www.twincities.com Posted on Tue, Mar. 11, 2003 BY MARTIN J. MOYLAN Pioneer Press

You may wince as you fill up your car with pricier and pricier gas. But when you're buying more than a billion gallons of fuel a month, as Northwest Airlines and the nation's other carriers do, every penny increase is particularly painful.

Each 1-cent hike in the price of jet fuel costs airlines an average $180 million a year, estimates the Air Transport Association, the industry's leading trade association.

And jet fuel is about twice as expensive as it was a year ago, nudging to $1.30 a gallon this month, the ATA reports.

The industry has not seen such a price increase since the Gulf War buildup in the fall of 1990. But the nation's airlines, which lost more than $10 billion last year, are much weaker than they were then, ATA CEO James May told the Senate Committee on Energy and Natural Resources last month.

"The current fuel price increase is taking place against a backdrop of economic chaos in the airline industry," May said. "There is no cash cushion, no borrowing capacity and no apparent relief in sight."

To reduce the impact of rising fuel costs, airlines use futures contracts and other financial hedges to stabilize their fuel costs. Some airlines, including Southwest and Eagan-based Northwest, are extensively hedged — that is, insured — against fuel price shocks. Others are unprotected.

Northwest has 100 percent of its fuel needs for the current quarter hedged so that it should get jet fuel at 81 to 83 cents a gallon, well below the current spot market price.

For the year, Southwest has 83 percent of its fuel needs hedged, according to a Credit Suisse First Boston report issued last month. Northwest has 70 percent of its fuel needs hedged for all of 2003; Delta, 50 percent; American, 32 percent; Continental, 24 percent; and United and US Airways are not hedged at all, the investment banking firm says.

United's lack of hedges likely will cost the nation's second-largest airline more than $100 million in added fuel costs during the current quarter alone, UBS Warburg analyst Samuel Buttrick told the Wall Street Journal Monday.

Northwest would not discuss its fuel hedging Monday. But in its fourth-quarter earnings call in January, chief financial officer Bernard Han said NWA had a $59 million benefit from its hedges in 2002. During the earnings call, Han also said that NWA's hedges then figured put it about $80 million ahead for 2003.

Fuel is the second-largest expense for airlines after labor. Aviation fuel price increases, largely arising from chaos in Venezuela and worries about a Middle East war, will likely cost airlines several billion dollars this year, said David Swierenga, ATA's chief economist.

Hedging is a tricky and expensive business and can't totally insulate airlines from higher fuel prices, Swierenga said. If an airline guesses wrong about the direction of fuel prices, it can lose a load of money.

Late last month, Northwest, Continental, American and other airlines raised fares $10 in each direction on many routes, citing rising fuel costs.

To reduce the so-called "war premium" currently hanging over oil markets, the ATA is pressing Washington to release at least 1 million barrels per day from the nation's Strategic Petroleum Reserve.

The ATA also supports repeal of a 4.3 cent-per-gallon jet fuel tax adopted in 1993. That would save the airlines about $600 million annually.

Martin J. Moylan covers airlines and can be reached at mmoylan@pioneerpress.com or (651) 228-5479.

www.pantagraph.com Tuesday, March 11, 2003

There should be absolutely no leniency if Central Illinois natural gas or gasoline producers/suppliers/dealers are taking advantage of the threat of a war in Iraq to gouge customers.

And there should be no delay in the Illinois attorney general's office or the Federal Trade Commission to investigate.

Perhaps it is difficult for the public to believe the market is to blame only because that was the ruse used to artificially boost gasoline prices on Sept. 11, 2001. There were 20 companies that wound up making cash settlements in lieu of criminal proceedings by then-Illinois Attorney General Jim Ryan's office over that deal.

Because gasoline price gouging was proven then, it lends credence to beliefs that price gouging may be happening now -- albeit at a much-reduced level than was seen 1 1/2 years ago. The average price of gasoline in the Twin Cities has been hovering at $1.70 per gallon. Back then, gasoline in the Bloomington-Normal area topped $2 per gallon. In the western part of Illinois, gasoline was selling for up to $4 per gallon.

We haven't heard a major roar yet over natural gas bills in Central Illinois, but news releases from the suppliers warning of price hikes usually precede the sticker shock. And the news has gone out in recent days. The companies selling directly to consumers are heavily regulated on what they can charge, but not their producers.

U.S. Rep. Ray LaHood, R-Peoria, has joined a growing number of legislators and attorneys general asking the FTC to investigate. LaHood has been careful not to accuse anyone of taking advantage of war-talk to price gouge. But he is a wily politician who knows that when his constituents begin complaining about the high price of gasoline, he needs to show that he is listening and responding.

Unfortunately, the FTC has done nothing but issue stern warnings when this issue has surfaced in the past, so we don't expect different results this time. Instead of wading into the fray, Illinois Attorney General Lisa Madigan's office is yielding to the FTC. We're not surprised.

