By Myra P. Saefong, <a href=cbs.marketwatch.com>CBS.MarketWatch.com Last Update: 10:00 AM ET May 14, 2003

WASHINGTON (CBS.MW) -- Crude-oil imports for April rose to their highest monthly level in almost two years, indicating that the nation's oil industry successfully offset the loss of oil from Iraq, the American Petroleum Institute said Wednesday.

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U.S. crude imports were up nearly 6 percent in April, at 9.7 million barrels per day on average, compared to the year-ago period.

So "it appears that the war in Iraq, which could not export oil during the fighting, did not create a negative impact on global supplies as feared, or at least the ability of American importers to secure adequate supplies," API said in a monthly report.

The API said preliminary data from the Energy Department show that the foreign oil came from increased shipments out of Saudi Arabia and Venezuela and that other major exporters included Canada and Mexico.

Total imports, which include petroleum products, reached 12.3 million barrels a day last month -- the highest in nearly two years, the API said.

About 1.1 million barrels per day of that was imported gasoline and blending components, equating to a 32 percent rise over a year ago. And at 13 percent, it represented the highest recorded monthly import share of the U.S. gasoline market as well as the biggest monthly imported product volume, according to the API.

By contrast, gasoline refined in the U.S. totaled 8.3 million barrels per day in April, down 3.3 percent from a year earlier.

nationalreview.com May 14, 2003, 9:30 a.m. By Mark Krikorian

ast Thursday, the House International Relations Committee narrowly passed a resolution introduced by Rep. Cass Ballenger of North Carolina (R.) requiring that any amnesty deal for the five million Mexican illegal aliens in the United States be linked to an opening of Mexico's state-controlled oil industry to investment by U.S. companies.

Then the fun started.

 The Mexican press exploded in outrage. "Blackmail!" cried the archbishop of Mexico City. "Stupidity!" said a representative of the oil workers' union. A plot to "annex Latin America," intoned Nobel peace-prize winner Adolfo Pérez Esquivel. An example of U.S. lawmakers' "ignorance," "arrogance," and "imperial vision," according to a Mexican senator. The head of the leftist PRD called on President Vicente Fox to "put on his pants" — act like a man — and oppose the proposal. Fox finally joined the tsunami of criticism on Sunday and categorically rejected any privatization of Pemex, Mexico's state oil monopoly. 

None of this should come as a surprise. Mexico's seizure of foreign oil companies' assets in 1938 is central to modern Mexican nationalism; state control of the oil industry is actually written into the constitution. What's more, there are midterm elections for the lower house of Mexico's Congress coming up in July. Embracing privatization of Pemex would not be a vote getter, to say the least. And according to William and Mary political scientist George Grayson, author of Oil and Mexican Foreign Policy, "unless the PAN makes notable strides in these contests, the beleaguered Fox will find himself a lame duck with three years-plus remaining in his term."

But however outraged the Mexicans are, and however different these two issues are, it only seems fair to link them. After all, Mexico is asking us to start down the path of eliminating our southern border and embracing a European Union-style shared sovereignty — the least we can expect is for them also to eliminate barriers that are important to their nation.

Nor has this idea come out of the blue. In the July 30, 2001, Weekly Standard, economist Irwin Stelzer suggested just such an approach. Stelzer wrote that "monopoly oil prices" could offset a good part of the economic growth assumed in the president's tax cut and that "the finger of blame points squarely at Mexico." He wrote that we should insist that Mexico cooperate with the United States and other pro-free market countries and stop supporting the OPEC oil cartel and its leaders such as the Marxist Hugo Chavez of Venezuela. Stelzer said that before Bush strikes any deal on amnesty, "he should insist on the free movement of ...oil from Mexico" and the opening of Mexico's oil resources to American investment.

While Mexican opposition may be no surprise, the Democrats' furor over the oil-for-illegals approach is, given the importance of Mexico's oil to the United States and the huge costs that an illegal-alien amnesty would impose on us. After all, they have no chance whatever of getting an amnesty through Congress without some kind of sweetener, and this would seem an obvious candidate.

