By Thomas Grillo, Globe Correspondent, 6/7/2003

SOMERVILLE -- Despite the war in Iraq and the start of the summer driving season, gasoline prices have fallen by 18 cents in the past three months. ''We figured wholesale prices would rise for the Memorial Day weekend as they usually do, but they just keep falling,'' said Tito Vincente, owner of Vincente Brothers, a full-service independent station on Medford Street in Somerville where regular gas was selling for $1.45 per gallon this week.

The average price for a gallon of regular gasoline in Massachusetts dropped for the 11th consecutive week to $1.52 yesterday, down from a high of $1.70 for the period ending March 18, according to AAA's Daily Fuel Gauge Report. One year ago, gas was $1.42 per gallon. And some stations are selling it for as low as $1.37 per gallon.

But the slide in prices could end soon. The Energy Information Administration, an arm of the US Energy Department, said fuel inventories are low, and summer demand for gasoline is expected to be 1.6 percent above 2002 levels, a recipe for higher prices at the pumps. By the end of June, gasoline prices are expected to reach $1.56 per gallon, up from the summer 2002 average of $1.39 per gallon, the agency said.

While imports of crude oil are averaging 10.5 million barrels per day, the second-highest amount ever, US gasoline inventories are at 200 million barrels, down 13.2 million barrels from a year ago, according to an EIA report. And inventories are expected to rise to 201 million barrels by summer's end. But the small increase is not expected to make a major contribution to this summer's gasoline supply.

Despite a sluggish economy, gasoline demand is projected to average 9.18 million barrels per day this summer, a record, up 150,000 barrels per day, or 1.6 percent, from last summer, the report said.

Jacob Bournazian, a US energy economist, said no matter the price, demand for fuel is unstoppable. In the 1980s, Americans purchased 6 million gallons per day, and in the mid-1990s demand reached 8.2 million gallons, he said. Today, motorists gobble up more than 9 million gallons each day. ''People still have to get to work, kids have to get to school, and products have to be shipped,'' Bournazian said. ''Who can really change their transportation routes enough to have an impact?''

In March, fears of war with Iraq and production problems at a refinery in Venezuela drove prices higher. But the world's refiners picked up production to meet the demand for fuel worldwide, causing the recent decline in prices.

''Ironically, Iraq has not been a factor,'' said Bournazian. ''Our normal suppliers, Venezuela, Nigeria, and Saudi Arabia, stepped up production to offset losses from Iraq.''

The Organization of the Petroleum Exporting Countries will meet June 11 to decide whether to cut production and lower its cap of 25.4 million barrels a day. One OPEC minister did not rule out the possibility of trimming production at next week's meeting, but analysts said a shift in production is unlikely.

This story ran on page C1 of the Boston Globe on 6/7/2003. © Copyright 2003 Globe Newspaper Company.

Tue May 27, 2003 03:49 PM ET

NEW YORK (<a href=asia.reuters.com>Reuters) - World oil prices hit fresh five-week highs on Tuesday, as the prospect of less supply from OPEC producers threatens to cut further into low U.S. fuel inventories.

U.S. light crude rose 19 cents to $29.35 a barrel, after hitting a high of $29.63, the highest level since in over a month. London benchmark Brent rose 10 cents to $26.34 a barrel.

Prices rose on a renewed pledge from Saudi Arabia, the world's top oil exporter, that beginning in June it would abide by lower OPEC quota levels agreed to last month.

"The kingdom of Saudi Arabia will produce precisely according to its new quota of 8.256 million barrels per day (bpd) from June 1," a Gulf source told Reuters. "And it expects others to do so."

The Organization of the Petroleum Exporting Countries (OPEC) could make deeper cuts when it meets again on June 11 if Iraqi exports resume by then, cartel ministers have said.

U.S. inventories have failed to rebuild as much as expected following a harsh northern winter. Supplies could come under strain as U.S. gasoline demand, which guzzles around 12 percent of all world oil, peaks over the summer months.

