www.usatoday.com Posted 2/24/2003 11:28 PM By Barbara Hagenbaugh, USA TODAY

WASHINGTON — Natural gas prices jumped nearly 40% and heating oil costs hit their highest level on record Monday, developments that point to increases in already bloated home-heating bills.

Residential heating oil prices are up 50% from a year ago, when the average winter heating oil bill was $642, the Energy Department says. Bills might approach $1,000 this winter.

While natural gas prices are not as easy to track, consumers were reporting similar jumps before Monday's rise. The average household heating bill for natural gas users was $596 last winter.

"Higher natural gas and heating oil prices will cut more into consumer budgets," says Jim Williams of WTRG Economics, an energy consultant. "If you are old enough to remember, it is time to bring out that sweater that President Carter used to wear while encouraging us to turn our thermostats down."

In futures trading in New York, natural gas prices rose from $6.61 per million BTU to $9.14, the highest in more than two years. Heating oil hit $1.15 a gallon, surpassing the previous record high set in December 1979, before ending the day slightly lower.

Futures prices usually have an impact on retail prices later, and not necessarily by the same magnitude, but point to the direction of prices.

More than half of U.S. homes are heated with natural gas, while 8% are warmed with heating oil. Prices for electricity, which heats 30% of U.S. homes, also might rise, because natural gas and oil are among fuels used to produce it.

The increased heating costs, which in part reflect higher demand during an especially cold winter in many parts of the USA, act as a drag on the economy.

"We're in a weak recovery as it is, and this is just one more headwind in an economy that is facing many headwinds," says Stephen Brown, director of energy economics at the Federal Reserve Bank of Dallas.

Forecasts for another mass of cold air to sweep through parts of the East Coast and the Midwest later this week led traders Monday to bid up prices. Energy prices were already on the rise because of a strike in Venezuela that has drained oil off the international market and concerns that a war with Iraq would choke off oil supplies. In other news:

• Crude oil prices rose to $36.48 a barrel Monday, up 90 cents from Friday's close.
• After rising for 10 weeks, the average price of a gallon of gasoline in the USA last week was flat at $1.66, the highest price since June 2001. Some congressmen are calling for government investigations into possible gasoline price gouging, which station owners deny.

www.usatoday.com Posted 2/25/2003 1:50 AM     Updated 2/25/2003 9:09 AM
By James Cox, USA TODAY

Blood for oil, say the doves. No, blood for "vital U.S. interests" — with oil far down the list — says the Bush administration. Whether or not the looming war with Iraq is about oil, much of the peace surely would be.

If the United States pushes Saddam Hussein from power, that would set off a struggle for control of Iraq's vast oil riches. The result, ultimately, could be a world awash in cheap petroleum and less dependent on the one player determining global prices, Saudi Arabia.

Iraq's proven oil reserves are estimated at 112 billion barrels, enough to meet current U.S. import needs for a century. But much of Iraq is barely explored, and probable reserves there are thought to be as great as 310 billion barrels. The Saudis, by contrast, have known reserves of 262 billion.

"Iraq is the only source that could displace Saudi Arabia," says Fadhil Chalabi, a former top official in the Iraqi oil ministry, now at the Centre for Global Energy Studies, a London consulting firm.

A swift, decisive victory over Saddam might be tonic for the ailing U.S. economy. It would vaporize the current $5-a-barrel "war premium" on oil and end the uncertainty economists blame for stalling a long-awaited recovery in financial markets and the broader economy.

Long term, the implications are huge. The U.S. — first by installing a military governor in Baghdad, then through a friendly Iraqi regime — could gain enormous influence over world supplies and prices for crude. It could create a second "swing producer" to rival Saudi Arabia and act as a counterweight to the Saudis' sway over OPEC.

