www.forbes.com Reuters, 01.29.03, 3:38 PM ET

NEW YORK (Reuters) - NYMEX crude oil futures ended nearly a dollar higher Wednesday amid a steep drop in heating oil and gasoline stocks due to heavy cold weather demand and refinery run cuts.

Fears that a U.S.-led attack against Iraq could begin in late February or early March also supported buying sentiment as fresh U.S. diplomatic efforts being mounted in a final bid to avert war were seen as unlikely to avert conflict.

NYMEX March crude settled up 96 cents, or 3 percent, at $33.63 a barrel, after hitting a session high of $33.85. The day's peak was not far below the 26-month high of Jan. 21 at $35.20, built on fears of a possible war on Iraq.

In London, Brent March crude settled 75 cents higher, or 2.5 percent, at $31.02 a barrel.

"The real shock that jump-started today's advance with the inventory report was not the expected 0.5 million barrel decline in crude oil stocks, but the combined 10.5 million barrel drop in product inventories," said Tim Evans, senior energy market analyst at IFR-Pegasus in New York.

The day's rally carried prices back to the top of their recent range and averted any chance that the lack of an actual declaration of war with Iraq by President Bush in his State of the Union address Tuesday night could lead to a downside break, Evans added.

NYMEX February heating oil surged 4.09 cents, or 4.4 percent, to end at 97.13 cents a gallon, after rallying to an intraday high of 97.50 cents, the highest level since Dec. 17, 2000.

NYMEX February gasoline soared 4.41 cents, or 4.8 percent, at 97.13 cents a gallon, It peaked at 97.20 cents, the highest since June 3, 2001.

The United States on Wednesday said it was beginning a "final phase" of diplomatic consultations aimed at gathering support for increasing pressure on Iraqi President Saddam Hussein to disarm in one last bid to avoid war.

But German Chancellor Gerhard Schroeder, one of the European leaders strongly opposed to the war, said Wednesday he was unsure whether diplomacy can avert conflict.

U.S. Secretary of State Colin Powell is to present intelligence about Iraq's alleged weapons of mass destruction to the U.N. Security Council on Feb. 5.

In overnight trading, prices dipped after Bush did not call for immediate war on Iraq in his Tuesday night address. The losses were limited, however, as Bush also made clear the United States was prepared to act to disarm Iraq with or without U.N. backing.

"We will consult, but let there be no misunderstanding: If Saddam Hussein does not fully disarm, for the safety of our people, and for the peace of the world, we will lead a coalition to disarm him," he said.

Iraq has consistently denied it holds banned weapons. Meanwhile, the U.S. military announced it had called up more reservists, in addition to recent orders to deploy two more aircraft carriers to the Gulf region -- bringing carriers within striking distance of Iraq to four.

In its report, the EIA said U.S. refinery runs were down 2.8 percentage points to 87.2 percent of capacity, as many refineries began seasonal maintenance.

The slower pace of processing led to a contra-seasonal draw of 3.3 million barrels in gasoline stocks.

Crude stocks fell by a modest 500,000 barrels, as refiners apparently continued to find other foreign sources for crude oil to replace barrels in the wake of a 59-day-old strike in Venezuela, a major U.S. supplier. (Reporting by Gene Ramos; editing by Gary Crosse; Reuters Messaging: gene.ramos.reuters.com@reuters.net; +1 646 223 6054; email: gene.ramos@reuters.com)

www.nzherald.co.nz 30.01.2003 8.30 am

NEW YORK - Oil prices shot up another 3 per cent on Wednesday, amid a big drop in US winter heating fuel stocks and deepening oil supply worries as the White House prepares for possible war with Iraq.

US light crude jumped US$1.15 to US$33.82 a barrel in afternoon trading, within US$1.40 of a 26-month high struck last week. London Brent blend rose 87 cents to US$31.14 a barrel.

The threat of war in the Gulf region which supplies 40 per cent of world crude exports and a strike that has cut exports from Venezuela have pushed up crude prices over 35 per cent since late November.

The White House said Wednesday the standoff with Iraq over UN disarmament demands was entering a "final phase" in which President George W. Bush and other US officials would intensify diplomacy in one last bid to avoid war.

In his State of the Union address yesterday, Bush said Iraq, the world's eighth largest oil exporter, had shown "utter contempt" for the United Nations, but stopped short of calling for immediate war.

Bush said Secretary of State Colin Powell would reveal new intelligence on Baghdad's alleged weapons of mass destruction to the UN Security Council on Feb. 5.

German Chancellor Gerhard Schroeder, one of the European leaders most strongly opposed to war on Iraq, said Wednesday he was unsure whether diplomacy would succeed in averting a conflict.

"The market has completely accepted that there will be war and that's already in the price," said Sarah Emerson, managing director at Boston-based Energy Security Analysis (ESAI).

"The timetable was set months ago by troop deployments. They will all arrive by the end of February."

