<a href=www.billingsgazette.com>But don't expect the reprieve to last for long. By SARAH HALE The Orlando Sentinel

A more than week-old decline in crude-oil prices, which started even before the United States attacked Iraq, is expected to trickle down eventually to consumers in the form of lower gasoline prices.

But don't expect the reprieve to last for long.

Oil prices have fallen about $12 a barrel, from about $38 to $26, in just the past 10 days, and energy experts predicted Friday that prices will continue to spiral downward. The days of crude hovering just below $40 a barrel have passed, they said.

$25 a barrel oil? "It's fair to guess we'll fall back to $25 and, barring another event, that's where we'll stay," said Fred Rozell, retail-pricing director with OPIS Energy Group, a research firm in Lakewood, N.J.

But while gasoline prices tend to mimic changes in the cost of crude oil - which accounts for about 40 percent of the total cost of a U.S. gallon of gasoline - other factors are likely to blunt any drop in prices at the pump.

Even as the price of gasoline falls in the wake of war, seasonal adjustments in fuel formulas, cyclical driving trends and the possibility of supply shortages are likely to force prices upward again. Ongoing problems in oil-producing countries such as Nigeria and Venezuela could further hurt supply and pinch distribution. Iraqi retaliation against oil-production facilities in Kuwait or Saudi Arabia also is still a possibility as the war intensifies, experts said.

"Whether crude is going up or down, the price is essentially - but not immediately - passed on to consumers," said James L. Williams, president of WTRG Economics, an energy-economics firm in London, Ark.

"We can expect gasoline costs to drop in the coming month. But - and this is a big, wide 'but' in capital letters, bold - there are just so many variables in this tight energy situation that we could see prices go back up in almost zero time."

OPEC action In an attempt to calm worried markets, the Organization of Petroleum Exporting Countries announced Thursday that its members had pledged to increase their crude-oil output in an effort to make up for any disruption in exports from Iraq - about 2 million barrels a day.

However, Williams said OPEC is operating nearly at capacity already, so there is very little "wiggle room" should something unexpected occur on the supply side.

The worldwide oil market currently consumes 75 million barrels a day, or about 98 percent to 99 percent of what's being produced, he said.

With the United States' busiest driving season about to shift into high gear, rising demand for gasoline could soon offset any savings from lower crude-oil costs.

Last year, for example, the average price for regular gasoline in metro Orlando, Fla., started off at little more than $1 a gallon, only to climb by mid-April to $1.47 a gallon, according to OPIS. It then averaged about $1.40 through August as oil companies sought to capitalize on the usual upswing in summer vacationers hitting the road.

"Gasoline prices tend to go up as the summer approaches," said Bruce Cavella, an oil-industry analyst with Global Insight Inc. in Lexington, Mass. "There's more consumer demand as people go on vacations."

Even if gasoline prices fall by 10 cents or more a gallon in the next several weeks, they will likely head right back up again.

"We're looking at the $1.70-a-gallon range again," OPIS' Rozell said.

The U.S. average for regular gasoline dropped a half-cent to $1.71 Friday.

In addition to seasonal driving trends, refineries make adjustments each spring and fall to the gasoline mixtures they produce, which can lead to higher prices in some circumstances.

By May 1, for example, U.S. refineries must switch from winter-grade to summer-grade gasolines, depleting inventories and cleaning out pipelines, a process that can take two weeks or more.

Because the United States consumes more gasoline in the summer, it is important that the refineries overstock on oil ahead of time to compensate. But "refineries are expecting lower crude prices," said Williams, of WTRG Economics. "They don't want to get caught with overstock that's too expensive and have to sell it at a smaller profit margin."

And because refineries have been conservative in their purchasing strategies, inventories are already low, he said.

Should inventories fall below necessary levels, the U.S. government has reserves that could be used to relieve some of the pressure. The Department of Energy says nearly 600 million barrels of crude oil - about 7 percent more than a year ago - is currently stored in underground facilities as the nation's strategic petroleum reserve.

Nigeria, the world's eighth-largest oil exporter, is experiencing serious disruptions to its oil supplies amid ethnic warfare in the Niger Delta, where production equivalent to some 315,000 barrels a day has now been shut down.

Fighting between Ijaws and rival Itsekiri have claimed the lives of 10 soldiers and scores of civilians, prompting the deployment of thousands of soldiers and the evacuation of oil workers from threatened facilities.

In Venezuela, the world's fifth-largest oil exporter, a nationwide strike earlier this year sharply curtailed oil shipments that have yet to return to normal levels.

