www.timesofoman.com

MUSCAT — Talal bin hamed Al Aufi, marketing director at the Oil and Gas Ministry, said the international oil prices rose due to the current Iraqi crisis, the fears that war may break out and the political circumstances in the region.

He said in a statement to Oman News Agency (ONA) that the international oil markets fear that Iraq oil supplies may cease, and that the UN inspectors’ report about Iraq’s weapons of mass destruction may add to the tension between Iraq and the US.

Aufi added that the current surge in oil prices is also due to a rise in demand for the heating gas during the winter season.

He said with regard to Venezuela, it’s still not clear whether it will restore its production levels which prevailed before the strike which had also contributed to the current high oil prices in the international markets.

He noted that Opec plays an active role in encountering the challenges and works towards the stability of oil prices, adding the sultanate is fully confident that the Opec will have a remarkable role in compensating for any shortage in oil supply in the future. — ONA

www.sunherald.com Posted on Tue, Feb. 25, 2003 DULUE MBACHU Associated Press

LAGOS, Nigeria - Cars and buses ground to a halt Tuesday in Africa's leading oil-producing nation, gripped by its worst fuel shortage since military rule ended four years ago.

In the commercial capital, Lagos, hundreds of thousands of commuters were stranded and most buses - the main means of transport in this overcrowded city of 12 million people - were off the streets for lack of fuel.

The West African country is the world's six-largest exporter of crude but it doesn't have the refinery capacity to meet its gasoline needs.

Lines first formed at gas stations on Feb. 17 during a strike by government employees overseeing loading at export terminals and fuel distribution depots, but shortages continued even after the strike ended Feb. 20.

The state-owned Nigeria National Petroleum Corp. initially blamed the crisis on motorists who engaged in panic-buying but later acknowledged a serious shortfall in supply. Lagos is sub-Saharan Africa's largest city.

The crisis hit at one of the key claims of President Olusegun Obasanjo's civilian government - that it had eased the chronic gas crunches of preceding decades of corrupt military rule.

Jackson Gaius-Obaseki, head of the petroleum corporation, said late Monday that the country's strategic reserves had dropped from enough stocks to last 24 days to enough for 11 days.

He said efforts to replenish supplies were being hampered by rising global oil prices caused by the threat of war in Iraq and a prolonged strike that hit the industry in Venezuela.

Of 11 shipments of fuel ordered by Nigeria in January, less than 30 percent arrived.

Motorist Daniel Abegun, who waited Tuesday for more than five hours at a Lagos gasoline station, accused station managers of selling fuel to black-marketeers and smugglers.

Nigeria, with a population of 120 million people, consumes 300,000 barrels of crude oil daily. The country's four poorly maintained refineries usually account for less than half of that. The rest is imported. Half of the country's crude output goes to the United States.

The shortages come at a politically sensitive time for Obasanjo, who was elected in 1999, is running for re-election in April.

Under a succession of military rulers since independence in 1960, Nigeria suffered nearly constant shortages as a result of endemic corruption, mismanagement and smuggling of fuel to neighboring states.

timesofindia.indiatimes.com SANJAY DUTTA TIMES NEWS NETWORK[ WEDNESDAY, FEBRUARY 26, 2003 12:15:41 AM ]

NEW DELHI: State-owned oil companies have placed advance orders for two months' supplies of crude oil from countries that have shipping routes beyond the Middle-East to guard against disruption in case of an US attack on Iraq.   "These contracts are in addition to the two months' stocks already being maintained by the refineries," oil minister Ram Naik, who completed 25 years in public office on Tuesday, told Times News Network.   Declining to name the countries on the ground that these were part of a sensitive "contingency plan", Naik said, "We are ready for any eventuality".   Ministry sources said the new oil sourcesinclude Brazil and Venezuela in South America, Russia as well as Angola, Nigeria and Libya in Africa.   "The idea is to tap countries from where oil tankers can sail without passing through the danger zone," one official said.   Middle-East countries at present account for one-third of India's oil imports, estimated at 70 million tonnes a year. The country needs roughly 105 million tonnes of oil a year, with only 30 per cent coming from domestic production.   India has in place term contracts with most of the Middle-East countries like Saudi Arabia (7.5 million tonnes), Iraq (1.5 mt), Kuwait (3.5 mt) and Iran 4 mt). It also has contracts with Yemen, Abu Dhabi and Qatar.   At present companies stock crude oil for 23 days (including 11 days of stocks in transit), petrol for 53 days, diesel 43 days, kerosene 51 days, cooking gas 19 days and jet fuel for 88 days.   The country needs 10 million tonnes of petro-products every month, while domestic monthly production is estimated at 3 million tonnes.   Naik said the oil companies were keeping their tanks topped up since last year's escalation with Pakistan. During this time, these firms are estimated to have spent Rs 1,100 crore on maintaining the inventory. However, some of it had been offset as they made money on initial stocks, which they had bought cheap, as international prices rose subsequently.   Naik said the possibility of war in Iraq, strike by oil workers in Venezuela and winter demand in the West had contributed to the surge in international crude prices which have breached the $36 a barrel-mark. "This has forced domestic prices to rise," he said.

