www.zwire.com By: Scott Tynes March 11, 2003

There's no relief in sight for escalating gas prices, according to officials, and customers are beginning to question whether they will ever see low prices again.

"It's ridiculous," said Linda Clark of Brookhaven. "I don't think I've ever seen gas prices this high. "I travel a lot. It needs to come down so people can travel more." Gas prices in the Gulf Coast region, which includes Mississippi, Alabama, Louisiana, Texas, Missouri and New Mexico, are hovering around $1.59 this week, but officials don't expect it to last. Gasoline prices are up 1.3 cents in the region since last week and up 42.6 cents from March a year ago, according to the Energy Information Administration (EIA) of the Department of Energy. Other states, however, are looking to the Gulf Coast region with envy. Their prices this week are averaging $1.71 with similar statistics for a week and year ago as those of the Gulf Coast region. Prices in the Gulf Coast region are typically cheaper than most of the U.S. because nearly half of the gasoline production in the states is done here. The latest gasoline crunch is fueled by production cuts in previous years. "The most recent gasoline price increases are due in part to OPEC crude oil production cuts in 1999," according to EIA. "In addition, higher demand from a recovering Asian economy caused more competitive bidding for crude oil supplies in the international market." This created low inventories in the world market. As the market was beginning to recover from that blow, Venezuelan workers went on strike, stopping crude oil production and exports from that key OPEC country. Strike leaders lifted the general stoppage in non-oil industries Feb. 3, but there has been no resolution of the strike in Venezuela's oil sector, now in its fourth month. "Even when crude oil prices are stable, gasoline prices normally fluctuate due to factors such as seasonality and local retail station competition," according to EIA. "Additionally, gasoline prices can change rapidly due to crude oil supply disruptions stemming from world events or domestic problems, such as refinery or pipeline outages." The loss of Venezuelan oil was partially offset by increased production from other OPEC members, who were able to match nearly 60 percent of the lost production. However, the world oil inventories were already low from the 1999 production cuts and can not rebound until full production is regained. Low inventories are driving higher gas prices in a basic struggle of supply and demand. The Venezuelan strike and other factors in the world political climate have had a very severe impact on oil prices, especially with the possibility of a war in Iraq looming. "February crude oil prices moved higher than expected pushed by fears of a war in Iraq, low inventories, slow recovery in Venezuelan exports, continued cold weather and sharply higher natural gas prices in the U.S.," according to EIA. The threat of war involving OPEC members traditionally has a negative effect on gasoline prices. "Events in crude oil markets were a major factor in all but one of the five run-ups in gasoline prices between 1992 and 1997," according to the National Petroleum Council (NPC). In 1973, gas prices climbed because of an Arab oil embargo. Events involving Iran caused the increases in 1978 and 1980, first the Iranian revolution and then when they went to war with Iraq. The Persian Gulf conflict caused the increase of 1990. Most of the Middle Eastern countries are members of OPEC, including Iran, Iraq, Kuwait, Saudi Arabia, United Arab Emirates and Qatar. Other members include Venezuela, Algeria, Nigeria, Libya and Indonesia. Middle Eastern members make up more than half of OPEC's production and the threat of a war in the region tends to force prices up, according to the EIA. "OPEC has the potential to influence oil prices worldwide because its members possess such a great portion of the world's oil supply, accounting for nearly 40 percent of the world's production of crude oil and holding about 67 percent of world's estimated crude oil reserves," according to the EIA. Because of all these factors, gasoline prices are not expected to decrease until the Venezuelan strike ends and oil exports resume there at their normal levels, and the threat of war is removed from the Middle Eastern region. Clark said she doesn't expect to ever see low gasoline prices again. She believes that after summer, when gasoline prices are traditionally higher as more people travel, prices will not decline as they usually do with the onset of fall. People will be used to paying high prices, she said, so the oil companies will keep prices high.

www.southeasttexaslive.com DAN WALLACH , The Enterprise 03/11/2003

Truck drivers are fond of saying that if something isn't growing, it was brought there by a truck.

BEAUMONT - Truck drivers are fond of saying that if something isn't growing, it was brought there by a truck.

It takes fuel to get a truck from one place to another.

