www.kansas.com Posted on Sun, Feb. 16, 2003 BY SUDEEP REDDY Dallas Morning News

In 1973, oil was used as a political weapon in the Arab embargo. In 1979, the Iranian revolution disrupted production.

Today, as a possible war with Iraq approaches, fears of reduced oil supplies from the Middle East -- combined with a shortfall from Venezuela -- have sent crude prices soaring again.

Is this the precursor to the next energy crisis? Or just a short-term blip that will pass quickly?

Experts agree that today's oil market is one of the most fragile in decades. But they say oil-consuming nations have learned lessons that could help prevent another full-blown crisis.

"The world of the emergency physical shortage is not likely to emerge the way it did in the '70s," said Amy Jaffe, senior energy adviser at Rice University's Baker Institute for Public Policy. "We might see some giant psychological price we haven't seen in years, for some short period of time. But I don't think it would last that long."

Oil prices have moved higher as the war drums have gotten louder. Crude oil for March delivery closed Friday at $36.80 a barrel on the New York Mercantile Exchange, up about 80 percent from a year ago.

That worries economists. Nine of the country's 10 recessions since World War II were preceded by sharply higher oil prices.

"It's very likely that the current oil prices are contributing to the weakness of the U.S. recovery," said Stephen Brown, director of energy economics at the Federal Reserve Bank of Dallas.

Oil prices between $30 and $40 a barrel are "a cause for concern," he said. "Once you get above that, it's more than cause for concern. It's kind of a one-alarm fire."

In Venezuela, which was the United States' fourth-largest supplier, a 10-week strike at the state oil company has cut production by two-thirds. As a result, commercial U.S. supplies are at a 27-year low -- a point at which refineries could face shortages.

The United States is more dependent on oil imports today than it was in the 1970s. And the world's excess production capacity is 2 million barrels a day, the U.S. Energy Information Administration said earlier this month.

That's the equivalent of Iraq's production, which would fall sharply if war breaks out. In other words, the industry would be hard-pressed to replace a shortfall.

"Oil markets now are as tight as a fully stretched rubber band," the energy administration said. "Whether the rubber band breaks or not will largely depend on the pace of demand in coming weeks."

Gas prices are on the rise nationwide. In Kansas last week, the price of a gallon of regular unleaded gas topped $1.60 -- the highest level ever for the state in February.

Even so, prices are relatively low. In 1981, gasoline was $2.70 a gallon in today's dollars, according to the American Petroleum Institute. (The average price at the pump then was $1.35.) In today's dollars, crude oil reached its historic high of about $80 a barrel in 1980. That was after the U.S. Embassy was seized in the Iranian revolution, resulting in lowered production and the refusal of the United States to import Iranian oil.

The 1973-74 Arab oil embargo -- in which Arab countries retaliated against the United States for its support of Israel -- remains among the clearest reminders of American dependence on foreign oil. Drivers had to wait several hours in lines.

But since the 1970s, oil-exporting nations have worked harder to forge business ties with oil-consuming countries. And the American economy and government changed key practices.

"We were less prepared to deal with higher oil prices because we had built an industry, an economy and lifestyle based on cheap energy," said Allen Mesch of PetroStrategies Inc. "We became sloppy in its use. That meant that when energy prices went up, we were much more exposed to those prices" and their effect on the economy.

Unlike the crippling crises of the 1970s, today the United States and other oil-consuming countries have strategic stockpiles and joint conservation policies that could temper higher oil prices.

"In the '70s we had no one," said Jaffe of Rice University. "No country had strategic stocks, and there was no ability to have a policy to respond to an emergency.... We actually did learn something from '73 and '79, and we have never actually had to test the system from what we learned."

Plans for the U.S. Strategic Petroleum Reserve were launched after the 1973-74 embargo. Construction began in 1977. The salt caverns that make up the reserve -- in four locations in Texas and Louisiana -- have about 600 million barrels of oil.

The emergency system can pump about one-fifth of daily U.S. consumption for 90 days before slowing down.

The first emergency release was in January 1991, as the elder President Bush launched Operation Desert Storm.

If another war breaks out in Iraq, analysts expect the new Bush administration to release oil from the reserve to temper the market reaction.

Military events in the first few days of a war will be crucial for the oil markets. Iraqi forces have reportedly started rigging oil wells with explosives, as part of a "scorched earth" plan to destroy resources.

And any conflict in the Middle East raises worries about collateral damage -- from terrorism against tankers and oil-export terminals, blocked shipping lanes, or even a full-blown attack against other oil-producing countries.

