cbs.marketwatch.com By Myra P. Saefong, CBS.MarketWatch.com Last Updte: 4:24 PM ET Feb. 26, 2003

NEW YORK (CBS.MW) -- Crude futures prices rose Wednesday to their highest level since the Persian Gulf War, reflecting a tight U.S. inventory picture at a time of looming prospects of war with Iraq.

Crude for April delivery traded as high as $38 a barrel -- a level the futures market hasn't seen since the all-time high of $41.15 in October 1990.

The April crude contract closed at $37.70 a barrel, up $1.64, on the New York Mercantile Exchange.

"If inventories can't build now, they certainly won't build in the first two to three weeks of a military strike on Iraq," said John Person, head financial analyst at Infinity Brokerage Services.

In a wartime environment, oil shipments will be delayed due to security checks, he said, adding: "This is the real concern to address."

Heating-oil and gasoline futures also moved higher on Nymex, on the back of supply declines detailed in the latest industry data released earlier Wednesday.

Heating oil for March delivery closed at $1.155 a gallon, up 3.23 cents. Futures prices for the commodity briefly reached an all-time high -- $1.18 a gallon -- on Tuesday.

Meanwhile, March unleaded gasoline rose 1.05 cents to $1.0183 a gallon.

"We're seeing better-than-expected demand in gasoline, heating-oil demand that's gone off the map and crude inventories that stand at their minimum operating levels," said Phil Flynn, senior analyst at Alaron.com.

"It's not just Iraq," he said by way of explanation. "It's tight supplies."

Early Wednesday, the Energy Department reported a decline of 1 million barrels in crude inventories, while the American Petroleum Institute said stocks rose by 3 million barrels.

Flynn said the discrepancy was likely a correction from last week, with the API effectively catching up with the Energy Department's figures.

But total crude inventories of around 271 million barrels are quite near the 270 million barrels that the government set as the minimum stock level at which refineries can continue to operate normally. The stocks are 16.3 percent below where they stood a year ago.

Higher prices on tap

The low inventories have prompted many analysts to forecast higher oil prices in the run-up to a potential war on Iraq.

Based on the state of inventories among other factors, crude "remains susceptible for price increases," said Infinity Brokerage's Person.

Other factors include what seems an impending war in the Middle East, export reductions from Venezuela, refinery problems and severe weather conditions, he said.

John Vail, senior strategist at Mizuho Securities USA in Chicago, also sees higher oil prices in the short term.

"The inventory data is so worrisome that it may prevent a decline in oil prices in the short term until the Iraq situation is clearer," he said.

On the other hand, analysts believe that in the event of a quick U.S. victory against Iraq, oil prices will likely drop significantly. See Thom Calandra's StockWatch.

"Crude-oil prices will ease once markets are satisfied that there is sufficient progress in the military campaign against Saddam and that oil fields in Iraq and -- more importantly -- in neighboring countries are secured," said Economy.com oil economist Thorsten Fischer.

Near a three-year low

A closer examination of the latest supply reports showed that distillate inventories fell for a sixth-straight week -- to a level not seen in nearly three years.

The Energy Department reported a whopping 4.5 million-barrel decline in distillate inventories, which include heating oil. Total supplies of 99.1 million barrels are below 100 million for the first time since May 2000, the agency said.

Separately, the API pegged the drawdown at 3.2 million barrels, to 103.8 million. Research firm IFR Pegasus had expected distillates to fall by as much as 4 million barrels on the week.

Distillate inventories have dropped more than 20 million barrels since the week ended Jan. 17, according to Energy Department data. They're now 25 percent below their year-ago level.

Gasoline inventories also declined last week, falling by 3.1 million to 208.1 million barrels or by 792,000 barrels to 209.9 million barrels, according to the respective readings by the API and the Energy Department.

IFR Pegasus had expected gasoline supplies to be down by as much as 3 million barrels. Total stocks of gasoline are 5.1 million barrels below the year-ago level, according to the government data.

Gasoline demand fell last week, but only by 480,000 barrels to a level of 8.36 million barrels per day, said Tom Kloza, chief oil analyst at The Oil Price Information Service.

The two-week average demand figure of 8.6 million barrels per day "is a level which appears more logical for May than February," he added.

Natural gas in retracement

Natural gas for March delivery closed sharply lower following a jump to an all-time high on Tuesday.

