www.denverpost.com By Steve Raabe Denver Post Business Writer Friday, March 21, 2003

Forget the "war premium."

Oil prices fell Thursday for the sixth consecutive day, despite the outbreak of war in Iraq.

Energy analysts had coined the war-premium phrase to describe a run-up in oil and gasoline prices since the start of the year, when conflict with Iraq began to seem likely.

But crude oil fell to a three- month low Thursday on market perceptions that the war won't have a big impact on petroleum supplies.

Crude for April delivery fell $1.27, or 4.3 percent, to $28.61 a barrel on the New York Mercantile Exchange, the lowest closing price since Dec. 13.

"We may be looking at some relatively stable prices," said Marc Smith, executive director of the Denver-based Independent Petroleum Association of Mountain States. "The marketplace believes that there are going to be steady supplies of oil."

That bodes well for consumers, analysts said, although it will take weeks for falling oil prices to show up at gasoline pumps.

The price swing parallels a similar shift that occurred during the first Gulf War.

After Iraq invaded Kuwait in August 1990, crude prices reached all-time highs of nearly $41 a barrel, with gasoline prices rising to a then-record national average of $1.35 a gallon.

But on Jan. 16, 1991, the first day of American air attacks on Iraqi targets, oil fell $10 a barrel, a record 33 percent one-day decline.

While crude oil prices are volatile and hard to predict, some analysts see further price declines.

"Part of the war premium is coming off, and I believe there is still more of the premium that could come off," said Peter Mueller, senior director in Denver of the R.W. Beck Oil and Gas Group. "I think we'll see downward pressure on oil prices and associated downward pressure on natural gas."

Thursday's trading in oil markets was volatile, first rising on reports that Iraq had begun torching oil wells.

But prices fell later in the day after reports that damage so far was limited to just a handful of wells in southern Iraq. Iraq has nearly 1,700 wells.

The National Oceanic and Atmospheric Administration said its polar-orbiting satellites recorded images of smoke plumes that appeared to confirm reports of oil fires.

U.S. government officials have speculated for weeks that Iraq is placing explosives on oil wells, as it did in Kuwait before blowing up 700 wellheads during the first Gulf War.

Several oil-field firms that specialize in extinguishing well fires are preparing to send crews to Iraq.

Yet even if all Iraqi oil production stops, as most industry experts expect, the Organization of Petroleum Exporting Countries has said it will increase oil pumping to make up the deficit.

Until recently, analysts had been skeptical of OPEC's ability to make up for Iraqi production because of lingering supply deficits from the recent oil strike in Venezuela.

But Venezuelan exports have increased in the past month, leaving more of a supply cushion to cover Iraqi shortfalls.

Oil prices also could ease because warmer weather will reduce demand for heating oil, a crude-oil byproduct used for home heating by millions of households in the eastern United States.

Energy economist John Falmy of the Washington-based American Petroleum Institute said an $8 decline in crude oil prices over the past week should translate into a 19-cent-a-gallon decrease in retail gasoline prices.

But the price drop won't be seen until imported crude makes its way from overseas producers to the U.S., and then through refining and distribution channels.

"It may take about five weeks to see it at the pump," Falmy said.

news.mysanantonio.com By Elizabeth Allen Express-News Business Writer Web Posted : 03/21/2003 12:00 AM   Oil prices fluctuated on the first day of the U.S. war on Iraq after dropping sharply on the eve of the conflict.

The price may drop further based on an optimistic view of a short conflict, industry experts said, but consumers aren't likely to see lower prices at the pump for some time.

"I don't think there's going to be any need for people to wait in line to buy gasoline any time soon," said Tod Bryant, spokesman for the Interstate Oil and Gas Compact Commission, a trade group that represents the major oil-producing states. "I expect prices to stay the same or go a little higher for the next couple of months."

Bryant noted the return of Venezuelan crude to the market after a general strike will help keep gas prices stable.

Thursday's crude price volatility was partly due to reports that some Iraqi wells were on fire in the southern part of the country, but reports of the damage have been mixed and most people are waiting to see if further sabotage occurs.

Crude oil for April delivery fell $1.27 to $28.61 a barrel on the New York Mercantile Exchange, the lowest level since Dec. 13, as the industry moves out of one waiting stage and into another.

"People are happy to see that something is happening and some of this uncertainty is being removed," said Jacques Rousseau of Virginia-based Friedman, Billings, Ramsey & Co.

"The next stage is, what will happen with these oil wells," he said, "and are they able to damage anybody else's oil production?"

Rousseau said it's too soon to predict whether gas prices would rise in the next few months, but he said he wouldn't be surprised if they go higher.

"Oil prices are OK now, but next week is it going to shoot back up because Iraqi fields are burning?" Rousseau said, adding that U.S. crude oil inventories are still very low.