Although the Venezuelan government is trying to rebuild its oil industry, opposition to President Hugo Chavez is ongoing. The country is now exporting about 1.8 million barrels a day - a little more than half of what it was producing a year ago.

"In August - during the peak of our driving season - the Venezuelan constitution allows for a recall vote for Chavez's position," Williams said. "The probability for armed conflict goes up."

"Bottom line: As gas prices begin to drop, enjoy them," said OPIS' Rozell. "Prices may stay low in the short term but will likely increase."

<a href=www.heraldtribune.com>Gas prices are actually pretty good right now. It's been worse

The top 10 most expensive years to gas up and go (according to prices adjusted for inflation using the Bureau of Labor Statistics' Consumer Price Index):

Year Actual price Price in 2003 dollars

1981 $1.38 $2.47 1980 $1.24 $2.46 1982 $1.30 $2.19 1983 $1.24 $2.03 1979 $0.90 $2.03 1984 $1.21 $1.90 1949 $0.27 $1.88 1985 $1.20 $1.82 1950 $0.27 $1.81 1957 $0.31 $1.79

By LAUREN MAYK

Sound crazy? Not when you take inflation into consideration.

Most people don't walk around calculating the effect of the Consumer Price Index on the price of milk, eggs and gas in the good old days. But if they did, they would find that the cost of filling up at the pump pales in comparison to the painful prices of the early 1980s and late '50s.

The Herald-Tribune took a look at gas and oil prices over the last half-century to better understand why the prices of oil and motor gasoline have been rising over the past few months and what effect the U.S. attack on Iraq might have.

In 1981, a gallon of regular unleaded gasoline for the family station wagon cost an average of $1.38 -- the equivalent of a whopping $2.47 in 2003 dollars, if the Consumer Price Index used by the Bureau of Labor Statistics is applied to adjust for inflation.

Back in 1949, as the United States was revving up for the post-war boom and the golden age of the automobile, a gallon of leaded gasoline cost about 27 cents. But in today's dollars, that trip to the corner gas station cost about $1.88 per gallon.

So why aren't motorists grateful for the measly $1.71 they were paying last week?

"People don't look at that," said Yoli Buss, director of traffic safety for AAA Auto Club South. "If you tell them that, they get mad at you."

In addition to the fact that motorists generally don't consider inflation, their frustration can be blamed on the sluggish economy and the particularly steep curve of this price increase.

Retail gas prices jumped from less than $1.40 per gallon just before Thanksgiving 2002 to $1.70 by early March. The 20 percent jump was compounded by rising unemployment and uncertainty about military conflict with a country that produces millions of barrels of oil every day.

As the nation's second war with Iraq unfolded last week, retail gas prices generally held steady, edging up by a few cents at the beginning of the week and hovering at around $1.70 to $1.72 per gallon of regular unleaded.

Despite reports that Saddam Hussein was torching Iraqi oil fields, crude oil prices steadily declined, dropping below the $30 mark for the first time since mid-December, according to the Energy Information Administration.

Spot prices for crude oil from West Texas Intermediate -- a company often used as a benchmark for tracking oil prices -- sank from $37.87 on March 13 (the week before the first strike by U.S. forces) to $28.62 per barrel by the end of the day Thursday.

Lessons from the past

When it comes to the effects that war with Iraq could have on oil and gas prices, at least analysts have something to go on.

The buildup to the Persian Gulf War pushed up oil and gas prices to levels similar to what refiners and motorists were paying last week as the country prepared for another war with Iraq.

In the spring of 1990, a barrel of crude oil from West Texas Intermediate was selling for $16 to $18, according to the Energy Information Administration.

By the end of August, the month Saddam Hussein invaded Kuwait and President George Bush called up the first round of U.S. reserves, a barrel was going for almost $30. In mid-October, the price briefly topped $40.

"What markets don't like (is uncertainty)," said Stephen Gengaro, managing director and senior equity research analyst for the oil services industry at Jefferies & Co. "Uncertainty is bad."

Crude oil prices had been skyrocketing for months as the United Nations and the U.S. Congress debated the use of force in what would be the Gulf War, but when U.S. forces launched their first strike, the price of a barrel of crude settled back in the $20s.

"When we don't know, we kind of extrapolate the worst case scenario," Chapman said.

On Jan. 16, 1991, West Texas Intermediate was selling a barrel of crude for about $32 (the equivalent of about $43 today).

That night, after the markets closed, the air war in the Persian Gulf began. The next day, the cost of a barrel dropped more than $10 to about $21 (about $28 in today's dollars).

Oil prices stayed in the low $20s and high teens through the ground war and the rest of the year, nudging into the mid-$20s around the time Iraq created massive oil slicks in the Gulf.