The heating fuel has been driven higher by lingering concerns that cold weather throughout much of the U.S. will result in shortages.

March natural gas closed at $9.133 per million British thermal units, down 44.4 cents on the session. On Tuesday, it rose as high as $10.50, moving well past the previous record of $10.10 dating from December 2000.

Natural gas for April delivery, which became the lead-month Nymex contract at the session's close, rose by 80.6 cents to $7.39 per million British thermal units.

The Energy Department will issue its weekly update on supplies of natural gas Thursday. Inventories stood at 1.168 trillion cubic feet as of Feb. 14 -- 868 billion cubic feet below the year-ago level.

Analysts at Fimat USA expect a hefty drawdown in natural-gas supplies -- on the order of 138 billion cubic feet, although other market estimates are higher. A year earlier, supplies fell by 73 billion cubic feet.

Geopolitical backdrop

In war-related news, Turkey reportedly halted the movement of oil tankers through its border crossing with Iraq and told any tanker drivers already in Iraq to return to Turkey, said Person.

Meanwhile, Iraqi leader Saddam Hussein said he would rather die than go into exile, as some have suggested as an alternative to war. He made the comments during an interview earlier this week with CBS News. See Special Report: Countdown to War.

And chief U.N. weapons inspector Hans Blix indicated that Iraq is showing signs of better cooperation by reporting the discovery of two bombs, one of which could have a biological agent.

President Bush continued to urge the U.N. to support military action against Iraq, but British Prime Minister Tony Blair said that Saddam has "one further final chance" to disarm in compliance with U.N. demands.

Mizuho Securities' Vail believes that if Saddam blows up his own oil wells as some speculate, oil prices won't rise to the $80 level some analysts talk about because his supply is "not a major world factor now."

If Saddam doesn't destroy his own fields, "the initial reaction to a U.S. strike will likely force the oil price quickly lower," he said.

All-in-all, the progress of the war will determine whether oil prices and global economies recover or not," he said.

Comments from Energy Secretary Spencer Abraham pressured energy futures off their intraday highs on Tuesday. He indicated that the Bush administration would tap into the Strategic Petroleum Reserve in the event of a war-inspired disruption in Iraqi oil exports.

Vail suggest that the U.S. start releasing oil from its oil reserve because 600 million barrels of oil "should not just be sitting there."

"Combined inventories are too low and shortages are likely unless it is done," he said.

In the equities arena, most oil-service shares closed higher, with the Philadelphia Oil Service Index ($OSX: news, chart, profile) up 1.5 percent. See full story.

Also on Nymex, gold futures prices also closed higher amid a resumption of weakness in the broader stock market. See Metals Stocks.

The Reuters/CRB Index, a broad-based measure of the commodity futures market, closed at 245.2, up 1.1 percent, on strength in gold and petroleum futures. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.

www.southbendtribune.com By H. JOSEF HEBERT Associated Press Writer

Area energy costs: It could be worse Michiana motorists and homeowners might be more fortunate than their counterparts in some other parts of the country when it comes to energy costs. Though the commodity price for natural gas has nearly doubled, the leap doesn’t necessarily translate into higher heating costs for NIPSCO customers, said Larry Graham, spokesman for Northern Indiana Public Service Co. According to Graham, NIPSCO adjusts its prices on a monthly basis, so daily market volatility is not the key factor in the cost of natural gas. Weather remains the driving force in determining the per-therm price of natural gas. In the meantime, local gasoline prices slipped a few cents per gallon Tuesday to $1.63 in the South Bend area and $1.70 in Michigan. According to AAA, the national average is about $1.66 for regular gas, though some locations on the West Coast are charging nearly $2 per gallon. — Carol Elliott

WASHINGTON -- Energy Secretary Spencer Abraham said Tuesday it may be two to three months before Venezuelan oil shipments to the United States return to normal levels, now that the crisis that shut down production in the South American country has passed.

Abraham, appearing before a Senate committee, also said the Bush administration was ready to tap its emergency reserves, but would do so only if there are "severe disruptions" of supplies and only after consultation with other major energy-consuming nations.

While promising to consult with other International Energy Agency member countries on use of emergency reserves, Abraham later told reporters that the administration, nevertheless, is prepared to take action on its own. "We would consult with the IEA members before we would make a decision. It's a matter of process," he said.