We're not sure the public would fully accept the results of an investigation that said the price increases are legitimate because of low crude oil reserves; the problems with the government in Venezuela, which is a major producer of U.S. crude oil; and the threat of war in the Mideast, the major source of crude oil throughout the world.

However, the reasons may be legitimate this time around. The public needs reassurance if that is the case.

Even if Madigan's office and the FTC investigate, the findings will take months. If it goes as usual, prices will have dropped by then and the clamor of the public for some scalps will fade away. The damage to family finances, especially the low income and those on fixed income, will have been done. Politicians will have done their job by asking for help.

We would love to see the FTC and Madigan's office prove us wrong with some quick, thorough investigations.

www.freep.com March 11, 2003 JOCELYN PARKER DETROIT FREE PRESS BUSINESS WRITER

Although crude-oil prices are expected to fall once the Iraqi crisis is over, low supplies of gasoline could keep prices high at the pump for at least the next few months, says the head of oil producer ConocoPhillips.

During a news briefing Monday in Detroit, chairman Archie Dunham said a cold winter across the nation has caused refiners to increase production of heating oil, and that has led to a significant decrease in gasoline production.

For consumers that translates into higher prices for gasoline as the nation enters the summer driving season. Compounding the problem: Refiners switch to a less-polluting grade of gasoline for the summer, which adds about 4 more cents per gallon, experts say.

"I expect the price of gas will stay at the current level or go higher for the next 60 to 90 days," Dunham said before delivering a speech before the Detroit Economic Club.

He declined to give a specific target for gas prices.

Meanwhile, crude oil prices could sink to $25 to $30 a barrel once the war situation is resolved, Dunham said. The possible conflict with Iraq and a strike that has crippled Venezuela's oil industry have pushed crude-oil prices near $40 a 42-gallon barrel, the highest they have been in more than two years.

Dunham says that price is unjustified because world supplies are plentiful. "There's no reason for oil prices to remain at $40 a barrel, given the excess capacity." He estimates the excess supply could range from 3.5 million to 5 million barrels a day.

Because crude oil can make up more than 50 percent of the price of a gallon of gasoline, drivers across the nation feel the pinch.

"It almost makes you want to park your vehicle and carpool," said Detroit resident Richard Perdue, as he filled his Ford Explorer sport-utility vehicle at a Marathon station on East Jefferson in Detroit. "I hear gas will hit $2. And $2 and an SUV don't mix."

In Michigan, gas prices remain at their highest levels of the year. The average price of a gallon of self-serve regular stands at $1.76 a gallon, unchanged from last week and up 50.2 cents from a year ago, according to AAA Michigan's weekly survey of 300 service stations.

The average price in the Detroit area is $1.72 a gallon, up 1 cent from last week and up 47.4 cents from a year ago, AAA said.

Higher crude prices could also result in a potential windfall for large oil companies such as Exxon Mobil Corp., Royal Dutch Shell and ConocoPhillips. And some observers question whether that's fair to consumers paying hefty prices at the pump.

"When there's a substantial change in prices, there's more of an opportunity for gouging," says Joan Claybrook, president of consumer advocacy group Public Citizen. "Prices are going to go up even more."

Claybrook says the gas price problem could be resolved if the nation tapped into its Strategic Petroleum Reserve, which is generally used during emergencies. The organization has also asked President George W. Bush to cap gas prices at $2 a gallon.

Other experts say the Organization of Petroleum Exporting Countries will increase oil production, and that could ultimately lower gasoline prices.

Contact JOCELYN PARKER at 313-222-5391 or at parker@freepress.com. The Associated Press contributed to this report.

www.gomemphis.com By Jane Roberts robertsj@gomemphis.com March 11, 2003

At Bob McVay's Amoco at Union and Cooper, customers grumble all day long about the price of gasoline, said Patricia Adair, cashier. They read the increases like tea leaves, looking for a sign that the war in Iraq is about to start.

"If it goes up again even higher, they say that's when the war will start," she said.

Nothing teaches her more about her customers' politics than rising gas prices.

She's learned a lot in three months because prices at the pump are up for the 13th time in 12 weeks, hitting a 21-month high of $1.712 per gallon on Monday.

In the Mid-South, the average price for regular self-serve is $1.69 a gallon. Premium grades are going for $1.86.

At McVay's Amoco, regular was $1.60 on Monday.

Gasoline has not been this expensive since mid-May 2001, when the national average was a tenth of a cent a gallon more, according to the U.S. Department of Energy.

But then there was no threat of war.

Consumers finding themselves in this situation now likely haven't likely felt this uneasy since the days of rationing in the 1970s. Not only are inventories down due to a long winter in the Northeast, the price was up even before the cold and snow because of unrest in Venezuela, the world's fourth-largest exporter of crude oil.

U.S. crude oil inventories are at a 27-year low, and crude prices last week reached a 12-year high, which bodes continued price increases as the peak summer driving season approaches.

The Energy Department predicted U.S. retail prices will rise to a record average of $1.76 a gallon in April.

Archie Dunham, chairman of ConocoPhillips, which has the largest U.S. oil-refining business, said low gasoline supplies will keep pump prices high during the peak demand period.