www.thebatt.com BY SARA FOLEY February 25, 2003

The recently climbing gas prices may only be foreshadowing the extreme stress a possible war with Iraq could put on the economy, and, in particular, oil prices. Right now the rise in gas prices is attributed to war panic, and a strike by oil producers in Venezuela, the world's fifth leading exporter of oil. However, should conflict become intense in Iraq and the surrounding region, it would most likely restrain oil shipments, a problem since almost a fourth of oil imported to the United States in 2001 originated from the Middle East, according to the Energy Information Administration's Web site.

Despite the obvious pressure on Iraq and the surrounding Persian Gulf region due to a possible war, the United States continues to import the majority of its oil from such sources. What is needed is not peaceful relations with neighboring countries, cooperation with Iraqi oil companies, or a decrease in United States oil consumption, although that wouldn't hurt. The United States needs to dramatically decrease its invested interest in Middle Eastern nations' oil supplies and focus on alternative oil sources. Russia, which is the world's second largest oil producer, only delivers a small fraction of its oil to the United States. The reason behind this is certainly not a lack of demand, but complications transporting oil to the United States from Russia, according to the Energy Information Administration's Web site.

By supporting the Russian oil effort, Americans will not only be lowering the prices they are paying for gas, but they will be refusing to support the economies of countries who are our enemies.

As of now, Russia utilizes a number of long distance pipes to transport oil from Russia to various countries in Western Europe. The problem is that Russia has no straightforward way to ship oil to the United States. However, a deepwater oil terminal at Murmansk has been suggested that would enable Russian oil to reach the United States. The mere suggestion, however, will not get oil to the United States or lower our prices, and in reality a strong effort is needed to encourage this act to actually occur. If businesses do invest in the Russian oil market, tensions due to Middle Eastern conflicts will ease.

Furthermore, if the United States did engage in a closer business relationship with Russia, it would not only benefit Americans, but Russia as well. Russia's oil industry, which has been struggling to catch up to technological advances that occurred before the fall of the Soviet Union, has made recent strides in producing and refining oil, but there are still more advancements to be made, according to Peter Valko, associate professor of petroleum engineering.

"Russia exports more than it used to because of capital investment, and since the fall of the Soviet Union, exports have been steadily increasing. Before trade can increase with the United States, you need political stability in Russia," Valko said.

To build this political stability, financial investments must be made in Russia, as well as other countries that are secondary oil sources for the United States. Nigeria, South America, and Mexico all have multitudes of oil reserves not being pumped to their capacity because the United State's oil needs are already being met by the Middle East. By making plans now to invest in Russian oil as well as other global sources, the United States will protect itself from possible problems that could arise due to conflict with Iraq.

www.miami.com Posted on Tue, Feb. 25, 2003 BY PATRICK DANNER pdanner@herald.com

As oil prices go, so goes the oil industry. And with oil prices surging to their highest levels in at least two years, oil companies are poised to reap rich profits.

''When prices rise, it looks like they're coining money,'' says Craig Pirrong, director of energy markets for the University of Houston's Global Energy Management Institute.

A comparison of oil prices and the bottom line of some major oil companies shows that the industry generally racks up greater profits when prices are at or near their peak. Earnings tend to tumble when oil prices bottom out.

The oil and gasoline industry is sensitive to the topic, particularly now. Tempers have been rising right along with prices at the pump.

The automotive club AAA, raising the possibility of gouging, has called current gas prices unjustified.

Florida Attorney General Charlie Crist has called for federal authorities to investigate and is scheduled to meet today with the representatives of six oil companies.

Connecticut Sen. Joseph Lieberman, a Democratic presidential candidate, asked the energy secretary on Monday to look into the recent rise in gas prices.

Within the last week, according to AAA, drivers in South Florida and throughout the state have paid historically high prices -- $1.729 in Miami, $1.723 in Fort Lauderdale, $1.696 statewide -- for regular gasoline.

But while the oil industry acknowledges the connection between prices and profits, it insists the link does not tell the whole story.

