news.ft.com By Carola Hoyos, Energy Correspondent Published: February 27 2003 1:18 | Last Updated: February 27 2003 1:18

Crude oil prices on Wednesday jumped to their highest level since the Gulf war as US commercial supplies dropped to the minimum level needed to maintain proper operations at refineries, storage facilities and pipelines.

The US Department of Energy revealed on Wednesday that US crude stocks fell 1m barrels to 271.9m barrels last week.

Supplies of heating oil fell 3.9m barrels to 36.1m barrels, 33 per cent below last year's levels, because of increased demand for heating oil due to cold weather in the north-eastern US.

In response, Nymex crude for April delivery surged $1.87, reaching $37.93, the highest since October 1990 when prices jumped to $41.15 a barrel following Iraq's invasion of Kuwait.

Nymex settled the day at $37.70 a barrel, up $1.64, while the London Brent benchmark gained 75 cents to $33.07 a barrel.

The rally was fueled by bullish news from Washington that made war in Iraq appear increasingly inevitable. President George W. Bush was on Wednesday expected to say that overthrowing Saddam Hussein would have a ripple effect in the Middle East and facilitate peace between Israel and the Palestinians.

US military action would almost certainly halt Iraq's 2m barrels per day of oil exports, adding to the void left by the slow recovery of Venezuela's exports following the country's debilitating general strike.

Nations in the Organisation of Petroleum Exporting Countries are already pumping extra crude oil, causing concern among traders that the world's spare capacity - mainly held by Saudi Arabia - has shrunk to only 1.5m barrels per day.

The most important weapon against a price spike in case of war is the stockpile of more than 1bn barrels of oil held by the US and other industrialised countries. Analyst expect governments to release 1m-2m barrels per day of their oil reserves as soon as war becomes apparent.

www.newsday.com By Tom Incantalupo Staff Writer

February 27, 2003 Home heating oil prices are the highest in three years on Long Island and in New York City -- and they might go still higher, experts say, before this dreadful winter is over.

The New York State Energy Research and Development Authority said the average price for home heating oil as of Tuesday was $1.952 in Nassau and Suffolk counties and $1.987 in the city. The state surveys full-service oil retailers; cash-on-delivery prices usually are lower.

In January and early February of 2000, prices had soared to about $2.20 a gallon during a cold snap, but quickly fell as the weather moderated.

This winter has been consistently colder than normal -- not just in the Northeast but in other regions and other countries where oil is consumed for heat. Meanwhile, the flow of crude and refined products from Venezuela, the fourth-largest supplier to this country, still is about 30 percent below normal because of a two-month strike by oil workers.

Fears of supply interruptions from a war with Iraq also are pushing up petroleum prices. In this area, last week's barge explosion near Staten Island further tightened supplies of heating oil.

"This is going to be from start to finish one expensive heating season,” said Joe Roy, Long Island coordinator for the New York Public Interest Research Group's fuel buyers cooperative.

Natural gas prices also have soared to near record levels, said Phil Flynn, senior market analyst at the energy trading firm Alaron Trading Corp. in Chicago. Spokesman Andrea Staub of KeySpan Energy Delivery said homeowners who heat and cook with natural gas will pay about 30 percent more this heating season than last, or about $1,155, in part because of the price increase but, mostly, she said, because of additional usage.

Kevin Rooney, executive director of the Oil Heat Institute of Long Island, estimates that the average bill for this season will be about 40 percent higher than last year, or about $1,224. About 80 percent of a typical home's annual oil use is burned during the heating season.

Flynn says heating oil prices could rise further if the weather stays colder than normal in coming weeks. "If this winter hangs around past St. Patrick's day,” he said, "it's going to be the spending of the green.”

ogj.pennnet.com By OGJ editors

WASHINGTON, DC, Feb. 26 -- Sec. of Energy Spencer Abraham said Tuesday that the US would release oil from the Strategic Petroleum Reserve only after consulting with its allies.

"We will make any decision only in consultation with our IEA [International Energy Agency] partners," he told the Senate Energy and Natural Resources Committee while testifying on his agency's fiscal year 2004 budget request.