"There will be a shortage of gasoline in the summer driving season," he said Monday.

Across the nation, the average price for regular gasoline is already up 48.9 cents from this time a year ago, a fact not lost on Charlie Yonkers, who drives as an independent contractor for Yellow Cab.

"I was paying about $20 a day for gas several months ago. Now, I'm paying about $30," he said.

Yonkers has no recourse but to work harder because fare limits are set by the city. He skips lunch and breaks some days to fill the gaps.

"If I stay busy and go as quickly as I can, that is going to take care of the gas situation," he says philosophically. "I've had to pick it up some."

There have been other hard times in his 11 years as a full-time cab driver, but this feels different. He's now routinely paying $1.53 to $1.61 for regular gasoline.

Hamilton Smythe IV, president of Premier Transportation, is eating a lot of fuel expense to keep from raising rates for his limousine and charter bus customers.

"The cost of fuel on average has gone up 25-30 percent, which is a significant factor. At this point, we are absorbing the increases, and it is tough," especially on airport runs from the hotels out east because they include a lot of deadhead mileage, he said.

If he has to raise prices, he'll start there.

"On our long-term contracts, I'm not comfortable going back now and raising the price. We gave them a price, and we're going to honor it. If someone new calls tomorrow, we may quote a higher price."

Smythe is also president of Checker Cab and Yellow Cab.

Domino's Pizza is still charging $1 for delivery, said Bekki Gentry, manager at the Union Avenue store. The drivers are the ones making up the difference because their pay per delivery has not increased.

Happy Shirt laundry has not increased its delivery fee yet, but it may.

"We're paying a lot more money than we wish to," said manager Zeke Wuchina.

The dry cleaner runs two daily routes from Midtown to Germantown, putting on more than 500 miles a week for the 35 percent of its business that is delivery.

The most uncertain variable is the pending war in the Middle East, said Lisa Wheeler, spokesman at Premcor refinery in Memphis.

Premcor supplies most of the gasoline stations in the city from its refinery here, which it bought this month from Williams Companies in Tulsa, Okla.

The price of gasoline typically goes up before the summer driving season, she said. This is early for the spike, suggesting more hikes ahead.

• Jane Roberts: 529-2512

www.upi.com By Hil Anderson UPI Chief Energy Correspondent From the National Desk Published 3/10/2003 8:21 PM

LOS ANGELES, March 10 (UPI) -- The average price for a gallon of regular gasoline in the United States, with California leading the march, posted another significant gain last week and reached a near-record price of $1.712.

The increase of 2.6 cents announced Monday by the United States Energy Information Administration was a fraction of a cent under the all-time record retail average of $1.713 per gallon set in May 2001 when low inventories and increasing demand collided with higher world crude prices.

"Factors, such as the possibility of war in Iraq, and the on-going petroleum strike in Venezuela, still exist," said Carol Thorp, spokeswoman for AAA Texas.

A war in the Persian Gulf is considered a virtual certainty by oil traders, or at least enough of a possibility that they have been bidding up the price of crude in order to nail down supplies before fighting breaks out.

In addition, low gasoline inventories, refinery maintenance and reports of production problems in the United States have added to the bullish sentiment.

California had the highest average price, according to the EIA, at $2.084 per gallon, some 7 cents higher than last week's figure. The San Francisco area posted an average price of $2.15 per gallon while Los Angeles-area prices were around $2.06. One station in Sacramento was reported selling full-service premium for a dizzying $3.04 per gallon.

"It's outrageous," Sharon Wilson told Los Angeles television station KCBS as she filled up at an Orange County service station. "I think we are being taken advantage of, but I feel helpless."

California historically has had some of the highest gasoline prices in the nation because of its unique clean-burning formula that makes it virtually impossible to import fuel from outside the state during periods of shortages.

According to the California Energy Commission, gasoline production in California as of the end of February was running more than 12 percent below where it was a year ago. At the same time, supplies on hand were 11.3 percent below February of 2002 and 7.4 percent under the previous week.

Recent market reports have indicated that the tight supplies in California are due to both high crude prices and to reported difficulties in retooling the state's refineries to produce gasoline with ethanol, which will be phased into use statewide over the course of the year.

The EIA said Monday that its most recent analysis indicated that the United States would have enough ethanol in the near term to accommodate the rising demand for the corn-based oxygenate, but with very little margin for error. In addition, it was expected that with Connecticut and New York in the process of phasing out the oxygenate MTBE and replacing it with ethanol, some foreign refiners would no longer be able to supply extra gasoline to the East Coast.

"When MTBE is banned in New York and Connecticut, the RFG imports are likely to decline as some foreign suppliers will not be able to provide MTBE-free reformulated gasoline," the agency said. "The reduced ... imports would need to be made up by supply from the domestic refiners, likely from the Gulf Coast refineries and at additional costs."

In addition, the EIA cautioned, additional infrastructure was needed to accommodate the steady shift to ethanol in the United States.