''Industry critics chastise oil companies for gaining what they claim are unconscionable profits,'' the American Petroleum Institute, which represents the industry, says. ``The truth is, however, that industry profits have been very much in line with those of other industries. And often they are lower.''

Last week, oil prices topped $37 a barrel, their highest level since the last half of 2000, when a barrel of light sweet crude cost as much as $37.20. Before that, oil prices had not reached such levels since late 1990 -- when the United States was last on the verge of war with Iraq.

During these periods, oil companies registered some of their biggest earnings.

''The price of oil and other energy commodities are inherently volatile,'' Pirrong says. 'There's a direct linkage between [companies'] financial performance and the price of oil and energy commodities, [and it] inherently generates volatility in their financial performance and earnings.''

The price of a barrel of oil is trading high for a variety of reasons, says Rayola Dougher, a senior policy analyst with the American Petroleum Institute.

Among them, she says, are the following:

• Venezuela, a significant source of oil, has been coping with a strike that has reduced exports to the United States.

• Oil inventories are at their lowest levels since 1975.

• The cold winter through much of the United States has increased the demand for heating oil.

• Jitters about possible war with Iraq have traders bidding up prices to secure supplies.

DOUBTS REMAIN

AAA is unconvinced.

''It's difficult to understand . . . why the price has gone up so steeply,'' says Geoff Sundstrom, a spokesman for the Orlando-based auto club. ``No oil tankers have been sunk; refineries are operating; oil is flowing.

''We are not trying to be harsh on the industry,'' he says, ``but we did feel the big increase after the State of the Union address seemed to be based on fear and speculation.''

Sundstrom says there is an almost instantaneous increase in gasoline's wholesale price when the price of crude rises. The oil companies attribute that to their need to anticipate inventory-replacement costs, but, Sundstrom says, ``the problem with that is we don't see an immediate drop in gas prices when the price of crude oil goes down.''

Dougher counters that current gas prices are nowhere near historical highs. Adjusted for inflation, she notes, a gallon of gas in 1981 would cost $2.71 in today's dollars.

''I don't know why AAA does this,'' she adds. ``Every time the price goes up, they do this. Maybe they think it keeps their constituents happy. They're just not dealing with the facts.''

According to Dougher, a close look at oil companies' profit margins (net income divided by sales) shows the fuel industry's profits lagging behind those of U.S. industry as a whole over the last five years. Citing data from BusinessWeek, she says the fuel industry's profit margin has been 4.7 percent, compared with 5.2 percent for all U.S. industry.

PROBE DEMANDED

Nonetheless, the price jump has fueled calls for investigations into why gas prices are rising and possible manipulation or gouging.

Last week, Crist sent the Federal Trade Commission a letter, requesting that it look into the increase.

On Monday, Lieberman urged U.S. Energy Secretary Spencer Abraham to investigate.

When gas prices skyrocketed in the West in 2000 and in the Midwest a year later, the FTC investigated and reached the same conclusion.

''In both cases,'' FTC spokesman Mitch Katz says, ``the commission did not find that illegal anticompetitive behavior or collusion had led to the price increases.''

Adds Dougher: ``The FTC . . . [has] done numerous investigations over the years and . . . never found any anticompetitive behaviors. What [it has found is that] market forces are determining the price of gasoline.''

HUMAN NATURE

When oil prices are high, oil companies typically see profit gains in exploration and production (referred to as ''upstream'' operations). The reason is simple: The crude taken out of the ground is more valuable.

But profits from the downstream operations of refining and marketing -- from the making of products from crude, that is, and from those products' sale to consumers -- typically tumble. That's because the price of a barrel of oil will have climbed.

'When oil prices rise, more often than not but not always, refiners' margins tend to be squeezed,'' says Jon Rasmussen, a financial economist with the Energy Information Administration, the statistical arm of the Department of Energy.

Take ChevronTexaco. In the fourth quarter last year, when the price of a barrel of light sweet crude averaged $28.23, the San Ramon, Calif.-based company's exploration and production operations generated more than $1.2 billion in operating earnings, up from $544 million in the same period in 2001, when the price of oil averaged $20.53 a barrel.

But ChevronTexaco's refining, marketing and transportation operations lost $151 million in the most recent quarter, compared with a $215 million profit over the same period a year earlier.

On the other hand, downstream operations generally do well and upstream operations falter when oil prices tumble. When prices fell to $12 a barrel in late 1998, some of the major oil companies' profits declined.

Low oil prices, however, rarely spark debate.

''These things,'' Pirrong says, ``get the most attention when prices are high.''