The direction that prices at the fuel pump will take in the next several weeks also will determine whether the prices of consumer goods and services will begin to climb, too.

"We're biting the bullet right now," said Jake Mazzu, owner of a produce business that supplies restaurants and food stores.

His company operates a fleet of 20 vehicles that buzz across Southeast Texas on multiple trips Monday through Saturday.

"If gas goes to $2.50 a gallon, we'll have to limit our runs. Instead of constantly going back and forth, we'll have to combine or limit trips."

Mazzu said he is not imposing a fuel surcharge on his customers.

"In lieu of going up on our customers, I'm doing the best I can to make little cuts," Mazzu said.

Typically, Mazzu said his gasoline bill runs anywhere from $2,000 to $2,500 per week. But current prices - about $1.52 to $1.59 at most pumps in the Beaumont area - sent his weekly bill to about $3,000.

"If we have a war, and we can get oil from somewhere else, it might back off a little," he said. "But it might go to $3 a gallon. The uncertainty is more of a problem now."

Roy Steinhagen, president of Steinhagen Oil Co., which runs convenience store-filling stations in Southeast Texas, shares Mazzu's feeling of uncertainty.

"We're at the mercy of suppliers," he said. "The effect of the war is unknown. Venezuela is an unknown."

The United States is poised to invade Iraq to depose Saddam Hussein, adding volatility to one of the most unstable regions in the world.

Political unrest in Venezuela, another major supplier of crude for the United States, also has reduced that supply, which has cut domestic inventories.

"We've had no trouble getting supplies," Steinhagen said. "Costs have been basically stable for the past couple of weeks. When futures go up, ours will go up accordingly."

He referred to the futures market at the New York Mercantile Exchange where prices for delivery in the coming months have shot up dramatically in the past few weeks.

"There are too many variables to crystal-ball it," Steinhagen said.

Supermarkets are a place where consumers could begin to see higher prices in case pump prices begin to spike upward.

For now, however, a major national chain and a local chain are standing pat on prices.

"Our diesel purchases are locked in for a number of months," said Kroger Food Stores spokesman Gary Huddleston.

"The marketplace is so competitive, it absorbs some of that," he said. "In the long-term, you could see an impact. But so many factors affect the long-term."

At Market Basket Food Stores, headquartered in Nederland, spokeswoman Caira Franz said that chain has no plans to increase its prices to cover the higher costs of transportation to bring in groceries and other goods.

"We're not noticing any difference in pricing yet," she said. "That's good news."

It isn't just motor fuel prices that have risen steeply, either. Natural gas also hit a peak recently, nearing historic highs.

Bill Munro, president of Munro's Dry Cleaners, said his natural gas costs to run his boilers are running 60 percent more than he usually pays.

"This started about four months ago, and peaked this month," he said. "You can't pass it along for the short-term to the consumer. You've got to bite the bullet. But if things stay the way they are - another 60 days - we'll probably start passing some of it along."

Reach this reporter at: (409) 833-3311, ext. 450 dwallach@beaumontenterprise.com

www.nctimes.net Dan McSwain North County Times

Retail gasoline prices continued to surge higher Monday amid indications of soaring profits for some oil refiners and reports of scattered shortages at wholesale tanker terminals in Southern California.

In North County, the average gallon of regular cost $2.11, up 8 cents in a week, with only a handful of stations still selling for less than $2, according to a survey of 218 stations by the North County Times.

California's average was $2.08, a full 37 cents a gallon higher than the national figure of $1.71, reported a survey by the U.S. Department of Energy.

Energy analysts and gasoline traders said that North County's average is almost certain to shoot past $2.35 in the next week or so as California's oil industry reduces supplies during a technically difficult transition to a new grade of low-emissions gasoline.

North County drivers have swallowed increases of 55 cents a gallon since Christmas, a premium that costs the average, two-car family an extra $55 a month, according to state driving estimates.

"We have been expecting some bumps in California as people figure out how to handle this product going from winter to summer," said Joanne Shore, senior analyst at the U.S. Department of Energy. "Unfortunately, those bumps come on top of already high prices."

Powering retail price hikes were the state's seven dominant oil-refining companies, which have imposed dramatic increases in their charges to gas station owners.

