barrels of crude a day. Those exports essentially stopped after the departure of the United Nations workers who oversaw Iraq's oil-for-food humanitarian program.

Also contributing to higher oil prices, analysts said, is unrest in Nigeria.

ChevronTexaco's Nigerian subsidiary said Sunday that it has evacuated 1,600 employees and cut production by 440,000 barrels a day in the West Niger Delta. ChevronTexaco has a 40 percent stake in the subsidiary.

Royal Dutch/Shell's Nigerian subsidiary also has cut production. Nigeria is the fifth-largest source of oil imports in the United States, supplying 5.9 percent of total imports.

Nigeria's oil woes come on top of a strike in Venezuela that damaged the petroleum industry there and caused world crude prices to jump. Venezuelan production has recovered somewhat since the strike began in December, but it is still short of normal levels.

John Kingston, global director for oil at Platt's, an energy information service in New York, said world oil inventories are tight and will probably remain that way in the near future. He added that the Organization for Petroleum Exporting Countries may actually cut production after the Iraq war is over because they fear a glut in the market.

"You've got to assume that the market is going to remain tight," Kingston said.

Also on Monday, Sen. Barbara Boxer, D-Calif., introduced a bill that would require the Federal Trade Commission to investigate any time gasoline prices increase by more than 20 percent in a three-month period. She has already asked the FTC to look into the current jump in prices for evidence of illegal manipulation.

A state probe into high gasoline, diesel and natural gas prices called for by Gov. Gray Davis is under way. The results are due this week.

E-mail Verne Kopytoff at vkopytoff@sfchronicle.com.

Read more... Reuters, 03.25.03, 12:09 AM ET

SINGAPORE, March 25 (Reuters) - Oil prices ticked higher on Tuesday, bouncing from last week's four-month lows with traders focused on resistance to U.S. invasion forces in Iraq and tribal violence in Nigeria which has cut its crude output by 40 percent. U.S. light crude was up 34 cents to $29.00 a barrel at 0450 GMT, extending Monday's $1.75 jump. London's Brent crude had climbed 31 cents to $26.40 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 President Saddam Hussein. Oil fell almost 30 percent last week as traders factored in a short war with little damage to Iraq's oil industry, which pumped 2.5 million barrels per day (bpd) before the U.S.-led assault. Traders were also relieved that crude supplies from other Gulf producers flowed unhampered by hostilities. The Gulf region pumps about 40 percent of global exports. But confidence in a quick war waned after the weekend as U.S. and British forces suffered their heaviest casualties so far. "The market is responding to difficulties in the Iraq campaign. It had priced in the perfect war and had gone so far as building in a victory discount, which is now being eroded," Sydney-based oil analyst Simon Games-Thomas said. NIGERIA STIRS VENEZUELA MEMORIES A series of bloody clashes in Nigeria forced the closure of about 800,000 bpd of the 2.2 million bpd produced by Western oil firms in Africa's biggest producer. Ethnic groups in the oil-rich Niger Delta are 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 a Venezuelan general strike, all but cutting off oil exports from the South American country. Nigeria sent more than 560,000 bpd to U.S. shores last year. Venezuela, the world's fifth biggest crude exporter before the strike began in early December, supplied about 13 percent of U.S. oil imports. Venezuela's output has been slowly increasing since early February. The Nigerian outage provided the oil market with an uncomfortable reminder of the Venezuelan strike, David Thurtell, commodities strategist at Commonwealth Bank in Sydney, said. "Nigeria is pretty volatile at the best of times, but people probably said the same about Venezuela four months ago. If Nigeria is down to one million bpd for a month, supplies will tighten up again," Thurtell said. The Organisation of the Petroleum Exporting Countries could make up any shortfall in supply from Nigeria, OPEC's fifth largest producer, cartel president, Abdullah al-Attiyah, said on Monday. The group has also pledged to make up for the disruption to Iraqi exports. But OPEC officials have said there is no shortage of oil in world markets so there is no need to increase output. Oil demand usually drops in the second quarter of the year when northern hemisphere winter demand recedes.