"What drives a lot of fears from people who are responsible for buying this oil is, can they get it where they need to?" said Mark Baxter, director of Southern Methodist University's Maguire Energy Institute. "Is this thing going to escalate into the adjoining Persian Gulf area?

"The uncertainty stalks us from many different angles," he said.

www.khilafah.com uploaded 15 Feb 2003

Oil prices have topped new 28-month highs in London as fears of war with Iraq rise and the US admitts its fuel reserves have fallen to their lowest levels since the 1970s Arab oil embargo. The price of benchmark Brent crude oil shot up 63 cents a barrel to $33.08 in early trade to levels not seen since November 2000.

In New York, US light sweet crude peaked at £36.01 a barrel, the highest level since September 2000.

Demand has been triggered by Arctic temperatures in part of the US as well as a two-month anti-government strike in Venezuela, a key fuel exporter to the US.

"Even without the threat of war in Iraq, there is still upside for crude prices," said Gordon Kwan, oil and gas analyst at HSBC in Hong Kong.

"Despite talk of Venezuela increasing production and more Middle East barrels, it's not feeding into the United States yet and we're still in the depths of winter," he added.

Emergency measures?

The low level of stocks has prompted speculation that the US will release some of its emergency stockpile.

But there is likely to be reluctance to eat into reserves ahead of a possible war against Iraq.

Oil prices are also being governed by international politics and the perceived proximity of such a war.

Traders fear that a war could disrupt supplies from both Iraq, which exports under a special oil-for-food programme, and neighbouring countries.

Nervous investors

Despite the war fears, gold prices have been falling this week.

Gold is often seen as a safe haven investment for nervous investors in times of international tension, and the recent falls have taken some traders by surprise.

War jitters had helped gold to six-week-highs a week ago, trading at more than $390 an ounce.

But bullion dropped to $354.00 an ounce in London at 1200 GMT.

"People are very, very nervous indeed... day traders are bailing out as well," said Peter Tse, senior dealer at Scotia Mocatta in Hong Kong.

www.chillicothegazette.com

E D I T O R I A L

Scioto Valley residents are wondering what a gallon of gasoline will cost when and if the United States goes to war with Iraq.

After all, it's more than $1.70 a gallon at Chillicothe-area stations this week, and we are in the dead of a cold winter where demand is far from peak. Prices jumped about 10 cents this week, following a similar boost the week before.

The experts tell us talk of war, terrorism, unrest in Venezuela, an unusually low supply of fuel and other complicated factors have pushed the price of oil on the world market.

These explanations has merit to a point, but we also note that energy giant BP this week posted an amazing 49 percent growth in profits for the final quarter of 2002. High oil prices were cited as one reason for BP's strong financial performance, which actually reversed a negative trend.

Although many residents (and more than a few Gazette readers have called us to complain about the rising prices) get angry with normal mid-week price fluctuations in our free-market economy, the recent trends warrant real concern.

The American Automobile Association, or AAA, has expressed concern about the recent gasoline hikes. While the group acknowledges the oil issues cited by the major gas suppliers, it added in a news release that "nothing fully justifies the dramatic increase experienced across the United States in the last month." The AAA spokesperson didn't come right out and use the phrase "price gouging," but the message was clear.

Our government should keep a close eye on the oil industry to make sure it does not exploit world tensions to boost bottom lines. Every penny or dime they charge takes money from people who might spend it elsewhere and help stimulate the economy.

Some states, including Ohio, are worried high energy prices will further drain state revenues and force higher taxes or more government cuts. Ohio's present budget crisis doesn't need any more bad news.

We urge both the federal and state governments to keep a close eye on gas prices and place appropriate pressures on the corporate giants that determine pump prices.

We also urge citizens to remain vigilant of examples of possible price gouging. If citizens believe it is occurring, contact both the attorney general's office and us.

Originally published Saturday, February 15, 2003

www.signonsandiego.com By Frank Green UNION-TRIBUNE STAFF WRITER February 15, 2003

Gasoline prices have surged at a record rate of 10 cents a gallon in San Diego County since Monday, sparking assertions by some industry observers that refiners are gouging motorists.

The average cost of a gallon of unleaded regular yesterday was $1.88 – 50 cents higher than at this time last year, according to a survey of 550 area stations by the Utility Consumer's Action Network.

Meanwhile, a survey by the Automobile Club of Southern California released yesterday indicated a slightly lower average in the county of $1.83.

The cost of fuel may be rising so fast that the surveys can't keep pace.

At a 76 station in Hillcrest yesterday, unleaded regular was going for $1.96, while a Chevron station in Mission Valley had the grade priced at $1.94.

Those prices are uncomfortably close to the record county high of $2.02 a gallon in May 2001.