"It's my understanding that the crisis that has essentially shut down production (in Venezuela) has passed," Abraham said when asked about Venezuelan supplies resuming.

Pressed on the matter, Abraham said he couldn't be specific on the level of Venezuelan imports. But he said a delay of 60 to 90 days could be expected between an increase in production in Venezuela and barrels of that country's oil arriving in the United States.

Asked about using the government's Strategic Petroleum Reserve to dampen prices, Abraham reiterated the administration's conviction that the emergency supplies of oil should be used only to counter severe shortages and not to influence prices.

"We will and we can act quickly to use the Strategic Petroleum Reserve ... to offset any severe disruptions if it's needed," he said under questioning by Sen. Jeff Bingaman, D-N.M.

But Abraham also said the United States only would act "in consultation" with other oil-consuming countries that have stocked emergency oil to counter supply disruptions.

"People are being pinched like never before" by soaring gasoline and other energy prices," Sen. Ron Wyden, D-Ore., told Abraham, adding that consumers "are getting hosed because they're not getting any protection."

But Abraham said the government oil stocks were established "to provide energy security ... We do not believe it should be used to address price fluctuations."

Likewise, Abraham dismissed suggestions -- as requested by a group of New England heating oil companies -- that the government should make available some of the 2 million barrels of heating oil kept in a Northeast reserve. "Two million barrels is not a lot" and it should be kept in place "unless there's an emergency situation in terms of supply," he said.

Sen. Pete Domenici, R-N.M., chairman of the Energy and Natural Resources Committee, questioned the continued purchase of oil for the Strategic Petroleum Reserve at a time of high oil prices and inventory shortages.

Abraham said the Energy Department has suspended deliveries to the reserve for the first three months of the year and was reviewing whether oil would be accepted after March.

The strategic reserve, located in salt caverns along the Texas-Louisiana Gulf coast, has just over 600 million barrels. Congress last year directed that the stocks be increased to 700 million barrels, but some lawmakers have questioned doing so when supplies are low and crude is expensive.

www.neponsetvalleydailynews.com By Erin Walsh Wednesday, February 26, 2003

Where do you buy your gas?

That is a question posed by an e-mail making its way around urging consumers to boycott imported oil from the Middle East by having consumers steer away from filling their tanks at stations notorious for purchasing crude oil from the Middle East.

The e-mail reads "The Saudis are boycotting American goods. We should return the favor." It goes on to claim gas stations like Citgo, Sunoco, Conoco, Sinclair and Hess don't import Middle Eastern oil, while counterparts Shell, Exxon, Texaco and Mobil do.

The talk of war with Iraq and the ongoing strike in Venezuela have spiked gasoline prices over the past few months.

Venezuela rates among the world's top 10 crude oil producers, while Iraq holds the second largest proven reserves, with more than 112 billion barrels of oil.

Energy officials familiar with the e-mail claim it's a hoax and that it's impossible to determine which stations use Saudi oil.

"I'm familiar with it. Every time (gas) prices go up the same e-mail goes around," said Stephen Dodge, associate director for the Massachusetts Petroleum Council in Boston.

Dodge says the United States receives 60 percent of its crude oil from overseas, with a good portion coming from Persian Gulf countries.

"Overall, as far as product like gas and home heating oil goes, (individual stations) get a mix from overseas and domestic production," said Dodge. "It's hard to say one company gets all its finished product from Saudi Arabia. So I really wouldn't venture to say (boycotting) would be a symbolic gesture because it's only a meaningless gesture."

Art Kinsman, director of government affairs for AAA New England, says a boycott of Middle Eastern oil is a "silly" notion and one that would only hurt station owners.

"How you could know for a fact a retailer is using only non-imported oil seems ludicrous to me," said Kinsman. "I would hate to see anyone penalize the local Shell guy because someone says his oil comes from Saudi Arabia."

Jonathan Cogan, spokesman for the Energy Information Administration, says the administration has no way to track where all oil comes from at the retail level.

"The only thing we can look at is a mandatory survey importers have to file that looks at the volume and type of oil imported," said Cogan.

"A dealer that owns a local gas station buys from a refiner or a bulk storage terminal that has oil coming from several pipelines."

Kinsman has closely followed gas price jumps in Massachusetts and says consumers can still feel empowered when it comes to the pending War with Iraq and its oil consequences.

