ogj.pennnet.com By Paula Dittrick Senior staff writer

HOUSTON, Feb. 18 -- The global oil industry is correct to fear a price drop from current levels and is wise to expect continued volatility during 2003 and beyond, according to Ann-Louise Hittle, Cambridge Energy Research Associates senior director, upstream oil.

During a panel session last week featuring CERA researchers outlining their global energy outlook by region, Hittle said four uncertainties are driving current oil prices: US energy market fundamentals and the economy, worldwide cold winter weather, the labor strike in Venezuela, and fears of war in Iraq.

She presented three 2003 oil price scenarios depending upon whether military action is taken against Iraq.

If there is no war, Hittle predicted an average of $25/bbl for benchmark US West Texas Intermediate on the New York Mercantile Exchange and $24/bbl for North Sea Brent on the International Petroleum Exchange.

"If the US does stage an effective and relatively short, successful war, then prices would average about $29/bbl for the year for WTI and $28/bbl for Brent," she said, adding that this forecast assumes a return of Iraq exports and a gradual return to production capacity. But if the potential war were to turn into a prolonged struggle with numerous casualties, damage to neighboring countries, or very extensive damage to Iraq, she predicted prices would hover around current levels of $35/bbl for WTI.

"We put the downward price risk for the year at about $22/bbl (WTI), if for example, the US economy slips back into a recession, and oil demand growth slows. That would be in the second half of the year," Hittle said.

Downward pressure also would be asserted if "the world were awash in oil in the second half of 2003; however, we don't expect that. We do think the Organization of Petroleum Exporting Countries will cut back on production to keep that from occurring. The market is quite tight."

Beyond 2003 An oil price collapse into the "low teens between now and 2010" would be possible if OPEC fails to hold onto its spare capacity or if Iraq's production returns faster than expected, she said.

Julian West, CERA senior director, oil and environment, said he hopes the oil industry "might see some changes for the better" in coming years despite its chronic problems of an aging workforce, consolidating companies, and shrinking returns.

"If the oil companies do get back into Iraq, they will have access to more potential than anywhere else they are allowed to go," West said, adding he believes assistance from service companies will be vital in Iraq.

For instance when compared to Siberia, Iraq's reserves are easier to develop and produce technically speaking, he said.

"So, it's quite possible to conceive we could see 7 million b/d from Iraq by 2010. This is not a forecast, and it's certainly not the most likely outcome, but it's what we could have if we can get it right with investors," West said.

Worldwide natural gas The next 18 months will be crucial in shaping the future of European power liberalization, said Scott Foster, CERA senior director, European power.

In turn, power liberalization efforts will influence what happens with natural gas demand and price, said Michael Stoppard, CERA director, European gas.

The future of natural gas prices appears robust for the rest of the year even though "the reality in the marketplace feels at odds with the political vision," said Stoppard, adding progress is being made toward more open, competitive markets.

He sees "the sprouting of unbundled pipelines" in Italy, Spain, Belgium, and the UK, adding that he expects that trend to continue.

"The new prize is the UK gas market," Stoppard said, adding he expects the UK to become a net importer of natural gas. Contracts already have been arranged with Norway and with the Netherlands, he said. LNG also will be imported into the UK. The drivers behind LNG projects are reduced costs and improved project execution.

This means that "LNG is ready to move beyond the Mediterranean and improve its market share in cold European markets," Stoppard said. "In late 2002, Russia. . .signaled its own interest in entering UK markets with its proposal to build a pipeline across the Baltic Sea and make its way toward the UK. This symbolizes the threat to LNG in Europe of pipeline gas as pipeline gas wakes up to the new challenge."

New competitive dynamics in 2003 include the first signs of a "price communication or ripple between two markets previously quite unconnected—the current differential between US vs. European gas prices. . . . LNG arbitrage across the Atlantic will indeed be of growing importance in 2003," he said.

Michael Zenker, CERA senior director, North American natural gas, said North American gas imports—which include those into Canada, the US, and Mexico—are going to turn the natural gas industry into a global commodity in which LNG is going to play a critical source.

CERA sees a potential for a North American gas demand of 9 bcfd, or 60 million tons, by 2010.