"We do not believe it should be used to address price fluctuations," Abraham said. Responding to lawmakers' questions, Abraham reiterated that the White House's policy concerning the 600 million bbl stockpile is that it should only be used for a "severe" supply disruption, not to control prices.

Similarly, he said the department had no immediate plans to order withdrawals from the 2 million bbl Northeast home heating oil reserve. Some East Coast lawmakers and heating oil dealers have been urging DOE to draw down stocks. But Abraham said conditions do not yet warrant a release.

Heating oil for March delivery hit an all-time high of $1.1535/gal Monday on the New York Mercantile Exchange, surpassing the previous record of $1.15/gal in November 1979, before closing at $1.1467/gal, up 3.82¢ for the day (OGJ Online, Feb. 25, 2003). It then dropped 2.41¢ to $1.1226/gal Tuesday as traders took comfort from Abraham's testimony that the government could quickly to release US emergency oil reserves if Middle East oil supplies are disrupted by a war with Iraq (OGJ Online, Feb. 26, 2003).

However, DOE officials reported Wednesday that US inventories fell by 1 million bbl for crude, 3.1 million bbl for gasoline, and 3.9 million bbl for distillate during the week ended Feb. 21.

IEA officials said Tuesday they are monitoring market conditions and may call on members to release stocks if they feel oil producers cannot keep up with demand. But price levels alone won't trigger a response, they stressed.

The IEA charter calls on member countries to release their stocks if oil supplies are cut by more than 7%, but the agency said it has the authority to act below those levels if market conditions compel them to take action.

As part of its emergency contingency planning, IEA also calls on member countries to hold oil stocks equivalent to 90 days of net imports from the previous year. The US SPR currently holds 54 days of what DOE calls "import protection." But when combined with private stocks, the inventory available to US consumers is about 150 days of net import demand, according to DOE.

On Feb. 20, IEA said combined publicly and privately held stocks among its members now equal about 115 days of total net imports, about 25 million b/d. The stocks, held as both crude and product, are near IEA members' refineries and distribution points and "can be made available rapidly to markets," the agency said.

The US Energy Information Administration estimated earlier this month that OPEC (Organization of Petroleum Exporting Countries), excluding Iraq and Venezuela, has 2-2.5 million b/d of excess oil production capacity that could be brought onstream. About 70% of the spare capacity is in Saudi Arabia with nearly all the rest in other Persian Gulf countries.

Venezuela predictions At the hearing, Abraham also responded to questions from lawmakers on Venezuelan oil supplies. The DOE secretary said it could be 2-3 months before the US import levels are at pre-strike levels. Venezuela historically has been one of the US' top suppliers; last year it averaged 1.5 million b/d but levels have fallen dramatically since then.

Earlier this week Venezuela's state oil company Petroleos de Venezuela SA lifted "force majeure" restrictions on some of its crude export contracts. PDVSA officials said production is now at 2 million b/d, the highest level since the start of the nationwide strike Dec. 2. Former PDVSA officials dispute those numbers, saying production is at 1.5 million b/d. Since the strike about 40% of the PDVSA workforce, mainly managers, have been dismissed for their role in organizing protests against the country's president Hugo Chávez.

Even with the prospects of more Venezuelan crude, market conditions remain fragile, and EIA expects price volatility to continue in the near term given the ongoing political situation in Venezuela and possible military action in Iraq creating uncertainty.

Inventories for both crude and product within the US likely will remain below historical levels, the agency noted.

EIA said Wednesday that despite market expectations of rising US crude oil imports, at 8.3 million b/d during the week of Feb. 21, imports actually dropped 400,000 b/d. Lower imports resulted in crude oil inventories being drawn down by 1.0 million bbl to keep crude refinery inputs averaging 14.5 million bbl. The agency said that over the past 5 week period ending Feb. 21 total petroleum product inventories have plummeted by more than 45 million bbl, about 1.3 million b/d.