But before any of that happens, a lot of things have to go right, cautions Toby Dodge, an Iraq expert at the University of Warwick in Britain. "Short term, a liberated Iraq isn't going to affect (global) output. The Iraqi oil industry is in an absolutely dreadful state. Medium and long-term, as Iraq develops its resources, there's clearly going to be a lot more oil about."

What's got to happen:

In the short term

U.S. Special Operations troops would have to race to secure oilfields in the north and south before Saddam's army can torch the wells there. Reports indicate he has moved ammunition and explosives to Iraq's fields.

Retreating from Kuwait in 1991, Iraqi troops blew up nearly 700 wells, causing an environmental disaster and more than $20 billion in damage. By choosing what military observers call the "Nero option," Saddam could trigger an even bigger catastrophe this time. That's because Iraq's fields cover a much greater expanse than Kuwait's, and sabotaged terminals and loading facilities could send millions of barrels spewing into the Persian Gulf.

The fighting would need to end quickly — within days, not weeks — so Iraqi oil could begin to flow back to a starved market. And there can be no damage to fields and facilities in neighboring Kuwait or Saudi Arabia. The world already is struggling to replace crude lost as a result of recent strikes in Venezuela and Nigeria. A war would suck 2 million barrels of Iraqi oil off the market each day — 4.5% of global exports — until the taps could be turned on again.

OPEC has hinted it might suspend production quotas temporarily so cartel members can pump at will to make up for lost Iraqi supplies. But Saudi Arabia and, possibly, the United Arab Emirates, are the only OPEC countries with spare capacity to tap.

Midterm

The Bush administration is desperate to avoid giving ammunition to anti-war protesters who argue that a U.S.-led war against Iraq amounts to blood for oil. To mute those charges, Secretary of State Colin Powell vowed that Iraq's future oil revenue would be put into a trust to pay for Iraq's reconstruction and meet humanitarian needs.   WHO PUMPS THE MOST OIL? (Millions of barrels a day, 2002 estimates) Non-OPEC countries USA 8.17 Russia 7.50 Mexico 3.60 China 3.36 Norway 3.35

Organization of Petroleum Exporting Countries Saudi Arabia 8.51 Iran 3.53 Venezuela 3.09 Iraq 2.93 United Arab Emirates 2.42 Nigeria 2.10 Kuwait 2.04 Algeria 1.53 Libya 1.37 Indonesia 1.36 Qatar 0.79

Sources: AP, International Energy Agency, USA TODAY research, Deutsche Bank estimates

But the administration hasn't spelled out how the trust would work and who would run it. Middle East experts caution that the U.S. would enrage Arab skeptics if it used any Iraqi oil proceeds to pay the war tab.

Putting oil revenue into a trust fund would mean eliminating the United Nations oil-for-food program, which has collected and dispersed money from Iraqi sales since 1996. Iraq's neighbors and creditors are likely to resist that idea until they know what would happen to their various claims.

Kuwait wants Iraq to pay billions in reparations from the Gulf War. Iran has demanded the same for the 1981-89 Iran-Iraq war. Turkey says it might assert a historic claim to part of the oil from Iraq's northern fields. Creditors such as Russia say Iraq owes more than $100 billion in foreign debt.

With Saddam gone, it wouldn't be long before oil company executives would be prowling hotel lobbies in Baghdad. U.S. oil majors ExxonMobil and ChevronTexaco are "natural candidates" for contracts in Iraq, says a recent report by Deutsche Bank. Bechtel, the San Francisco-based engineering giant, and oilfield services companies Halliburton, Schlumberger and Baker Hughes also could expect to get lucrative deals there, Deutsche Bank says.

Initially, President Bush plans to place a military governor, probably Army Gen. Tommy Franks, in charge of administering Iraq after Saddam is gone. Within months, Franks would be replaced by an American civilian governor, who could be in the awkward position of having to decide what to do with billions in development contracts the Iraqi dictator has signed with oil companies from France, Russia, China and 20 other countries.