"But, there are enormous structural challenges to making this LNG potential a reality—capital requirements, contract structure issues, and policy issues," Zenker said. "And, securing natural gas overseas adds a unique geopolitical dimension that is currently not a component at all in the North American natural gas market."

Uncertainly of supply dominates the near-term market as well, he said.

"Quite simply, the North American natural gas market has passed a tipping point. One that we characterize as a point in time in which it became clear that demand was going to outstrip the ability to grow supply," Zenker said.

North American gas supply has become less responsive to price than in recent history, he said.

"The demand that we see is going to be greater than the supply outlook that we have outlined for the next few years. . . . We see the gas market very tight at least for the next 24 months—tighter than at any other time in contemporary history," Zenker said.

Contact Paula Dittrick at paulad@ogjonline.com

reuters.com Tue February 18, 2003 11:11 AM ET By Tom Ashby

LONDON (Reuters) - Oil prices rose toward two-year highs on Tuesday as the United States and Britain pushed for a second U.N. resolution on Iraq that could open the way to war on the world's eighth largest oil exporter.

Biting cold weather in the northeastern United States drove strong buying in heating oil futures, which also pulled up the value of crude.

International benchmark Brent crude oil rose 38 cents to $32.30 per barrel, within a dollar of its two-year high of $33.10 hit last week.

U.S. crude futures, which were closed on Monday for the Presidents' Day holiday, fell 12 cents to $36.68, catching up with Brent's slide on Monday.

"Heating oil is leading this market up, which is not surprising given the weather in the (U.S.) northeast," said Christopher Bellew of brokers Prudential-Bache International.

The White House said it could propose a new U.N. resolution calling for Iraq to disarm as soon as this week, much earlier than previously expected.

"It could take place as soon as this week. It could be next week. The timing will be determined as a result of the ongoing conversations within our government and with the allies," White House spokesman Ari Fleischer said.

European Union leaders closed ranks on Monday to warn Iraq that United Nations arms inspections could not go on indefinitely without Baghdad's cooperation and declared for the first time that war could be the last resort.

But the 15 leaders, bitterly divided over the Iraq crisis, failed to agree on how much time Baghdad should be given to rid itself of suspected weapons of mass destruction.

"An attack at the end of February through to the middle of March still seems almost inevitable," said Lawrence Eagles of brokers GNI.

Iraqi Foreign Minister Naji Sabri urged Arab nations to use their massive oil wealth as a weapon against war.

A similar plea fell on deaf ears last April, when Iraq urged an embargo to protest against Israeli violence against Palestinians.

The Arab-dominated Organization of the Petroleum Exporting Countries, whose members have hiked output to cover for shortages from strike-hit Venezuela, has vowed to do its best to cover any shortfall in Iraqi supply.

OPEC will probably suspend oil output quotas temporarily and pump at will in the event of war cutting off Iraqi supplies, an OPEC source said on Monday.

BAD WEATHER, STRIKES

After a series of severe storms in the U.S. northeast already this winter, the world's largest heating oil market was again battered by Artic cold this week.

Heavy blizzards hit New England on Monday, closing most major airports between Washington and New York. The storm should boost heating oil use, but will also dampen gasoline demand as motorists stay at home.

The threats to supply and strong demand come at a time of record low inventories in the United States, drained by a prolonged strike in Venezuela.

Once the world's fifth largest exporter, Caracas is battling an opposition strike which has crippled the oil industry and slashed exports.

Output there is still only half its normal three million barrels per day, while Nigerian oil workers threatened to cut off exports from Africa's top producer in a strike that began on Saturday.

Blue-collar Nigerian oil workers joined a strike by white-collar workers on Tuesday, but oil companies managed to maintain exports using senior staff to replace strikers.

Talks on ending the strike have been postponed by one day to Wednesday to ensure fuller attendance, officials said on Tuesday.

reuters.com Tue February 18, 2003 09:17 AM ET By Tom Ashby

LONDON (Reuters) - Oil prices edged upwards on Tuesday to hover close to two-year highs as the United States and Britain moved toward a second U.N. resolution on Iraq that could lead the way to war on the world's eighth largest oil exporter.