Other analysts have noted that a lot of oil is in tankers headed for refiners, and that should help bring up the inventories.

In a worst-case scenario, the United States and other countries have strategic petroleum reserves, but Rousseau said it's difficult to predict what would cause the United States to tap its own, since that didn't happen during the Venezuelan strike.

OPEC officials have given assurances that they will not let the oil supply or price get too disrupted.

"They have essentially the control on the faucet," said Colm McDermott of energy research and consulting firm John S. Herold Inc. in Connecticut. "They are the swing producer that can make up for that shortfall."

The U.S. attack on Iraq is also well-timed to reduce its effect on the market, Rousseau said.

The second quarter is seasonally the weakest for crude oil demand, which drops by about 2 million barrels a day.

"Quite coincidentally, that's how much Iraq exports out onto the market," he said.

Iraq normally produces between 2.5 million and 3 million barrels of oil per day, about 3 percent of the 77 million barrels of the world's daily consumption.

The United Nations suspended the oil-for-food program that allowed companies to buy Iraqi oil earlier this week, although some Iraqi oil reportedly still is flowing through a pipeline to Turkey.

The companies that were buying through the program have been able to turn elsewhere, said Mary Rose Brown, spokeswoman for San Antonio-based refiner Valero Energy Corp., particularly since Venezuelan production has come back up after a strike.

"We buy crude everywhere — Mexico, Latin America, Canada, Venezuela," she said.

Valero had been a major buyer and became Iraq's biggest crude customer in January, importing 124,000 barrels per day, after Exxon Mobil and Chevron Texaco stopped buying from that country.

It remained a small part of the refiner's overall purchases, Brown said.

She also noted that "one of the companies that said they weren't going to buy from Iraq bought part of the last cargo from us," but declined to name the company.

eallen@express-news.net 03/21/2003

www.ktre.com 03/20/03 - East Texas Story By Wade Cameron

Gas prices have soared for months, causing many Americans to cut down on their travel. It has also forced people to spend less elsewhere to offset the price hikes, but with the advancement of military action on Iraq, oil prices have begun to soften. This is a trend many in the oil business hope will continue.

"We're in hopes that this will be quick and that President Bush is able to stick with his projections so hopefully gas prices will recover quicker than they did after the Gulf War," said Carl Ray Polk, Jr. of Polk Oil Company, Inc.

The tension leading up to war with Iraq isn't the only thing that has held oil prices up. A labor strike in Venezuela has also hurt us here in the US.

"Most people don't realize that most of the oil refined on the Gulf Coast is from Venezuela," said Polk. "So that's had a tremendous impact on us."

Polk says if the war ends quickly, it could have an impact on gas prices as quickly as four to six weeks after the war ends, but he says it's tough to say how much relief that could offer.

"It's literally like looking in a crystal ball or predicting the stock market. We have done everything that we can do for the customer to make it less painful on them. We don't like these price increases anymore than they do," said Polk.

For now, he will watch and wait with the rest of the world to see what impact the war will actually have.

www.starnewspapers.com Thursday, March 20, 2003 By Jim Pecora

Fuel prices that have been climbing for months eased and even fell slightly as the first U.S. strikes against Iraq were launched.

In a survey taken this morning for AAA Chicago, the average price for a gallon of unleaded regular gasoline in Illinois was about $1.72, down 0.5 cent from Wednesday. The diesel average was about $1.84, also down a half-cent.

The Chicago area average price Thursday morning was about $1.78 for unleaded regular, down 0.4 cent from Wednesday.

Diesel in the metropolitan area was averaging about $1.89, down 0.5 cent from the previous day and 3.6 cents below the area's diesel record, which was set March 12.

AAA Chicago reported March 12 that the price of a gallon of unleaded regular gas had reached almost $1.84 in the Cook County area, up 13.8 cents from February.

The average Will County price was about $1.63 a gallon, one penny higher than the average price in northern Indiana.

But that price climb lasted only a few more days, and began to decline Wednesday.

The decline followed a plunge in crude oil prices on international markets.

Experts said traders appeared convinced the United States was going into a short and successful war with Iraq. The slide came within weeks of crude oil prices approaching record levels.

AAA Chicago spokesman Steve Nolan said today that the slight decline in prices at the pump is because "crude oil prices dropped significantly."

"I think a lot of this is due to the industry's response to what's happening in Iraq and in anticipation that it will be a short war.

Also, there is the idea that the United States will release some oil from its strategic oil reserves.

"If it's a long war, then all bets are off as to where (the prices) are going," he said.

The conflict is beginning at a time when gasoline prices traditionally rise, as refiners convert to production of reformulated gasoline for the summer driving season.