Any American authority might be smart to leave control in the hands of Iraq's many respected technocrats and engineers. Iraqis of all stripes are fiercely nationalistic and determined to guard their oil resources from foreign domination, experts warn.

"No quasi-imperial governor would have the ability to award long-term oil contracts in Iraq," Dodge says. "It would be politically unacceptable, domestically and internationally, not to mention a nightmare for the governor."

Long term

After two decades of war and a decade of sanctions, Iraq's oil industry is crumbling. Only 24 of 73 fields were producing last year, according to Alexander's Gas & Oil Connections, an industry authority.

The U.S. and Britain have repeatedly gone to the U.N. to block Iraq's purchase of spare parts and technology, arguing that the gear has potential "dual use" for military purposes. As a result, Iraq can't make vital repairs and do maintenance on its aging wellheads, pipelines, pumping stations, refineries, storage facilities and shipping terminals. In addition, Iraqi engineers have done permanent damage to underground reservoirs by injecting them with water and other liquids to keep short-term production levels from falling.

Iraqi oil production peaked at 3.5 million barrels a day in 1979. Now, Iraq risks a 5% to 15% annual decline in capacity because of shoestring management and a lack of equipment and investment, says Saybolt International, a Dutch firm hired by the U.N. to assess the Iraqi oil industry.

Deutsche Bank and others say Iraq needs to spend $5 billion right away just to keep production from collapsing. If it can restore old wells, install turbines in pumping stations to restart pipelines, and rebuild loading terminals on the Gulf, it can boost its production capacity to 4 million barrels a day in two years vs. 3 million today.

Down the road, Iraq needs $38 billion of fresh investment to develop fields that are discovered but untapped and to thoroughly explore its western desert, thought to be rich in oil and gas. That investment most likely would be spread over 20 years or more. It could ultimately give Iraq the ability to pump 8 million barrels a day, about equal to what Saudi Arabia produces.

The Saudis aren't defenseless against the rise of an Iraqi rival: They could effectively choke off international investment to Baghdad by flooding world markets with cheap oil to make new development uneconomical.

One unknown is Iraq's standing in OPEC, where it is a founding member. Iraq effectively lost its voice in OPEC with the Gulf War and its production quota with the imposition of U.N. economic sanctions.

Few believe Iraq would bolt OPEC in a post-Saddam era. But Baghdad probably wouldn't agree to limit itself to the cartel's production quotas for years to come, arguing that it must pump and sell all it can to meet its massive reconstruction needs.

Even before the world discovered uses for it, oil coursed through Iraqi history. The people of ancient Iraq used to tell of flames that shot from holes in the earth near the northern city of Kirkuk. Beneath them, they thought, was the fiery furnace described in the Old Testament, a burning hell into which the king of Babylon was said to have cast Jews who refused to worship his golden image.

Western geologists saw the fires in 1927 and recognized them for what they were: gas flares rising from giant lakes of oil below the surface. Two decades later, an American scientist — name unknown — returning from Iraq felt compelled to tell the State Department what he found.

"The oil in this region," he said, "is the greatest single prize in all history."

www.thecarconnection.com by Bengt Halvorson       2/25/2003

Have you noticed the buzz? People are talking, with sudden urgency, about how quickly gasoline prices have risen in the past few weeks, wondering what’s going to happen when military action in the Middle East. Politicians are questioning the honesty of the industry. And yes, some of those behind the wheel of gas-guzzling SUVs are probably reconsidering whether they’re willing to dig deep into their wallets to fund the daily commute.

The media — and those familiar with the industry — are blaming a combination of factors, including a prolonged rise in the price of crude oil, the potential war in the Middle East, the unstable political situation in Venezuela (a significant supplier to the U.S.) and the corresponding petroleum-industry strike, terrorism scares, several recent refinery incidents, and an unusually rough season of winter storms that have snagged normal transportation systems.