Wholesale gasoline has jumped from around 70 cents a gallon in early January to nearly $1.50 on Monday. After accounting for 51 cents a gallon in federal, state and local taxes, the increases have forced dealers to fill empty storage tanks with fuel costing more than $2.

Oil economists say that about half of the increase is explained by higher world costs for crude oil, which have surged 50 percent since December in the wake of a political instability in Venezuela and war clouds in the Persian Gulf. The other half appears to have gone directly to U.S. refining giants.

Refiners averaged 53 cents in revenue from each gallon sold in California last week, up 96 percent from the 27 cents they earned in January, according to an estimate by the California Energy Commission, a state planning agency.

Station owners received an average 15 cents a gallon last week, while the cost of crude oil accounted for 89 cents, officials estimated.

Oil industry executives have generally attributed the recent rise in retail prices to underlying increases in crude oil costs. But on Monday officials acknowledged earning wider "refining margins," a term that describes the piece of each gallon sold that companies retain to cover operating costs and profits.

"Refining margins are obviously much better today, but they were negative on the West Coast last year," said Mary Rose Brown, chief spokeswoman for Valero Energy Corp., a San Antonio refining giant that owns two facilities in California.

Nicole Hodgson, a spokeswoman for ChevronTexaco Corp., the state's largest refiner, said that the firm has had no supply problems and is simply charging as much as consumers will pay.

"Like any good business, we charge what is competitive in the marketplace," Hodgson said. "If that's competitive, then people will come in and buy some gas."

However, there were signs Monday that consumers could be in for a breather. State officials say that gasoline imports increased in recent days, and oil industry officials say that an end to annual refinery maintenance could soon boost supplies and force down wholesale prices.

"My guys tell me that somewhere between the 9th and the 13th (of March), things will get back to normal," said Brown, the Valero spokeswoman.

Brown and other insiders say that a huge Arco refinery in Carson has been shut down for maintenance for two weeks longer than expected, panicking a market already rattled by rising crude oil prices and worries about supplies.

California drivers are no strangers to seasonal price spikes: Five of the last six years have featured sharp increases at the pump that began in February or March, according to the Energy Commission. However, the previous episodes have each been preceded by supply problems, typically from breakdowns at refineries.

Yet this time, analysts say that supplies are generally abundant according to federal inventory figures, although some truck terminals have reportedly run out of gas in the last week.

"I just can't imagine that there would be any shortage, anywhere, of gasoline right now," said Margaret Felts, a veteran refining analyst who heads MC Felts Corp. "What that means is that they (oil companies) are trying to make it look like a shortage."

Shore, the Department of Energy analyst, said that refiners may be experiencing short-term disruptions as they draw down storage tanks in order to avoid mixing winter grades of gas with a new, summer grade of low-emissions fuel. Under orders from Gov. Gray Davis, refiners are switching to ethanol, an agricultural product, and halting use of methyl tertiary butyl ether, or MTBE, an additive that burns cleanly but fouls groundwater.

Gasoline traders say they have been nervous about the transition for months, because ethanol takes up less volume than MTBE, forcing refiners to either produce or import 5 percent more gasoline, an enormous amount in the supply-constrained state.

Indeed, buyers for independent, "unbranded" stations say that local markets have been roiled by a series of mysterious spot shortages at refueling terminals for tanker trucks.

"There is no gas available in L.A.," said Bob van der Valk, manager of bulk fuels for Cosby Oil Co., an independent wholesaler in Santa Fe Springs. "We're lined up at the rack and sucking it out faster than they can put it in the tank."

Contact staff writer Dan McSwain at (760) 740-3514 or dmcswain@nctimes.com.

More on gas prices at www.nctimes.net/gas 3/11/03

www.dailypress.com By Kimball Payne Daily Press

March 11, 2003 Skyrocketing pump prices in California sent the nation's average gasoline prices soaring, even as prices have leveled off for Hampton Roads motorists in the past two weeks.

Regular unleaded gasoline prices at self-service stations in Newport News, Norfolk and Virginia Beach have stayed around $1.59 a gallon since Feb. 25, according to AAA's daily fuel gauge report. But it is a different story out West, where refineries switched to production of gasoline with corn-based fuel additives, causing temporary shortages.