But even as smoke was rising from Kuwaiti oil fields in February 1991, oil held steady, topping out around $23 a barrel (about $31 in 2003 dollars).

As it turns out, fear is a greater motivating factor than war itself. Fear of a shortage of oil, and its refined products, drives up prices.

"It happens before," Buss, the AAA official, said about the tendency for prices to spike before military action. "After the fact, they find there is oil available and gas prices go down."

By early 1992, after the Gulf War, prices at the pump were hovering back around $1 -- about $1.30 in today's prices.

The length of the current war, as well as whether the United States could become a battleground, is the wild card this time.

Military conflict in the Middle East won't necessarily mean an automatic respite from the money Americans are shelling out to fill up. A quick resolution to the war and disarmament of Saddam could push prices down, but an extended battle could add to the uncertainty and the total charge at the pump.

Are we ready?

In 1990, the United States imported about 5.9 million barrels of crude oil per day. By 2002, it was taking in about 9 million barrels per day, according to the Energy Information Administration.

Imports represented about 42.8 percent of U.S. oil consumption in 1990, compared to 52.8 percent last year.

"The U.S. dependency on foreign oil is rising, not falling," Gengaro said.

Import ratios have changed, too.

Over the past decade, the country decreased its dependence on oil from Saudi Arabia and stepped up its reliance on imports from Mexico, Canada and Venezuela.

In 1990, the United States bought about 514,000 barrels of oil each day from Iraq, about 8.7 percent of its total imports. By 2002, that figure was only 4.9 percent, or 442,000 barrels.

But analysts are quick to point out that where the United States gets its oil doesn't have as much bearing on retail gas prices as the amount of oil available.

Because oil prices are determined based on worldwide availability and demand, a crisis in a country that supplies only a small amount of U.S. oil imports could have the same impact as an oil shortage in Saudi Arabia, where the United States gets about 20 percent of its foreign oil.

When a strike in Venezuela cut oil production in the South American country this winter, prices in the United States, which gets about 13 percent of its imports from Venezuela, went up.

It's difficult to define exactly how much the events in Venezuela influenced the price increase in the United States because the strike coincided with war fears and Hurricane Lili, which complicated the transport of oil in the Gulf of Mexico.

But the industry is still suffering from the hole the strike left in oil reserves.

"You're not talking about a whole lot of wiggle room," Gengaro said. "It's tight right now."

That could be bad news for pocketbooks and supplies if a war with Iraq slows production in the Middle East, as it did during the Gulf War.

With only the Gulf War as a reference point, refiners have made some business decisions that could come back to haunt them and their customers if the 2003 conflict lasts longer than the five-week 1991 incursion, analysts say.

Because the Gulf War was a "blowout," many refiners and industry insiders assume this war will be, too, said Richard DeKaser, chief economist at National City Corp.

"Those very expectations led to a different course of events," DeKaser said. "Because they thought it would be brief, they really didn't take proactive measures to beef up inventories."

When it came to feeding those reserves, buyers figured why purchase a barrel of oil for $30 or $35 today when you could buy it, presumably, for $20 to $25 later?

So unlike after the Gulf War, this time when prices do go down they may sink slowly.

"They will not fall like a stone," DeKaser said.

Economist doesn't see much relief in future Published Sunday, March 23, 2003 Last modified at 12:45 a.m. on Sunday, March 23, 2003 By Robert Pore rpore@theindependent.com

With the nation at war and gasoline prices significantly higher than a year ago, an agricultural economist at the University of Nebraska-Lincoln doesn't see much relief from higher fuel costs in the near future.

Among those dealing with the increased fuel prices are the state's farmers and ranchers, many of whom are already reeling from the effects of drought and low commodity prices.

UNL ag economist Roy Frederick said the national average for regular gasoline prices reached a record high of $1.73 per gallon in mid-March. Prices are about 40 percent higher than last year at this time, he said.

Although gas prices have dropped a few cents in the state in the past week, prices in most Nebraska markets remain higher than a month ago and a year ago.

AAA Nebraska's Daily Fuel Gauge Report showed Grand Island prices for regular gas averaging $1.67 per gallon on Friday, compared to $1.65 last month and $1.39 a year ago.

Frederick said many factors have contributed to recent price hikes, including a petroleum workers' strike in Venezuela, the war in Iraq and operating problems at some U.S. refineries.

"More fundamentally, we must acknowledge our ever-growing dependence on foreign oil," he said.

Frederick said the U.S. Energy Information Administration recently estimated this year's domestic demand at just more than 20 million barrels per day. Of this total, less than 6 million barrels are expected to come from domestic production.