But there have also been rampant accusations of price gouging at the pump. Nearly two weeks ago, the American Automobile Association’s Washington, D.C., office issued a release that essentially “…reminded the petroleum companies that there is a law regarding profiteering during national emergencies,” according to an AAA official. Thus far, there have been no emergencies declared, but the statement served as a reminder that there are many organizations monitoring the industry for misbehavior.

Then last week, an outraged Senator Charles Schumer (D.-N.Y.), spoke out to Capitol Hill about skyrocketing gas prices and accused the industry of “…trying to make a quick buck” from consumers’ uncertainty over the situation in the Middle East. Schumer called for a Federal Trade Commission investigation into the price situation.

Crude oil pricing

Consumers and politicians are anxious to pin the blame on a particular group, but there is no single clear culprit. A petroleum industry observer opined that crude oil prices have been climbing for months (up 19 percent, to $36.79 per barrel just since the beginning of the year) without a significant change at the pump, and it was only a matter of time before gas prices would spike. But the price of crude is only part of the cost of a gallon of gas, and changes in retail lag those of crude by weeks or months — for the later part of 2002, crude prices were rising while pump prices were still falling slightly.

But with increased public anxiety over a U.S. military action in Iraq and potential retaliatory terror attacks, are retailers unfairly exploiting the situation?

Retailers quickly point fingers back up the supply chain, insisting that they are maintaining the same cents-per-gallon profit margins as usual, and only boosting the price in relation to the rising cost from refiners. Distributors, retailers, and marketers only see about thirteen cents per gallon sold. They insist that prices are not inflated, though a panic-buying spree at the pumps will exaggerate the price swing.

“If consumers rush out and fill everything they have, it actually makes the situation worse,” said Steve O’Toole, executive director of the Oregon Petroleum Marketers Association.

“Don’t start panic buying, because that will just cause panic pricing…and vice versa,” agreed Elliot Eki, an AAA spokesman.

Nationally, this past Friday, the average retail price of regular unleaded was at $1.665 per gallon, up more than 22 cents since the beginning of the year. Left coasters are getting hit the hardest, with the West Coast states seeing prices rise about 40 cents per gallon in the past five weeks and already up to 70 cents above year-ago levels. Regional distributors attribute this largely due to the fact that there are few petroleum refineries, and that petroleum distribution relies more heavily on trucks. San Francisco area pump prices ranked highest in the U.S. as of February 21, according to the AAA, with the average price per gallon of regular unleaded being nearly $2.10 (nearly $2.27 for premium) as of Feb. 21. Meanwhile, average prices in Southern California, Oregon, Washington, and Alaska inched up toward the $2 mark, with many stations charging significantly higher.

Prices remained lowest in the central states, those with low gas taxes, and those near major oil refineries. Oklahoma’s average price was about $1.55, and Georgia was possibly the lowest, at $1.527 per gallon, on average, according to the AAA’s weekly survey of pump prices. In the Atlanta metro area, for example, prices still hover around $1.45 for regular unleaded.

Tips for saving gas

As the price of crude oil has continued to rise, it’s expected that pump prices will gradually climb higher—though not as abruptly as in the past several weeks. It may be a while before prices settle back to where they were just a month ago.

Until then, here are some straightforward ways to help ease the strain on your wallet:

Keep the gas guzzlers in the garage! Super-sized SUV use about three times the gas of a compact sedan—to go the same distance! If you’re not really going to use the space, then why don’t you park the SUV in the garage, take out the city car, and save some money?

Combine trips. Do you need to run a particular errand at the moment, or can you wait and combine it with another trip? If you combine tasks, you’re likely to save time, mileage, and money.

Keep the tires properly inflated. Driving with your tires underinflated is not only dangerous — you also use up to ten percent more fuel. Check tire pressures weekly, or whenever you fill your gas tank. Keep in mind that the pressures given in your owner’s manual or doorsill will be for when the tires are cold: If you’ve just been driving, add 3-4 psi.