At the same time, diesel fuel prices, which had been setting daily records, also began falling, with the today's average price in Illinois at about $1.85, down a half-cent from the previous day and 2.7 cents down from the record set March 14.

"It's killing us," Don Skafgaard, operations manager at Leoni Motor Express, said of diesel fuel prices. "It's not just companies like us; it's doing it to everybody, all the trucking companies."

He said the Chicago Heights trucking firm, which runs about 50 trucks in a 250-mile radius around Chicago, was spending about $900 more per month to run each of the trucks.

"I do run (some) owner/operators, and it's taking food right off their tables," Skafgaard said. "These guys who run for me, they work really, really hard, and the fuel's killing them."

Nolan said the situation will worsen if the war drags into the spring because of the annual shift to reformulated gasoline.

"If there's no quick resolution, and we switch over to reformulated gasoline, the prices could be even higher," Nolan said.

The record high average price for a gallon of self-serve unleaded regular in Illinois is $2.01. It was set June 20, 2000.

The average prices for a gallon of self-serve unleaded regular was $1.20 in August 1990, when Iraq invaded Kuwait. The price leaped to an average of $1.34 a gallon in September, $1.44 in October, $1.50 in November and $1.51 in December before beginning to decline.

The price began falling back in January 1991, when the United States and its allies began launching attacks against Iraqi targets in Kuwait and Iraq itself. The ground attack began Feb. 24 and the war effectively ended within days.

The average gasoline price was down to $1.39 in January 1991, $1.31 in February and back at $1.20 in March.

Bill Fleischli, executive vice president of the Illinois Petroleum Marketing Association, cited three reasons for the escalating fuel prices going into the war.

"There are three reasons," he said, "the war situation; cold weather in the southeastern part of the country, so more crude oil goes to heating oil than gasoline, and third, Venezuela, the fifth-leading oil producer, had been hit with that strike or uprising in mid-December.

"At the same time, crude oil stockpiles were at the lowest level since 1975. There are shortages there now. Crude oil prices have been going up, and gasoline has been going up."

An unusually severe winter with major snowstorms has been pounding the eastern United States, boosting demand for home heating oil.

The record price for a barrel of crude oil hit $41.15 a barrel in October 1990, after Iraqi forces swept through Kuwait.

Fleischli noted that the recent surge in prices came even as Saudi Arabia was increasing production "to try to help for the Venezuelan situation." He said there also had been a strike in Nigeria, the ninth-leading producer.

Also in February, fire erupted at the huge BP refinery just across the border in Indiana. The BP facility is the third-largest oil refinery in the United States, Fleischli said, and it provides a lot of fuel for the Midwest, which was experiencing among the highest gasoline and diesel fuel prices in the country before the war started.

abclocal.go.com

March 20, 2003 — Gasoline prices in Illinois have leveled off after rising sharply over the winter on fears of a U.S. attack on Iraq, according to AAA Chicago Motor Club. War has come, and despite the high prices, motorists continued to fill up Thursday, with some saying they will not stop using their cars no matter how high gasoline prices rise.

"Like food, you have to pay for it," said CPA Russ Cook as he pumped gasoline at a Loop service station where regular unleaded gasoline cost $1.94 a gallon. "No matter how high gasoline prices go, it won't stop (my) driving."

Statewide, the price of regular unleaded gasoline averaged $1.74 a gallon, about 48 cents higher than last March, said Steve Nolan, spokesman for the AAA-Chicago Motor Club. The average nationwide is $1.71 a gallon.

Gasoline prices across Illinois varied widely, with regular unleaded averaging $1.78 a gallon in Chicago, $1.59 a gallon in East St. Louis, and $1.62 a gallon in Springfield, according to a survey by AAA-Chicago.

Prices in Illinois have been high all winter due to fears of war and because of the cutoff of crude oil production in Venezuela.

On Wednesday, U.S. and British forces began bombing Iraqi positions ahead of the movement of ground forces into Iraq.

"There is no sign of panic buying by consumers or panic selling by dealers," Nolan said.

The AAA and the petroleum industry issued a joint statement Thursday saying the nation's oil and natural gas industry is working hard to ensure supplies of fuel will continue uninterrupted. The statement said gasoline and diesel fuel inventories are adequate to meet normal demand and refinery production remains strong.

"Hopefully, the statement would put people at ease," said Nolan.

The Organization of Petroleum Exporting Countries sought to calm oil markets by announcing its members will maximize output to make up for any disruption in crude exports from Iraq.

Eugene Frimpong, a pharmacy student from Ghana, and a taxi driver for five years, says current gasoline prices are hurting his bottom line.

Frimpong also said due to the economic slowdown, he has to work real hard to find customers in the Loop, and a decline in travel has slowed business at Chicago's O'Hare International Airport.