But it is not to be. Rep. Robert Menendez was so angry that he held a press conference last Friday denouncing the resolution. He was joined by Rep. Ciro Rodriguez and Silvestre Reyes; the latter, a past head of the Hispanic Caucus, said the amendment was an "insult" to Mexico and indicative of an "insane and outofcontrol attitude on the part of a country [the United States] that believes that as a matter of public foreign policy bullying is acceptable." It was Menendez who prompted the whole dust-up in the first place; Ballenger's amendment, to the State Department appropriations bill, was offered as a substitute to a proposal by Menendez calling for the conclusion of a "migration" accord which, among other things, "respect[ed] the human dignity of all migrants, regardless of their status" — i.e., an amnesty for illegal aliens.

The partisan nature of the vote suggests the depth of opposition in the president's own party for his preferred immigration policies. The only Republican to vote against Ballenger's oil-for-illegals linkage was Pete King (who has a career grade of F on the reformist Americans for Better Immigration website). Even such flamboyant Republican supporters of high immigration as Ileana Ros Lehtinen (career grade of F), Chris Smith (D-), and Steve Chabot (D+) voted for the linkage.

However bad the immigration positions of these Republicans, they at least understand that a massive illegal-alien amnesty must be met with some gesture from Mexico. But the Democratic-party/Mexican-government position on amnesty for illegals appears to be all quid from the United States and no quo from Mexico.

Stay tuned.

— Mark Krikorian is an NRO contributor and executive director of the Center for Immigration Studies.

Paris, May 13 (<a href=quote.bloomberg.com>Bloomberg) -- The International Energy Agency lowered its estimate for growth in world oil demand in 2003 by 8 percent as the outbreak of severe acute respiratory syndrome reduces air travel and fuel demand in Asia.

Oil consumption this year will rise by 1.03 million barrels a day, 90,000 barrels less than expected a month ago, to 77.9 million barrels, said the agency, an adviser to 26 industrialized countries on oil policy. This quarter, world demand will be 400,000 barrels a day lower than forecast last month.

``The impact of SARS on jet fuel demand is pretty significant,'' said Klaus Rehaag, an IEA analyst and editor of the agency's monthly oil report.

The Organization of Petroleum Exporting Countries last month pledged to lower production in an effort to bolster prices, which have declined 12 percent this year to about $25.10 a barrel in London. The prospect of a further cut in supply when OPEC meets in June suggests oil inventories may not rise from ``precariously tight'' levels, the IEA said.

Crude oil and fuels inventories held by oil companies in Organization for Economic Cooperation and Development nations are an ``unprecedented'' 260 million barrels lower than year-ago levels and 186 million barrels lower than in 2001.

The SARS outbreak will likely reduce demand in China, the third-largest oil consumer, this quarter by 5.5 percent to 5 million barrels a day. The report assumes that the disease will be contained by the middle of the year.

Production Drops

World oil production in April averaged 78.42 million barrels a day, 1.4 million barrels less than the average in March, as the U.S.-led attack on Iraq halted the Middle East nation's exports and field maintenance reduced supplies from the North Sea.

Output from the 10 OPEC countries bound by quotas was 25.9 million barrels a day, up 167,000 barrels from March, led by increases in Venezuela and Kuwait, the agency said. Iraq, a founding member of OPEC, has no quota.

OPEC last month pledged to reduce oil supply by 2 million barrels a day to 25.4 million as of June 1 and said members may cut further at a meeting on June 11. Given the decline in inventories, further steps may not be warranted, the IEA said.

``Tough decisions lie ahead when Iraqi supply returns, but if stocks remain tight through mid-year, the extent of further cuts needed from OPEC in June may be limited,'' the report said.

Last Updated: May 13, 2003 04:53 EDT

Lemont, Illinois, May 12 (<a href=quote.bloomberg.com>Bloomberg) -- The U.S. Midwest has the lowest supplies of gasoline of any region of the country, leaving motorists there vulnerable to higher prices at the pump as the warm-weather driving season begins.