Iraq urged fellow Arab countries to use their oil riches as a weapon to avert war, although such calls have fallen on deaf ears in the past.

International benchmark Brent crude oil rose 17 cents to $32.09 per barrel, within a dollar of its two-year high of $33.10 hit last week.

U.S. crude futures, which were closed on Monday for the Presidents' Day holiday, fell 40 cents to $36.40, catching up with Brent's slide on Monday.

"An attack at the end of February through to the middle of March still seems almost inevitable," said Lawrence Eagles of brokers GNI.

British Prime Minister Tony Blair said he still wanted a further United Nations resolution before any war on Iraq, but added that he had not reached the time to decide yet.

European Union leaders closed ranks on Monday to warn Iraq that United Nations arms inspections could not go on indefinitely without Baghdad's cooperation and declared for the first time that war could be the last resort.

But the 15 leaders, bitterly divided over the Iraq crisis, failed to agree on how much time Baghdad should be given to rid itself of suspected weapons of mass destruction.

Iraqi Foreign Minister Naji Sabri urged Arab nations to use their massive oil wealth as a weapon against war.

A similar plea fell on deaf ears last April, when Iraq urged an embargo to protest against Israeli violence against Palestinians.

The Arab-dominated Organization of the Petroleum Exporting Countries, whose members have hiked output to cover for shortages from strike-hit Venezuela, has vowed to do its best to cover any shortfall in Iraqi supply.

BAD WEATHER, STRIKES

Oil prices found some support from bad weather in northeast United States, the world's largest heating oil market, the two-month-old strike in Venezuela and a strike by Nigerian oil workers which began on Saturday.

Heavy blizzards hit New England on Monday, closing most major airports between Washington and New York. The storm should boost heating oil use, but will also dampen gasoline demand as motorists stay at home.

Venezuela, once the world's fifth largest exporter, is battling a prolonged opposition strike which has crippled the oil industry.

Output there is still only half its normal three million barrels per day, while Nigerian oil workers threatened to cut off exports from Africa's top producer in a strike that began on Saturday.

Blue-collar Nigerian oil workers joined a strike by white-collar workers on Tuesday, but oil companies managed to maintain exports using senior staff to replace strikers.

www.examiner.com.au By MICHAEL STEDMAN , Wednesday, 19 February 2003   COMMON CENTS:Liberty at Legana was 10c cheaper than stations in the city yesterday.(1/2)

E-mail the Editor editor@examiner.com.au

Tasmania's record high fuel prices have not reached their peak according to Tasmanian Automobile Chamber of Commerce general manager Malcolm Little. Mr Little was unable to predict how far the prices could rise but speculation suggests they could reach anywhere between $1.10 and $1.20 a litre. "The cause of the price rise is self evident and well publicised as a combination of the international reaction to war in Iraq and the general strike in Venezuela. What is less evident is how far prices will rise," Mr Little said. "The light side is that the strike in Venezuela has ceased which should bring relief in future though when we will see that, again we can't be sure." Residents in Legana were given some relief at least with the opening of the Liberty petrol station yesterday. As an opening special petrol was 93.7c a litre. In most areas of Launceston, however, prices were around $1.03. Mr Little said he was unsure if the price rise in fuel had been created in part by oil companies. "I have no evidence to suggest that but I have no evidence against it. Certainly oil companies are adept to making the most of international situations."

Have something to say on this story? E-mail the Editor, phone (03) 6336 7355 or fax (03) 6334 7328. Have a comment on this site? Give us your feedback.

www.upi.com By Hil Anderson UPI Chief Energy Correspondent From the Business & Economics Desk Published 2/18/2003 8:51 AM

LOS ANGELES, Feb. 18 (UPI) -- The impact that the anticipated clash between the United States and Iraq will have on gasoline prices remains largely within the realm of speculation.

For a war that is supposedly about oil, or the liberation of the Iraqi people, depending on your politics, there has been a great deal of uncertainty over how the oil-dependent world will cope with the potential chaos in the Persian Gulf.