"Never before has the gap between usage and production been so wide," he said.

By comparison, Frederick said worldwide petroleum demand this year is estimated at 77 million barrels per day. He said the United States, a country with 4 percent of the world's population, accounts for 26 percent of the worldwide petroleum market.

"Even a 10-percent disruption in supplies probably would cause gasoline and other energy prices to spurt much higher," he said.

Frederick said the Organization of Petroleum Exporting Countries, led by Saudi Arabia, produces about a third of the world's oil.

"OPEC is promising to make up any lost production from Iraq and Kuwait," he said. "And in recent days, Saudi Arabia has ramped up production with that thought in mind."

But for American consumers, ags occur from production to filling a vehicle's gas tank, Frederick said.

"For one thing, it takes at least a month for an oil tanker to make the trek from the Middle East to the U.S. Gulf Coast," he said. "Figure on another month to move imported oil through refineries and distribution systems. This suggests that it will be late May before gasoline shortages begin to ease."

Higher fuel costs are hurting Nebraska farmers and ranchers, who have struggled during recent years with drought and low commodity prices.

This spring, Nebraska corn farmers will invest more than $2 billion in the upfront cost of putting the 2003 corn crop in the ground, according to the Nebraska Corn Board.

Unfortunately, said Don Hutchens, Nebraska Corn Board executive director, fertilizer and fuel costs have skyrocketed at the worst possible time, which may cause more economic hardship for farmers.

He said anhydrous ammonia fertilizer, used on most crops, is produced using natural gas as a feedstock, which has increased by 50 percent since last fall. Hutchens said anhydrous ammonia is not only in short supply but also costs farmers 25 percent to 35 percent more than it did in November 2002.

The other primary input cost for farmers is fuel. Gasoline prices have increased nearly 25 percent, diesel 30 to 35 percent and propane 43 percent from last fall's prices, according to surveys taken by the Nebraska Corn Board.

"Unfortunately, farmers do not have the ability to pass these increased costs on to consumers, and consumers in the U.S. are the cheapest-fed population in the world," Hutchens said.

Frederick said that, if the war in Iraq doesn't go well for the United States, energy costs will be a problem.

"We are increasingly dependent on others, and when we are, we have to expect these spikes to occur from time to time," he said. "If the solution is not petroleum or oil, maybe it is ethanol. But we have to recognize that, when we are that dependent on others, we are going to have some problems."