On Monday, AAA estimated an average price of $2.21 a gallon for regular unleaded in San Francisco, $2.08 a gallon in San Diego and $2.04 a gallon in Los Angeles.

The national average price per gallon, including taxes, was about $1.69 Monday, according to the AAA's report, which surveys more than 60,000 gas stations nationwide. The price is nearing the record $1.72 a gallon it recorded on May 15, 2001.

The easing of constant price hikes at the pump has been a big relief to local motorists, however. From Feb. 10 to Feb. 21 prices locally leaped 10 cents a gallon to an average unleaded price of $1.593. Fuel costs have budged only slightly lower since then to $1.585 a gallon.

"They're high, but they've been high," Hampton resident Carolyn Lockett, said Monday about the prices she's seen while refueling her new red Ford Expedition. "They're pretty much stable now. I used to drive an Escort, but now I'm in a big SUV, so it's a big difference." She added California's prices "make me feel good that I'm down here."

Analyst Trilby Lundburg said the increase of just over a nickel a gallon was nearly entirely due to California refineries switching over to corn-based additives from MTBE, an additive that is blamed for polluting drinking water after it leaked.

That change has temporarily cut the state's gas supply by 10 percent and helped drive up prices, Lundburg said.

AAA Mid-Atlantic officials said gas prices were high nationally because of the tension surrounding war against Iraq, Venezuela's ongoing political crisis which has curtailed their oil exports, and this year's cold winter which has created more demand for heating oil.

Gasoline prices are likely to remain high until the international crisis over Iraq is settled, Lundburg said.

Local fuel costs have eased a bit, experts said, because demand has softened as motorists are realizing the prices at the pump aren't going to plunge soon.

"Our hope is that the near-record highs are temporary, and there's no reason for gas prices not to go back down," said Deborah DeYoung, a AAA Mid-Atlantic spokeswoman in Fairfax.

San Francisco and Wailuku, Hawaii, recorded the highest price on the AAA survey at $2.21 per gallon. Georgia registered both of the lowest prices nationally, with Atlanta averaging $1.52 and Macon $1.51.

The national average price for mid-grade gasoline, including taxes, was $1.79 and $1.86 for premium.

The Associated Press contributed to this report..

Kimball Payne can be reached at 247-4765 or by email at kpayne@dailypress.com

www.boston.com By Bloomberg News, 3/11/2003

WASHINGTON - US retail gasoline rose for the 12th week in 13, reaching $1.712 a gallon for a 21-month high, the US Energy Department said in a weekly report. The price was 0.1 cent below the record reached in May 2001.

The average nationwide price for regular grade gasoline in the week ended yesterday was up 2.6 cents from the previous week and up 48.9 cents, or 40 percent, from $1.223 a year earlier, government data showed. The average is based on a survey of about 900 filling stations.

Pump prices have risen as a nationwide strike in Venezuela hobbled the petroleum industry in the fourth-largest supplier of crude oil to the United States.

Refiners were forced to pay more for alternative supplies and passed along the higher costs to consumers. US crude supplies are near 27-year lows, and crude prices last week reached a 12-year high.

The latest average price was the highest since a record $1.713 in the week ended May 14, 2001, according to the Energy Department. Prices rose that year partly because of shortfalls of cleaner-burning fuels required in large US cities during warmer months.

Gasoline was most expensive on the West Coast, where prices rose the most of any US region in the latest week. West Coast regular gasoline averaged $1.993 a gallon, up 6.1 cents from the previous week, the Energy Department said. Prices in Los Angeles and San Francisco have already surpassed $2 a gallon.

In the Midwest, gasoline averaged $1.69 a gallon, up 2.6 cents from the previous week and up 46 cents from a year earlier. Gasoline in New England was $1.68, up 0.5 cent from the previous week and up 47.5 cents from a year ago. The price in the Rocky Mountain region averaged $1.667, up 2.1 cents from a week ago and up 49.8 cents from a year ago.

This story ran on page F5 of the Boston Globe on 3/11/2003. © Copyright 2003 Globe Newspaper Company.