Analyses of the situation have boiled down to equally dire predictions of either crude topping $50 per barrel and gasoline surging to nearly $5 per gallon at the pump in the event of a prolonged conflict, or an utter price collapse brought on by the quick "liberation" of Iraq's oilfields and the removal of United Nations' export restrictions shortly thereafter.

"Oil traders have been concerned for months that a war in Iraq...could result in Iraqi oil being removed from world markets and could affect production elsewhere in the Persian Gulf," the U.S. Energy Information Administration concluded in its latest energy outlook. "There have been no shots fired as yet, but the war of rhetoric has produced regular spikes in oil prices."

Gasoline prices at the pump were in a sharp climb by last week's end, reaching levels that the EIA and AAA pegged at some 50 cents over the same period a year ago, and around 20 cents over the price just last month.

The situation has stirred up plenty of worry and ire among consumers who have been grumbling around the office water cooler and filling Internet chat rooms with suspicions about gouging, but few solutions.

June Enmark summed it up last week, while topping off her van at a gas station outside San Diego.

"What can I do?" Enmark asked The San Diego Union-Tribune. "I need gas to get to work."

One woman, who asked to not be identified, told United Press International she got sick every time she drove by a gas station.

"I see the prices rising and I feel helpless," she said, standing next to a behemoth silver SUV. "I have to drive my car; this is Los Angeles where you are what you drive."

Consumer groups and government officials have issued warnings to the oil industry not to mistake the Persian Gulf crisis for a green light allowing large-scale price hikes.

"We have heard complaints of gasoline selling in Texas for well over $2 per gallon," Texas Gov. Rick Perry declared last Friday. "The vast majority of Texas companies conduct their businesses legally and ethically; however complaints received in our offices will be investigated by the attorney general, and I stand firm...in warning companies against trying to exploit consumers."

Trying to get a firm handle on rising energy prices in the past has been a frustrating exercise due to the complex and fluid nature of the oil market. Variables such as weather, refinery maintenance schedules and the overall economy can have an impact on the retail price of gasoline as significant as labor trouble in Venezuela and the anticipated last stand of Saddam Hussein.

In addition, wholesale prices on the petroleum spot market are established daily in an auction-like atmosphere that is volatile, highly susceptible to fears of supply shortages. When such concerns surface, traders working for brokers and oil companies have to pay more to nail down their companies' needs.

Therefore, the price paid at the pump is both difficult to predict and is based on business agendas and not on the foreign or economic policy aims of the United States. As a result, the public is generally left with vague answers that don't do much to ease anxieties about the bullish gasoline market.

The Los Angeles Economic Development Corp. recently predicted that a protracted war could send crude to $55 per barrel as compared to current prices under $37. The rise, of course, would be passed down to consumers.

In addition, environmental regulations require refiners each April to start producing summer-grade reformulated gasoline (RFG) for sale in most major urban areas. Summer RFG keeps emissions in check during hot weather, although it also costs more to produce and reaches the pumps June 1 -- just as vacation season demand kicks in.

Other fuels have been affected as well. A number of airlines have tacked $20 fuel surcharges on to the price of a ticket while Matson Navigation announced higher prices for marine bunker fuels would necessitate adding another 1.5 percent to its surcharge for goods shipped into Hawaii.

OPEC has pledged to keep the oil flowing through the crisis, although there is a risk of war damage to Saudi and Kuwaiti oil facilities, and transportation costs will rise as insurance rates go up for tankers transiting the Gulf.

On the other end of the spectrum is the scenario of a lightning war that ends with Iraq's oilfields captured intact and U.N. limitations on Iraqi exports canceled. The result could be the market suddenly becoming flush with oil and prices crumbling.

Whatever the result of the current crisis, it will likely take the remainder of the year for the market to settle back into a more routine exercise in supply and demand that doesn't include the $3-$4 "war premium" that has been tacked on to the price of each barrel of crude.

And when it comes down to the pocketbook issue of gas prices, eliminating that war premium one way or another is what will bring relief to consumers.

"Our vulnerability is not necessarily found in the volumes of oil we import," Robert Ebel, director of the Center for Strategic and International Studies, told the Senate Energy Committee last week. "Rather, it is the price we pay for the oil we consume, whether secured through imports or from our own oil fields."