Consumers in the Midwest saw bigger price increases than the rest of the nation in two of the past three years during the months when refiners run close to capacity to meet peak gasoline demand. Midwest prices were higher than in other locales because of low inventories and clean-air rules that limited flexibility to use fuel in one place to meet shortages elsewhere.

I don't think all the problems are necessarily behind us,'' said Mark Smith, general manager of the Citgo Petroleum Corp. refinery in Lemont, Illinois, 35 miles southwest of Chicago. We're still concerned about the volatility'' seen in the region's gasoline prices in prior years, he said.

The Midwest tends to be more vulnerable to fuel price swings than other parts of the U.S. because of the region's distance from the Gulf of Mexico and other deep-sea ports. Crude oil is primarily moved into the region by pipelines from Canada or the Gulf Coast.

Enbridge Energy Partners LP, which delivers most of the crude processed by Chicago-area refiners, shut part of its oil pipeline system for two days in mid-April, following a leak in rural Minnesota.

A longer shutdown might be enough to curtail refiner output and affect gasoline prices, analysts said. U.S. refineries typically run the hardest in the spring. They processed 15.7 million barrels of oil a day last week, the most since September 2001, according to the U.S. Department of Energy.

Chicago Refineries

When you run on the low side with inventories you have less ability to absorb unexpected supply disruptions,'' said Joanne Shore, a senior analyst with the Energy Department. Even with all of the refineries running, there still is a tight market situation.''

Citgo's 1,100-acre Lemont complex, which processes as much as 167,000 barrels of crude oil per day, is one of three in the Chicago area that account for almost a quarter of the Midwest's refining capacity and a fifth of its gasoline production.

The other two, Exxon Mobil Corp.'s refinery in Joliet, Illinois, and BP Plc's in Whiting, Indiana, both have had outages already this year. Part of the Whiting complex was closed for five weeks following a Feb. 18 fire.

While refiners have scaled up production, fuel inventories in the Midwest remain low as the period of heaviest gasoline demand approaches. The start of the summer driving season in the U.S. is typically marked as Memorial Day at the end of May.

Inventories

Supplies in Illinois and 14 other states in the region totaled 48.3 million barrels in the week ended May 2, down 8.2 percent from 52.6 million a year earlier, according to the Energy Department. Regional supplies are close to levels seen at the end of April 2000 and 2001, when summer prices jumped.

Motor gasoline supplies in the rest of the U.S. are at 159.5 million barrels, 1.2 percent below last year.

Gasoline demand is rising. Nationwide, consumption may reach a record 9.18 million barrels a day for April through September, up 1.6 percent from the same period a year ago, according to the Energy Department.

The jump in Midwest gasoline prices in June 2000 was caused by difficulties producing enough fuel under new clean-air regulations that had just gone into effect and by a pipeline outage, on top of the low inventories.

The average retail price for regular-grade gasoline across the Midwest reached a record $1.874 a gallon, up 26 percent from the average in May, according to the Energy Department. In Chicago, the average pump price reached a record $2.11 a gallon.

Midwest Prices

Chicago wholesale prices more than doubled from mid-April to mid-June 2000, reaching about $1.46 a gallon. That outpaced gains of about 50 percent for New York and Gulf Coast spot prices.

In May 2001, Midwest retail prices jumped as high as $1.813 a gallon, up 15 percent from the April average, government data showed. Over the past week, the average Midwest price averaged $1.413 a gallon, up 4.7 cents from a year ago, the Energy Department said today.

``If you drive from St. Louis to Chicago, which is about 300 miles, you drive through four different gasoline zones,'' said Patrick McGinn, a spokesman for Exxon Mobil Corp. That means shortages in one area can't always be made up from supplies elsewhere, he said.

Summer Grades

Federal regulations require a switch to ``summer-grade'' gasoline for some regions and cities, where gasoline must have a lower evaporation rate to reduce emissions. Chicago and Milwaukee fuels are blended with ethanol, a corn-based additive, to meet these requirements.