"What can I do? I need gas to get to work," said June Enmark, who was filling up her van at a Mobil station in La Mesa yesterday afternoon.

Oil industry executives said yesterday that the high gas prices reflect steep increases in world crude-oil prices, which have jumped because of jitters about a possible war with Iraq, low oil production from strike-torn Venezuela and continued high fuel demand from U.S. consumers, among other factors.

"I can only say that gas prices are based on supply, demand and competition, and when you look at the marketplace you have to consider those three factors," said Nicole Hogson, a ChevronTexaco spokeswoman in San Francisco.

AAA spokesman Geoff Sundstrom said the price spikes of recent weeks aren't justified and are "uncomfortably close" to gouging.

Sundstrom made his remarks based on a national AAA survey showing the average fuel price across the country at $1.63 – 25 cents a gallon less than the San Diego price cited by UCAN.

Likewise, UCAN spokesman Charles Langley said the activist group is concerned that refiners might be taking advantage of world tensions to extract artificial profits.

"Is this real or is it opportunistic gouging?," asked Langley. "The only way to really know is after-the-fact forensic accounting."

UCAN estimates that for every penny jump in fuel prices, the average household pays an extra $10 or so for gas over a year if the increase is sustained.

"That is a lot of money taken out of the local economy," Langley said.

Oil-industry analysts said the pain at the pump isn't likely to end soon.

Fuel prices could rise by an additional 25 percent to over $40 a barrel before rich nations open the taps at their massive emergency stockpiles to cool the rally, the analysts said.

Prices already have jumped 45 percent in three months to the mid-$30s per barrel.

The West has so far balked at releasing stockpiled oil, confident that Saudi Arabia and others in the Organization of the Petroleum Exporting Countries are stepping in to cover shortfalls.

But analysts said a stockpile release may be needed to cap prices in the $40s in the event of war with Iraq, the world's eighth-largest oil exporter.

If the United States and Britain decide a military operation is necessary, the key question is whether there will be a simultaneous announcement that the U.S. Strategic Petroleum Reserve will be used, said Adam Sieminski of Deutsche Bank.

"I think it will, and this should prevent prices going much over $40," Sieminski said.

Reuters contributed to this report. Frank Green: (619) 293-1233; frank.green@uniontrib.com

www.theunion.com February 15, 2003 Grace Karpa Take the golf clubs out of your trunk and put air in your tires to take the sting out of your next gas fill-up. That's the advice from AAA of Northern California's Sean Comey to improve gas mileage in the face of gas prices that he describes as rising "quickly and dramatically." A labor strike in Venezuela as well as speculation about a war with Iraq has driven up the price of a barrel of crude oil to more than $30 a barrel. A month ago a gallon of unleaded gasoline cost $1.66 on average in California; on Friday the cost was $1.84 a gallon. A year ago, the cost was $1.29. In a survey of nine gas stations in Nevada City and Grass Valley Friday, the average price was $1.81. Prices generally rise around March, when demand for fuel increases along with the high driving season, Sean Comey, spokesman for the AAA of Northern California. San Francisco heads the list as most the expensive place to buy gas in California. On Feb. 11, the average cost of a gallon of unleaded gas was $1.95, compared to $1.60 in Las Vegas on the same day. "Gas stations get a lot of the blame when gas prices go up five and ten cents a gallon, but there are a lot of taxes," Comey said. In fact, 30 percent of the $1.39-per-gallon cost of unleaded gas in December 2002 went for taxes, according to the Energy Information Administration in the Department of Energy. Forty-six percent of the $1.39-per-gallon cost of unleaded gas was for crude oil, 12 percent was for distribution and marketing, and 12 percent for refining, according to the DOE. Local service station managers shied away from answering questions about how they price gasoline at their stations and refer reporters to corporate headquarters. A manager of a local 76 station wrote out a phone number for a corporate office, where spokeswoman Julie Igo said, "We really defer to industry associations to speak on behalf of the industry." Juan Palomo, spokesman for the American Petroleum Institute, said his association "is not allowed to keep track of how all the organizations set prices for a gallon of gas." "It varies for the simple reason that each station is individually owned and, even though they have the same brand of gas, they are owned by different people who use different methods to decide how much to charge and to survive and to make a decent return on investment," Palomo said. Land prices vary so much from neighborhood to neighborhood, he noted. For instance, a gas station on San Francisco's Nob Hill would have higher prices than one in Gilroy. Comey urged drivers to shop aggressively and to remember that only about 10 percent of cars need premium gasoline. "It'll say in the owner's manual or on the fuel cap if your car needs premium," Comey said.