"Reward the retailers charging less for gas by shopping around at the pumps," said Kinsman. "The main reason the prices are so high right now is jitter in the market over (threatened) war with Iraq."

Kinsman said this week's survey saw self-serve regular prices averaging from $1.57 to $1.80, with the highest full-serve price coming in at $2.10 per gallon.

"We're paying a war premium now for a war that hasn't happened," added Kinsman, whose not fully convinced individual retailers are making more of a profit when the prices spike.

"In some cases where a little local battle over customers ensues among retailers, some may be making less profit even though overall price is higher," said Kinsman.

Reporter Erin Walsh can be reached at 781-433-8337 or ewalsh@cnc.com.

www.bayarea.com Posted on Wed, Feb. 26, 2003 By Gary Richards Mercury News

For the second time in two weeks, gas prices jumped a dime a gallon on a Tuesday, eclipsing $2 at a growing number of Bay Area stations. The average cost for a gallon of self-serve unleaded is now at its highest level in nearly two years, going for $2.11 in San Francisco, $2.01 in Oakland and Santa Cruz and $1.99 in San Jose, according to a daily survey by the California State Automobile Association.

Those figures are about 70 cents higher than a year ago, and pennies shy of records.

The numbers are sending motorists scurrying to those few stations still listing gas under $1.90 a gallon -- a price that seemed exorbitant two months ago but now passes for a bargain.

No cars were in line at a Shell station listing its cheapest blend for $2.19 a gallon at Lawrence Expressway and Saratoga Avenue in West San Jose on Tuesday morning -- 10 cents higher than Monday. But 17 cars waited in line at two discount stations on McKee Road in East San Jose near Highway 101, where the price stood at $1.82.

I used to go almost anywhere for gas,'' said David Tabuchi of Pleasanton, a survey technician at Underwood and Rosenblum, off Brokaw Road in North San Jose. But once it went over $2, I said forget it. I'm shopping around.''

Oil analysts are split on where prices will go from here.

Some say they'll leap an additional 50 cents a gallon if war erupts in Iraq. Others believe that if the the civil unrest in oil-producing Venezuela eases, and temperatures warm up in cold-climate regions, depleted inventories will rise and prices will level off.

Most experts, though, are just as puzzled as drivers watching the numbers spin faster and faster at the pump.

There is a lot of uncertainty right now and the prices we see are a direct result of that,'' said Severin Borenstein, director of the University of California-Berkeley Energy Institute. My best guess is that although prices are high, they're calming down.

``But if war starts and it goes badly, prices will go up.''

Prices rose 30 cents a gallon in 1990 after Iraq invaded Kuwait, and then dropped 30 cents in 1991 when the Persian Gulf War ended.

While some officials say oil companies are gouging motorists, industry watchers point to a litany of reasons behind the rapid rise in prices.

• Oil inventories are at their lowest levels since 1975. The United States has about 265 million barrels in storage, just below the level needed to guarantee a smooth flow of oil.

• The price of crude oil, which accounts for nearly half of the cost of a gallon of gas, rose to more than $36 a barrel Tuesday, an increase of about 25 percent since Christmas. Oil prices have not reached such levels in more than a decade, when the United States was about to oust the Iraqi troops that had invaded Kuwait.

• A 78-day strike in Venezuela has temporarily turned that oil producer into an importer, reducing worldwide supplies 4 percent.

• A cold winter in the United States and Europe has sent home heating oil prices to levels not seen in five years.

There are many valid reasons behind these high prices,'' said Peter Zipf of Platts Oilgram News in New York. But it's a nervous time, and that's also a reason.''

The national auto club raised a stir two weeks ago when an official said oil companies were fleecing the nation's motorists, saying ``nothing fully justifies'' the jump in prices.

And refinery profit margins are on the rise in California, said Borenstein, noting that gas is about 30 cents higher in the Golden State than nationally.

They should be sitting around 10 to 12 cents higher,'' he said. But the service stations are getting squeezed, which is what always happens when prices go up.''

Jerry Cummings of Robinson Oil, which owns Rotten Robbie stores, fumed at the gouging comments: ``We never get any headlines when we're losing our fannies when the price is down. The retailers aren't gouging anyone; that's for sure.''