"With crude imports averaging closer to 8 million b/d as opposed to 9 million b/d day, crude oil inventories and product inventories (as a result of lower production levels) are likely to remain low for quite some time or at least until oil demand drops significantly for a sustained period," EIA said.

money.cnn.com February 26, 2003: 4:52 PM EST By Gordon T. Anderson, CNN/Money Contributing Writer

NEW YORK (CNN/Money) - The threat of war in Iraq, civil unrest in Venezuela, tight inventory controls by oil companies, alleged price gouging by station owners. It's a perfect storm at the pump, and another wave may be about to crest.

The hapless American consumer is enduring the highest retail gasoline prices in nearly two decades. Retail gas prices are up to a national average of $1.66 a gallon, according to the Department of Energy.

Now, politicians across the nation are trying to raise fuel taxes.

In Washington, D.C., as well as in more than half the state capitals, there are proposals to increase the levies governments charge on gasoline, diesel, and other automotive fuels. If the plans become law, they could add more than 25 cents a gallon in state and federal taxes, on top of the 40-to-50 cents a gallon most Americans already pay.

The initiatives range from the quixotic to the inevitable. But the breadth of activity indicates a tax-raising trend. More on rising gas Cars: Best gas mileage Gas gouging alleged 9 ways to beat high gas prices Gas prices state by state

At the federal level, Rep. Don Young (R-Alaska), chairman of the House Transportation and Infrastructure Committee, is spearheading a drive to nearly double the federal gas tax. He wants to phase in a series of annual increases that would raise the feds' take from the current 18.4 cents per gallon to more than 33 cents by 2009.

In state houses, a combination of bloated state spending and recession-ravaged tax bases has legislators in both parties scrambling for new sources of income. For many, the tiny-yet-pervasive gas tax is a tempting target, because it seems painless relative to more visible items like state taxes on income or property. Here is some recent activity:

• In Ohio, Republican governor Bob Taft – who during his re-election campaign mocked his opponent as "Taxin' Tim" Hagen -- has proposed a 6-cent increase.

• In Indiana, where a 3-cent increase went into effect on January 1, legislators are already talking about another hike.

• In fiscally turbulent California, gasoline taxes are on the agenda in Sacramento, as well as within regional authorities in northern and southern parts of the state.

• In Washington state, voters last year rejected a referendum that would have increased gas taxes by 9 cents a gallon. Now, Republican legislators and Democratic governor Gary Locke are trying to push through a 5-cent increase.

• In Maryland, newly elected Republican governor Robert Ehrlich – who ran on a pledge to oppose any broadening of the state sales tax – began publicly considering a gasoline tax increase even before his inauguration.

In all, at least 26 states are pondering increasing fuel taxes, according to the American Automobile Association (AAA). That is in addition to the five states where hikes passed in 2002.

To be sure, most of the proposals are in the planning stages. An actual bill has passed only in Wyoming, and one has been explicitly voted down only in Virginia. Still, expect more attention to be paid to the issue in coming months. What's the money for?

At the federal level, gasoline taxes pay entirely for transportation needs: maintenance and improvements of highways, as well as for mass transit. Most states also devote their fuel-tax revenue to transportation programs. Proponents of increases argue that only money can fix America's crumbling infrastructure, and fuel taxes are a necessary evil.

The U.S. Department of Transportation estimates that by 2009, annual maintenance and "necessary" upgrades of the nation's highway will cost $61.2 billion, with mass transit needs at $12.4 billion. Last year, the federal government spent $31.8 billion and $7.5 billion, respectively, on those items.

"Just based on the DOT projections, we have to come up with revenue sources to almost double the amount of money we spend," said Steve Jensen, a spokesman for the House Transportation Committee. The task is made more difficult by the fact that federal gas-tax revenue is actually declining these days, thanks to more fuel-efficient cars and a recession-related decline in the number of miles people are driving.

"On one hand, nobody wants to raise taxes," says William Beuchner, chief economist at the American Road and Transport Builders Association, a construction industry lobbying group. "But there are a lot of big problems that need to be addressed, so politicians are between a rock and a hard place. If they want to fix things, the money has to come from somewhere." A billion here, a billion there . . .