"The biggest debate is how gasoline demand was over the weekend, with it sunny in some parts of the U.S. and rainy in the northeast," said Phil Flynn of Alaron Research.

Iraqi officials have said they hoped to resume exports in two or three weeks, with total production of 1.3 million to 1.5 million bpd by mid-June.

Exports from Iraq, normally around 4 percent of internationally traded oil and one of the top six foreign suppliers to the United States, have been halted since a U.S.-led offensive started in mid-March.

The U.N. Security Council's Thursday vote to lift 13-year sanctions on Iraq should allow exports to resume within the next few weeks, but looting and oil field damage will initially keep exports well below pre-war levels.

U.S. crude stocks are 12 percent below year-ago levels and gasoline inventories 4 percent below last year. The next U.S. inventory data will be released on Thursday.

Gasoline supplies from Venezuela, a key regional producer, have stayed well below normal since a two-month workers strike earlier this year.

By Marc Dupee Special to TheStreet.com 05/27/2003 03:03 PM EDT

Millions of motorists hit the road over the Memorial Day weekend, kicking off the summer driving season. Some might have been pleased that prices at the gas pump have finally started to fall since the spike that accompanied the invasion of Iraq. But before drivers -- or holders of short positions in unleaded gasoline futures -- become too convinced that prices will continue dropping, consider the smoldering situation in Venezuela, OPEC's third-largest producer.

Just last December, labor and opposition groups staged a nationwide strike in an attempt to remove Venezuelan President Hugo Chavez from office. Tanker captains joined strikers at state-owned oil monopoly Petroleos de Venezuela S.A., also known as PDVSA, and refused to move cargo.

Output from the oil-dependent country of 25 million inhabitants plunged to 200,000 barrels a day from a prestrike level of 3.2 million barrels a day. The reduction in supply from Venezuela spurred rallies in unleaded gasoline and crude oil that took prices more than 12% higher during the month.

Chavez survived December's strike and de facto coup, and Venezuelan output rebounded sharply. However, the political and economic situation in the hands of Chavez continues to devolve. The resulting uncertainty greatly increases the odds of another round of social upheaval and threatens to disrupt the supply of oil and refined products from Venezuela.

At the heart of the maelstrom is the government's disenfranchisement of the opposition. A law has been proposed to censor the media and potentially quiet opposing voices. The "gagging law" needs only to be passed by the Chavez-dominated national assembly. But more devastating to the economy has been the imposition of foreign currency exchange controls on the country.

Dollar Politics

Opposition forces say that exchange controls are just a Chavez ploy to undermine the private sector. Venezuela exports oil and imports just about everything else. Dollars are required to complete transactions. Exchange controls have denied importers -- made up primarily of the private sector -- access to dollars to pay for goods brought into the country. Everything from food to medicine is running in short supply. The private sector, those least likely to vote for Chavez, are suffering in what appears to be a deliberate government attempt to damage the opposition's base of support. Businesses are closing, and official unemployment has reached 20%.

The result? The economy contracted a record 29% in the first quarter of 2003, and inflation is running in excess of 30%.

As Chavez seems to undermine the private sector, he's shoring up his political base by usurping key businesses. His administration has opened more than 100 government stores in poor neighborhoods and stocked the shelves with reduced-cost staples such as rice, beans and cooking oil. Cuban food brokers are helping the Chavez government with the procurement and bypassing established importers.

Thousands of employees who dissented or participated in last year's strike have also been fired from PDVSA, the nation's biggest employer, exacerbating the economic spiral. In short, Chavez's attempt to grab more power has made the already-volatile country a political powder keg, a situation that threatens U.S. oil and gasoline imports.