Such requirements have ``essentially created an island'' in the Midwest where the fuel that is consumed is tailored to the market and mostly made in the region, Shore said.

Refineries last year kept up with demand and avoided most disruptions. Midwest retail prices averaged $1.378 a gallon in May and June, little-changed from $1.382 in April.

Several years working with environmental rules may have given refineries a better understanding of how to balance production of various clean-air fuel blends.

``Each year we get a little bit smarter on how to maximize our production,'' said Glen Rabinak, business service manager for Citgo Lemont. Citgo is the U.S. refining unit of Venezuela's state oil company, Petroleos de Venezuela SA. Last Updated: May 12, 2003 17:23 EDT

North America's Source for Oil and Gas News May 2003 Vol. 8, No. 19 Week of May 11, 2003 Allen Baker Petroleum News Contributing Writer

ChevronTexaco, the second-largest U.S. oil company, posted earnings of $1.92 billion for the first quarter. That was a 165 percent gain over the $725 million the company posted in the same quarter a year ago. And it was more than double the profits of $904 million for the fourth quarter.

The hefty profit numbers did overshadow a substantial decline in production, however — about 5 percent in oil-equivalent numbers. The company blamed some of that on political problems in Nigeria and Venezuela, but noted that natural field declines were the main factor in reducing U.S. volumes by the equivalent of 66,000 barrels a day.

Liquids flow down 8 percent

Looking at liquids alone, the worldwide decline was a substantial 8 percent, or 152,000 barrels daily, as total oil and condensate flows dwindled to 1,823,000 barrels each day from 1,975,000 in the same quarter a year ago. The drop from the fourth quarter amounted to 19,000 barrels daily. Still, collecting an extra $11 (internationally) or $12 (domestically) for each barrel of liquids, compared with the year-ago quarter, can cover a lot of decline in production. Liquids brought just over $29 in the quarter. U.S. gas yielded $5.85 per thousand cubic feet, a 150 percent increase, while international gas prices rose 20 percent to an average of $2.64.

On the gas side, a gain in international operations nearly made up for a 6 percent drop in the United States, but the worldwide production figure still slide 1 percent to 4,506 million cubic feet daily. That was up from 4,336 million cubic feet in the fourth quarter, however.

Capital spending down

The San Ramon, Calif., company isn’t accelerating its exploration spending to stem the decline, but instead cut $600 million off its investment in the future. Companywide, capital spending was down by 28 percent in the first quarter to $1.54 billion. The company indicated that $600 million, the bulk of that, was due to additional investment in an affiliate, presumably troubled Dynegy, in 2002, along with buying assets that were previously leased in that quarter.

But nevertheless, U.S. E&P spending dropped to $347 million from $375 million. Internationally, the E&P decline was steeper, a 27 percent drop to $845 billion from $1.16 billion in the same quarter a year ago. Downstream and chemicals spending were about flat, with the “other” category in the United States was the other big loser, dropping more than a quarter of a billion dollars to $69 million. Figure Dynegy is in that category.

U.S. upstream income more than doubled to $666 million, and it would have been over $1 billion except for an accounting change that cut the number by a $350 million.

International operations showed a profit of $1.1 billion, after subtracting $145 million for the accounting change. That was a 32 percent rise compared with the same quarter a year ago.

Total E&P profits were $1.77 billion, up from $1.14 billion in 2002’s first quarter. It was also a nice bump from E&P’s fourth quarter earnings of $1.25 billion.

Downstream rebounds

Refining and marketing came back into the black in the quarter, with a profit of $315 million against a loss of $61 million in 2002’s first quarter and a loss of $166 million in the fourth quarter. That came despite a 6 percent decline in refinery inputs to 1,913,000 barrels daily from 2,035,000. Chemicals earned $3 million, down from $15 million a year ago and from $13 million in the fourth quarter. The company owns half of Chevron Phillips Chemical Co.

Revenues reached $30.65 billion, a 47 percent gain from $20.84 billion a year ago. ChevronTexaco took in $27.06 billion in the fourth quarter.