With most of the new legislation, "the increases are small -- pennies, in most cases," says Rayola Dougher, Senior Policy Analyst at the American Petroleum Institute. Apparently, the logic is that the size of such plans won't cause much pain.

"It's not the same kind of 'Bam! It hits you' item like an increase in property taxes or the income tax," acknowledges AAA's Justin McNaull. "But for somebody who uses a lot of gas, it's not pocket change, either."

Economist Buechner estimates that for every one-cent increase in fuel taxes, the typical U.S. family will pay an extra $25 per year. So if total federal and state gas taxes go up by a dime, your out-of-pocket expenses rise about $250. Currently, the average family pays about $660 a year in fuel taxes, according to the American Petroleum Institute.

The numbers get huge in the aggregate. Americans drive some 4.3 trillion miles per year, according to the National Transportation Safety Board. An average fuel-efficiency of 20 miles per gallon would amount to some 215 billion gallons of gas is used to cover those miles. Even just five cents more a gallon adds up to a $10.75 billion tax increase.

The biggest worry, however, is not in any individual hike, but in the chance that state taxes will climb steadily and federal gas taxes rise in tandem.

Connecticut, for example, already has one of the nation's highest state taxes on gasoline, at 25 cents per gallon. Legislators there have publicly discussed raising that to 40 cents per gallon by 2007. If the federal effort were also successful, drivers in the Nutmeg State could be paying as much as 73 cents a gallon in taxes by the end of the decade.

Moreover, an increasing number of legislatures are exploring ways to automate the process of increasing gas taxes in the future. Seven states already employ mechanisms that tie the level of gas taxes to some variable -- from the Consumer Price Index to the amount of money in state budget coffers -- which triggers an increase without any new vote in the legislature.  

www.delmarvanow.com By John Duffy Staff Reporter

The combination of an unusually cold winter in the Northeast as well as national and world events are conspiring to make home heating costs nearly twice as high as last year, according to the U.S. Department of Energy.

While colder temperatures usually mean higher heating bills, that is not the only reason many Delmarva region residents have seen home heating costs skyrocket. Interruption of crude oil shipments from Venezuela because of political and labor unrest and the uncertain future of war in the Middle East are also adding to oil prices. These factors contribute to the costs of home heating oil and gasoline.

According to the Department of Energy, the average price paid by consumers for No. 2 heating oil the week of Feb. 10 was $1.71 per gallon.

In Delaware, homeowners paid $1.68 per gallon. The week of Nov. 25, 2002, the price was $1.21 statewide. Inquiries the week of Feb. 21 in Sussex County found heating oil prices averaged between $1.57 and $1.79.

Much of the price depended on the size of the order. For example, orders more than 150 gallons cost less than smaller orders, and orders under 100 gallons often included a $10 shipping charge.

The rise in the cost of oil for heat, as well as electric heat, has led to an increased demand on statewide energy assistance programs.

In December 2002, U.S. Rep. Mike Castle (R) requested the release of some $200 million in a strategic reserve for federal Low Income Home Energy Assistance Program (LIHEAP).

The money is used to help low-income families with energy needs both in summer and in winter, but traditionally the funds are used more for heating than cooling assistance.

On Jan. 24, Castle secured $867,954 for Delawareans who require assistance with energy bills.

"Typically, some funding for LIHEAP is held in reserve, because you cannot really predict energy costs," Castle explained. "I think given the situation this year it was handled very well."

Castle said funding for fiscal year 2003 for LIHEAP should be around $1.8 billion nationwide, up from $1.3 billion in 2002. "That's a pretty significant increase," he said, "so I think Delaware will see a lot more of this money available for low-income families."

LIHEAP funding is distributed via local nonprofit groups in each state. In Delaware, Catholic Charities doles out LIHEAP funds. In 2002, it helped 11,796 Delaware families with between $150 and $500 in emergency assistance paid directly to utility providers. Delaware currently has 335,200 residential energy consumers.

Reach John Duffy at (302) 537-1881, ext. 106, or by e-mail at jduffy@smgpo.gannett.com.

Originally published Wednesday, February 26, 2003