U.S. Connection

Venezuela -- along with Saudi Arabia, Mexico and Canada -- is one of the top suppliers of oil and refined products such as unleaded gasoline to the U.S. Before December's strike, Venezuela provided up to 17% of U.S. imports. The worsening social situation in Venezuela and its potential for disruption to U.S. supplies come not only at a time of increasing seasonal demand in the U.S., but also amid tightening domestic supplies.

U.S. environmental law requires that almost all of the high-density population centers from Boston to San Diego burn the less-polluting reformulated grade (RFG) of gasoline from March through October. Refineries have had trouble meeting demand in the past few years since RFG was mandated. This summer looks no different. Last week, the Energy Department said RFG stocks dipped by 10% to 33.3 million barrels as production fell. This occurred as inventories of the regular-grade unleaded gasoline rose.

Not Making the Grade

The volatile situation in Venezuela creates a lot of uncertainty and risk about supplies from that country. It also is taking a toll on supplies of refined RFG destined for the U.S. Normally, the country ships more than 2 million barrels of RFG a month. That's 6% of the current U.S. stockpile.

But for the past few months, PDVSA has consistently failed to get gasoline cargos certified as RFG. To move the refined product, PDVSA has resorted to selling cargoes as regular-grade unleaded gasoline rather than the cleaner-burning RFG grade.

Related Stories Debunking Deflation The Winner in the Devaluation Race The Ides of May Mean Dark Days in France

Why? Thousands of PDVSA employees were fired and replaced by loyalists. Among the fired were employees skilled in production and quality control methods that helped ensure consistent product. Political loyalty does not guarantee high quality.

The unleaded gasoline contract traded at the New York Mercantile Exchange conforms to the specifications for RFG and should reflect the fundamental situation of tightening supplies. The June contract (HUM3:NYMEX) closed at a one-month high Friday and broke the bearish symmetry that had helped define its downtrend. Look for this contract to test resistance at 0.9350 and possibly 0.9750.

Marc Dupee is an independent trader and co-author of the book The Best: Conversations With Top Traders. Dupee was formerly markets analyst and futures editor for TradingMarkets Financial Group. At time of publication, he held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback to Marc Dupee.

TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon purchases by customers directed there from TheStreet.com.

Reuters, 05.27.03, 8:12 AM ET By Sujata Rao

LONDON, May 27 (Reuters) - Oil prices rose on Tuesday as traders expected the world's top exporter Saudi Arabia to cut supply next month, while oil inventories remained low in the United States as the high demand summer driving season took off.

Opening after a long holiday weekend, London benchmark Brent rose 41 cents to $26.65 a barrel, extending the gains chalked up on Friday. U.S. light crude rose 39 cents to $29.55 a barrel.

Traders said the market was worried about lower OPEC supply at a time oil stocks in the U.S., the world's biggest oil consumer, remained far below average for this time of the year.

The inventories have come into sharp focus as the Memorial day holiday last weekend marks the start of the U.S. driving season when Americans take to the roads on vacation.

U.S. gasoline consumption in the summer accounts for 12 percent of global energy demand during the period.

"There were all these expectations of a wall of crude which was supposed to arrive and resolve all the stock problems but that didn't seem to happen," said John Waterlow, analyst with Wood Mackenzie in Edinburgh.

"The position is that the stocks in the United States and global stocks need to be replenished, any excess crude supply will go towards that," he added.

LOW STOCKS

U.S. crude stocks stand 12 percent under year-ago levels while gasoline inventories are four percent below normal. "The market is nervously higher. There are a lot of worries on unleaded gasoline," one oil trader said.

Adding to the worry is that Venezuela, a key gasoline source for the U.S., says it will further delay exports of reformulated clean burning gasoline that is mandatory in many U.S. states. The first shipment, since a crippling two month strike ended in January, is now expected to leave in the first half of June.

Crude prices have rebounded by more than 10 percent since the start of May, as U.S. energy stocks have failed to return to normal after a harsh winter.