Contact Gary Richards at mrroadshow@sjmercury.com or (408) 920-5335.

seattlepi.nwsource.com Wednesday, February 26, 2003 By PAUL NYHAN SEATTLE POST-INTELLIGENCER REPORTER

Gasoline prices hit a record level at Seattle-area pumps yesterday, forcing drivers around the region to spend more to fill their tanks or find new ways to get around town.

In Seattle, Bellevue and Everett, the average price for a gallon of regular unleaded gasoline jumped to $1.77 yesterday, the highest level since AAA began tracking average daily prices in the mid-'70s.   Even higher prices can be found around the city, with one station in Magnolia charging $2.13 for a gallon of premium gasoline and another on top of Queen Anne Hill charging $1.89 for a gallon of regular.

Looming war with Iraq and labor unrest in oil-rich Venezuela are combining to force the price of crude oil, and thus refined gasoline, higher, industry officials said. Impending war and the strike help explain why the national average price for a gallon of unleaded gas rose to $1.66 yesterday from $1.13 a year ago, according to AAA.

But, the reasons behind the spike in Seattle gasoline prices are cloudier. Oil companies and wholesalers don't provide specific pricing data, according to local retailers. And West Coast prices have run counter to national trends in the past.

Whatever the cause, the spike is generating suspicion among local drivers, who say high gasoline price are forcing them to change their driving habits.

Bill Travers is ready to walk the 10 blocks to work and more willing to hop on his Vespa, which gets up to 60 miles per gallon, than drive his sports car.

"I think they (oil companies) are gouging a little bit, just to take advantage of impending disaster," Travers said, after paying $10 more for half a tank of gas then a few months ago. "I really wonder, as a lot of people do, how legitimate this is."     Phil H. Webber / P-I   Matt Beers checks tires at a station in Magnolia, where premium unleaded was going for $2.13 a gallon.

Travers is not alone. Sixty-five percent of respondents are ready to alter their driving routines because of higher gas prices and a threat of war with Iraq, a Yahoo! Autos survey found yesterday.

In fact, 23 percent of those surveyed said they are prepared to buy more fuel-efficient cars.

As drivers look to assign blame, gas station owners say they are not the culprits. Their pumps reflect the fluctuation in prices charged by wholesalers and resellers.

At Rick's Chevron on Fifth Avenue in Seattle, owner Rick Hubbard learns of price increases when a message appears on his cash register, linked directly to Chevron. The alert eventually tells him the price of wholesale gas rose or fell that day.

Hubbard decided to post the increases on his pumps to explain to customers why they were paying more at his pumps.

"The only time they (retailers) change their price, usually, (is) when they get an increase from the dealers," said Hubbard, who has sold gas in Seattle for 35 years.

Gas prices can fluctuate from neighborhood to neighborhood, in part because wholesalers use market data and formulas to set prices, according to Tim Hamilton, executive director Automotive United Trades Association in Olympia.

"Gasoline is not priced by the cost of doing business, it is priced by the ability to charge," Hamilton said yesterday.

And Hubbard says companies don't share the data with him.

The "price of crude is all they tell me," he said.

The market sets the price of gasoline, Shell Oil Co. spokesman Timothy O'Leary said. The company considers myriad details, everything from traffic and shopping patterns to neighborhood characteristics.

Shell, however, said it doesn't comment on pricing in Seattle or any particular location.

U.S. drivers faced a similar situation in 1990-91 during the Persian Gulf War, said Edward Rice, associate professor of finance and business economics at the University of Washington Business School.

As the United States prepares for war, oil companies could be holding more fuel in reserve, guarding against a disruption in supplies, and that could be forcing gas prices higher, he said.

And gasoline prices are not yet at record levels elsewhere in Washington, although many are close. In Bremerton, the average daily price for a gallon of regular unleaded gas rose to $1.69 yesterday, still below that region's record of $1.74 set in September 2000, according to the latest AAA data.

Meanwhile, Bellingham drivers paid, on average, $1.75 for a gallon of regular unleaded gas yesterday, also below the record of $1.80 set in 2000.

With so much uncertainty in the global oil market, it is difficult to predict where gas prices will move in Bellingham, Seattle or anywhere in Washington.

"I don't think anyone really knows. It's kind of like the stock market," said AAA Washington spokeswoman Janet Ray.

P-I reporter Paul Nyhan can be reached at 206-448-8145 or paulnyhan@seattlepi.com