Keep your vehicle in tune. If your vehicle is overdue for its periodic service, now’s the time to have it done. Simple routine maintenance items like replacing the fuel and air filters, maintaining the ignition system, and changing the oil can make sure your vehicle is getting its best mileage. Check your owner’s manual for more service/replacement intervals.

Maintain steady speeds whenever possible Avoid quick starts. Accelerate moderately to your desired cruising speed and maintain it, using the cruise control for long distances where traffic isn’t an issue. In traffic, try to anticipate the vehicles ahead so you don’t have to vary your speed as much.

Obey speed limits! Most cars use much more fuel at 80 mph than at 60 or even 70. Keep to the speed limit, and you’ll probably notice a difference in your pump budget. And since traffic’s usually the real issue, chances are you’ll get there almost as quickly, too.

Turn off the A/C at low speeds. Air conditioning systems demand a significant portion of the engine’s power, especially at low speeds. Around town, at less than 40 mph, you’ll save fuel by keeping the A/C off. At higher speeds, it usually uses less energy to instead keep the windows rolled up and use the A/C as needed.

Don’t be idle. Simply put, prolonged idling wastes gas and it isn’t good for your engine either. Whether you’re sitting in traffic or in a parking lot for more than a minute, turn off the engine. Otherwise, you’re wasting it! If the engine’s already warm, it doesn’t take any extra gas to restart.

Use the fuel your vehicle requires. If your vehicle requires regular unleaded, you’re throwing the extra money away by using premium. It likely won’t give any significant difference in performance, fuel economy, or smoothness. But if you have a high-performance vehicle that specifies premium unleaded fuel (there’s usually a reminder inside the fuel-filler door), you may get significantly worse fuel economy with lower-grade fuel, offsetting the lower per gallon cost of the cheap stuff. The fail-safe rule is to just use the grade of gasoline recommended by the manufacturer.

www.forbes.com Reuters, 02.24.03, 3:22 PM ET

NEW YORK, Feb 24 (Reuters) - NYMEX crude oil futures ended nearly a dollar higher for the second successive day on Monday, as the United States and Britain prepared to present to the United Nations a new resolution to disarm Iraq, seen as setting the stage for military action against Baghdad. Heating oil steamed to fresh all-time highs amid forecasts of colder weather ahead in the U.S. Northeast, the biggest user of heating oil in the nation. NYMEX crude oil for April delivery settled at $36.48 a barrel, gaining 90 cents or 2.5 percent, after moving between $35.80 and $36.55. The contract is edging closer to Thursday's $37.55 29-month peak, struck amid escalating fears that a war with Iraq could choke oil supplies from the Gulf region. In London, April Brent crude last traded 91 cents higher at $33.18 a barrel, trading $32.40 to $33.20. On Monday, the United States said it expected U.N. action in "short order" on a new U.S.-British resolution on Iraq, although France, Russia and Germany are opposed to it. The new draft resolution declares that Baghdad failed to take advantage of the final opportunity to disarm peacefully, according to the text obtained by Reuters on Monday. The resolution, to be formally introduced by Britain's U.N. ambassador, Sir Jeremy Greenstock, is co-sponsored by the United States and Spain. A spokesman for British Prime Minister Tony Blair said he hoped the measure would be put to a vote by mid-March, a signal there would be no invasion of Iraq before that time. Getting approval would be difficult in the face of opposition from France, Russia and Germany, who have veto power on the 15-member council. To pass, the resolution needs nine votes and no vetoes. Despite moves to give Iraqi President Saddam Hussein one final chance to disarm, the White House said President George W. Bush "has very little hope that Saddam Huseein will respond to diplomacy" to avert military action. Chief U.N. arms inspector Hans Blix said he does not expect any more talks with Iraq over the destruction of the al-Samoud 2 missiles which were found to exceed the range set by the world body after the end of the Gulf War in 1991. Blix has ordered Saddam to start destroying the missiles by Saturday. NYMEX March heating oil settled 3.4 percent or 3.82 cents higher at $1.1467 a gallon. It surged to a fresh all-time high of $1.1535 a gallon, surpassing the previous record of $1.15 struck on Dec. 3, 1979, a year after NYMEX launched heating oil futures. "Expectations of colder weather have driven heating oil to the stratosphere," said Marshall Steeves, energy market analyst at Refco LLC. Recent large draws in U.S. distillate stocks, including heating oil, have been prompted by a lengthy stretch of severe winter weather in the U.S. Northeast, the biggest regional consumer of heating oil in the world. Supply tightened after an oil strike began Dec. 2 in Venezuela, which before then supplied the U.S. with about 13 percent of its crude and refined product imports. The five-day outlook of private forecaster Meteorlogix calls for temperatures to be as much as 12 degrees Fahrenheit below normal in the region, just as the area is still recovering from last week's worst snowstorm in seven years. The six- to 10-day outlook after that calls for regional temperatures to be near to below normal, Meteorlogix said. Exxon Mobil Corp. (nyse: XOM - news - people), owner of the Staten Island, New York, oil terminal where a gasoline barge exploded on Friday, said it limited fuel sales to Northeast customers due to the incident. The U.S. Coast Guard is investigating. OPEC President Abdullah al-Attiyah said Monday the cartel's producers had another 3 million to 4 million barrels a day of spare capacity to call on should war stop Iraqi exports. The figure is much higher than most independent estimates. News that strike-hit Venezuela had partially lifted a force majeure for exports of some grades of crude oil had little impact on the day's trade. NYMEX March gasoline settled 3.47 cents or 3.4 percent higher at $1.0475 a gallon, moving from $1.022 to $1.049.