Concern is mounting that OPEC is now preparing to trim supplies. A Gulf source told Reuters on Monday that Saudi Arabia was preparing to cut June supplies to match the output quotas agreed on last month. It is expected to cut output to 8.25 million barrels per day (bpd) in June.

Consultancy Petrologistics said on Tuesday Saudi Arabia pumped 9.1 million bpd in May with overall OPEC output at 26.7 million bpd.

But the Saudi news was slightly tempered by reports that Iraq is gearing up for its first oil exports since the war, aiming to first sell some eight million barrels lying in storage at the Turkish port of Ceyhan.

The head of Iraq's state oil marketer SOMO, Mohammed al-Jibouri, told Reuters on Tuesday Baghdad aims to export the first post-war barrels of crude oil, now sitting in storage tanks, by mid-June.

He said a steady export flow should follow swiftly as output from the oilfields is rising fast.

Before the war, Iraq supplied four percent of globally traded oil and analysts say a resumption of Iraqi exports is likely to trigger a price slide in the third quarter of 2003.

Baghdad is already pumping 800,000 bpd, just above the 500,000 bpd needed for the internal market.

The resumption of Iraqi exports is a major factor that OPEC will need to consider when it meets in Qatar on June 11. Copyright 2003, Reuters News Service

By Jan Dennis <a href=www.stltoday.com>Associated Press Writer updated: 05/19/2003 05:03 PM

Gasoline prices should hold steady, but holiday travel could prove costly for Illinois motorists who fail to buckle up this Memorial Day weekend.

Police agencies around the state launched their largest-ever seat-belt crackdown Monday, and expect to hand out up to 25,000 tickets over the next two weeks in an effort to trim the annual death toll of about 1,400 on the state's highways.

Illinois State Police and more than 90 percent of local police departments across the state are participating in the ``Click It or Ticket'' campaign, part of a nationwide traffic safety program.

Through June 1, police will target seat-belt violations, which normally bring charges only after drivers are stopped for another offense. That zero-tolerance approach would become law under a bill pending in the Legislature.

Transportation officials hope the threat of a $55 ticket increases awareness and decreases traffic fatalities.

Home Improvement & Gardening (207) Automotive & Vehicles (205) Dining & Entertainment (149) Services (137) Medical (118) Real Estate & Rentals (113) Finance (88) Furniture (76) Grocery (66) Movies (50) ...more on Ad Zone``We want to get them to buckle up before they see their friendly neighborhood policeman,'' said Shannon Alderman, chief of safety projects for the Illinois Department of Transportation.

Historically, as many as 20 motorists are killed in holiday weekend accidents in Illinois, and most are unbuckled, Alderman said.

``I want it to be zero. That's ultimately the goal,'' he said.

Illinois' compliance rate for seat belt use is nearly 74 percent, up from about 66 percent three years ago but still short of the national average of 75 percent, Alderman said. An increase to 85 percent would save 141 lives a year statewide, according to IDOT estimates.

Along with seat-belt violations, police also will be on the lookout for drunken drivers and other traffic violations, Alderman said. The crackdown could include up to 200 roadside safety checks across the state over the three-day weekend, he said.

While motorists can expect extra patrols for Memorial Day, they should find stable prices at the pump, said Steve Nolan of AAA-Chicago Motor Club.

He predicted gasoline prices will remain near Monday's statewide average of $1.55 per gallon, up slightly from $1.52 a gallon over the holiday weekend last year.

Barring something unforeseen, Nolan said, prices should stay in that range through the summer, after fluctuating from a low of $1.49 a gallon to a high of $1.75 in the weeks before the war with Iraq.

``That's good news, but the caveat is that something always seems to go wrong, like last year's refinery fires and the work stoppage in Venezuela,'' he said.

Nolan said 35 million people will travel 50 or more miles from home this weekend, up less than 1 percent from last year.

``Any increase is an extremely good sign for the travel industry given the state of the economy and the concerns over SARS and terrorism threats,'' he said.