Oil and gas production By Julie Breaux Odessa American

Despite a scarcity of rationed materials, limited pipeline capacity and a dearth of seasoned workers, Texas and the Permian Basin supplied about 2 million barrels of crude oil a day — about a fourth of total global production — at the height of World War II. Today, even with the spigots wide open, the state and region produce slightly less than 1 million barrels of crude each day. By comparison, Saudi Arabia’s daily production is roughly 9 million barrels. Does that mean, then, that the industry’s efforts here are less significant now than they were in 1944-45? Absolutely not, says Bob Trentham, a geologist and director of energy research at the Center for Energy and Economic Diversification in Midland. “We’re important not because we can increase production in the short-term, because we can’t,” Trentham said. “However, we are a stable, local source of hydrocarbons. We don’t have to depend on shipping overseas, unstable governments, OPEC price wars. We don’t have to depend on any of those things for our oil.” Kirk Edwards, a petroleum engineer and president of MacLondon Royalty Co. of Odessa, has been involved in oil and gas production in West Texas since the 1980s. Edwards said the age of the Permian Basin may be one of its greatest assets, especially in these tense and troubling times. “The great thing about West Texas production is we are a mature province, which means we have a very consistent supply. We’re kind of like the tortoise to the hare. We may be not fast but we keep on keeping on.” In 1944-45, producers put 2.3 million barrels of Permian Basin crude on the market each day, an increase of about 1 million barrels in 1941-42, according to Texas Railroad Commission records. “The only area that contributed more oil to the war effort was the giant East Texas field,” said Roger Olien, the author of numerous books on the history of Texas’ oil and gas industry and University of Texas of the Permian Basin history professor. “Our major problem as far as doing more was limited pipeline capacity out here and a critical shortage of materials, like tubular goods.” Production was also hampered by federal regulations that dictated the distance allowed between wells, Olien said. And WWII siphoned off experienced workers who enlisted in the war, leaving the inexperienced young or the experienced old — the semi-retired or retired — to fill the void, he said. “They made good workers,” Olien said. “But they weren’t nearly as effective as the usual roughnecks and roustabouts.” Since then, the vast Permian Basin reservoir has been steadily declining, from a peak of about 1.3 million barrels of oil per day in 1971-72 to about 800,000 today. Still, this region of Texas is home to the largest collection of producing reservoirs in the Lower 48, Olien said. And even though the industry’s workforce isn’t what it was in the 1940s — the 1998-98 price crash forced thousands of veteran personnel into other fields of work — West Texas is a hub for some of the most innovative thinking regarding all phases of energy production, he said. Olien calls it “shop-floor technology.” “The only thing you an count on in the oil industry is kind of a continuous forward roll of next-step technology,” Olien said. “No giant leaps. But the contractors in the industry and the equipment suppliers, just left to their own devices, will make improvements in what they do, and it makes it a very dynamic industry. The technology is always alive.” Roll all those factors in with the increasing potential for serious disruptions in supply — whether on order of a despot or by virtue of some production, refining or distribution hiccup that sends energy prices soaring — this oil-and-gas producing region of the world matters a great deal right now, says Bill Patterson, ConocoPhillips’ manager of operations in the Permian Basin and New Mexico. “I think the deal is the Permian Basin is a very good, secure source of energy for both oil and gas for the entire United States,” Patterson said. “And it becomes even more significant if there are disruptions internationally.” While production has been dropping steadily since the early ‘70s, there is still a “tremendous amount” of oil left in West Texas, Edwards said. “But it’s harder and more expensive to find.” Even more oil could be tapped through various enhanced recovery methods, including infill drilling, which drains an oilfield faster than it otherwise could be by adding more wells within existing production, Edwards said. Trentham had no estimate of how much more the Permian Basin has to give but said only 20 to 25 percent has been produced since the Santa Rita No. 1 came in on May 29, 1923, proving the region had oil. Trentham said the amount of oil that could be produced depends on the free market. In other words, there might not be much $20 oil left in the ground but plenty of $40 oil. “We’ll never get all of it, but another 10 percent would be a tremendous amount of oil. We’re talking billions of barrels.” Jim Henry thinks the world will need some of those billions of barrels sooner than later. Henry, chairman and chief executive of the independent oil company Henry Petroleum of Midland, said he didn’t doubt the major oil-producing nations can compensate for any short-term supply disruptions related to the Iraqi war and to the petroleum workers strike in Venezuela that cut production to about 1.5 million barrels per day. Iraq was producing about 2.3 million barrels a day, of which 1.3 million was marked for export to the United States. But Iraqi exports ceased in advance of the U.S. invasion, Henry said. Add to that the fact that crude oil inventories are at record lows, and Henry is concerned about a possible 1.5 million-barrel deficit this fall, when demand will begin to rise. If the world’s producing nations aren’t able to make up that deficit by then, Henry foresees trouble. “We’re producing flat out because of the reduction in production in Iraq and Venezuela, and it’ll take a while to get that production up again,” Henry said. Even if Iraq President Saddam Hussein were to destroy all the country’s oil wells, Saudi Arabia could make up for the production loss, Henry said. “But what you’re’ going to see come fall, when we need that extra storage, it’s not going to be there,” Henry said. “Then you’ll see some problems.” And, as is the case in Texas, crude oil production in Saudi Arabia is nearing its peak, he said.

U.S.: Oil Output 'Consistent and Steady'

Fri March 21, 2003 11:44 AM ET

WASHINGTON (Reuters) - U.S. Energy Secretary Spencer Abraham said Friday that world oil production is "consistent and steady" as U.S. and U.K. forces invaded Iraq, based on analysis from the Energy Information Administration.

Abraham cited data from the Energy Department's statistical agency that showed OPEC oil production totaled 26.5 million barrels per day as of Thursday, slightly lower than the November 2002 figure of 26.9 million barrels per day.

"This despite losing all production from Iraq and also incurring other production losses from Venezuela and Nigeria," Abraham said in a statement.

OPEC production began to decline after November, when a workers strike in cartel-member Venezuela disrupted that country's oil output and exports.

The Bush administration has said it believes world oil supplies are adequate to meet demand, especially with promises from OPEC-member Saudi Arabia and other major oil producers to increase output to make up the lost crude oil exports from Iraq.

Iraq was exporting about 1.7 million barrels of oil a day before the U.S. and British attack began.

"Working with International Energy Agency partners, we continue to monitor global oil market conditions. We appreciate the continued commitment by oil producing countries to ensure stability in the world oil markets," Abraham said.

EIA estimated that there was between 900,000 and 1.4 million barrels per day in total unused world oil production capacity, with most of that in Saudi Arabia.

About 30 oil wells in southern Iraq have been set on fire, according to British military officials.

Iraq was the seventh largest foreign oil supplier to the United States last year, shipping an average 440,000 barrels per day.