www.sun-sentinel.com By DAVID ROYSE Associated Press Posted February 24 2003, 4:22 PM EST

TALLAHASSEE -- Attorney General Charlie Crist wants to know why gas prices have spiked to an all-time high in Florida, so he will meet Tuesday with representatives of six major oil companies.

Officials from ExxonMobil, BP, ConocoPhillips, Amerada Hess, Marathon Ashland Petroleum, and Chevron Texaco Corp. are expected to meet with Crist individually to discuss the oil industry's role in prices at the pumps. Crist spokesman Bob Sparks said the companies were voluntarily sending representatives and haven't been subpoenaed.

We're at record high prices,'' Sparks said Monday. General Crist has just invited the representatives of these companies to share their perspective on why this is so.''

Crist has also asked the Federal Trade Commission to look into whether Florida gas stations are artificially increasing prices to take advantage of possible war with Iraq. Several gas retailers suggested he should look at the whole industry, not just the stations.

According to the American Automobile Association, Florida's average cost per gallon for regular gasoline on Monday was $1.69, up 19 cents from a month earlier and 56 cents higher than the same time last year. It is the highest average price for gasoline ever in the state.

None of the six companies would comment Monday on what their representatives would tell Crist, although BP spokesman Scott Dean said: ``We always cooperate with these requests for information and we're happy to do so.''

But a petroleum industry economist said basic economics are at work and that a ``perfect storm'' of international factors were driving up the price of gasoline, not any kind of gouging or conspiracy by producers.

A two-month national strike in leading oil producer Venezuela, the potential for a strike in Nigeria, a particularly cold winter, a growing economy, and the prospect of war in Iraq all combined to push crude prices up, said John Felmy, chief economist at the American Petroleum Institute.

``This is simply fundamental supply and demand,'' Felmy said. He said crude oil prices have gone up 29 cents a gallon since November and that gas prices have followed suit, going up about 29 cents a gallon since December. He pointed out that in Florida, the price has actually gone up a little less in that period, about 28 cents a gallon.

We don't set prices on world markets, the market does,'' Felmy said. The cost of producing gasoline has gone up 29 cents a gallon.''