The UN controls Iraq's oil revenues under the 1996 oil-for-food programme, imposed as a humanitarian exception to sanctions to allow Baghdad to purchase food and medicine for ordinary Iraqis. Over the last four weeks Iraq's oil exports in the programme have averaged 1.66 million barrels per day.

Fresh gains came as the US government reported that a two-week freeze across the eastern part of the country lopped over 3 million barrels, or 8 per cent, from heating oil stocks last week.

Supplies are now 16 per cent below normal levels. Home heating oil prices are at 23-month highs, up 25 per cent from last year strengthening concern over the economic impact of higher energy costs.

While the freeze forecast to abate in coming days, supplies may not recover as the high cost of crude oil is forcing refiners to cut their production.

"The situation is still tightening at an alarming rate, and as would be expected at this point all the pressure is on oil products" said Paul Horsnell of J.P Morgan bank.

The United States has taken about two-thirds of all Iraq's exports in January, amid a dearth of shipments from key supplier Venezuela since early December due to a national strike.

Venezuela, which normally supplies more than 13 per cent of US oil imports, is managing to bring more strike-hit oil production back onstream.

Opposition oil workers in a daily report said output tapped a million barrels a day Wednesday, a third of normal levels. The government has used troops and replacement crews to break the 59-day protest, which aims to force President Hugo Chavez to resign and call an election.

The Opec producer cartel, which pumps around a third of world oil supply agreed this month to raise production to help fill the Venezuelan shortfall.

Saudi Arabia and the United Arab Emirates are now the only nations with spare capacity to meet any further loss of global supplies.

So far, the United States has opted not to tap emergency reserves to ease supply concerns, although on Tuesday the Energy Department said it approved oil company requests to delay delivering 4.4 million barrels of crude to the Strategic Petroleum Reserve.

That oil will now be available to refineries to process into gasoline, heating oil and other petroleum products.

The reserve, created by Congress in the mid-1970s, currently holds 599 million barrels of oil in a series of underground salt caverns at four government sites in Texas and Louisiana.

allafrica.com Daily Trust (Abuja) January 29, 2003 Posted to the web January 29, 2003

Ikenna Emeka Okpani

The Presidential Adviser on Petroleum Resources, Dr. Rilwanu Lukman, has said that the Federal Government will increase the daily production of oil in Nigeria from the current 2.2 million barrels per day to three million barrels per day before next year.

The special adviser, who was speaking at the 3rd Global Guest on Voice of Nigeria (VON) Forum, yesterday said the Federal Government is giving priority attention to the oil sector.

He said the government has set out a plan to increase daily production from the present 2.2 million barrels to 3 million barrels per day by the end of the year.

Additionally, the country, he said, was working towards increasing its oil reserve from 30 billion barrels to 40 billion barrels by 2010 even as policies to generate as much funds from gas as is presently from oil are underway, especially with planned stoppage of gas flaring.

"These are aside activities in restructuring and revitalisation of oil and gas industry which are parallel exercises that we are doing which are intended to go pari pasu with development out there in the field, because with the right fiscal regime, right structure of the constituent organisations that are working in the oil sector, the private companies, the joint ventures and all these are necessary to go along with the plan to expand and to rehabilitate the oil and gas industry," he said.

Dr. Lukman stated that Nigeria has continued the importation of oil to supplement the production of our refineries adding that this will continue except all the country's refineries are producing at full capacity.

Presently, he noted, the Port Harcourt Refinery, the largest in the country is producing at 90 per cent installed capacity while those of Kaduna and Warri are slightly above 50 per cent and cannot in all meet Nigeria's daily fuel consumption put at 450,000 barrels per day.

It is to meet this target and end importation that the government was considering applications received so far for private refineries, he said.

When the private refineries begin operation, Alhaji Lukman observed, Nigeria will begin to export refined oil which will translate to more income for the country and stop importation of refined products which has continued to strangle plans to end government subsidy in the sector.

The special adviser stated that Nigeria will submit its request for increase of OPEC quota in March this year at the conference of the organisation but cautioned that the process of quota increase was not simple since many other countries including Saudi Arabia which has a quota of eight million barrel per day as at now are also seeking such increases.

On the increase of world oil prices which has hit $32 per barrel in recent times as a result of US threat to attack Iraq and strikes in Venezuela, Alhaji Lukman advised Nigerians to view such increases as not real as prices could fall so low after the settlement of the issues.

The Global Guest on Voice of Nigeria, according to Alhaji Abubakar Jigawa, who represented the Director-General of the organisation at the programme, is aimed at featuring issues affecting Nigeria, Africa and the world in general.

Alhaji Lukman is the first Nigerian quest to appear on the quarterly programme which started last year.

sg.biz.yahoo.com Wednesday January 29, 11:57 PM By David Bird A Dow Jones Newswires Column

NEW YORK (Dow Jones)--In his State of the Union address Tuesday night, U.S. President George W. Bush flatly didn't declare war on Iraq.

ADVERTISEMENT But the message couldn't have been clearer if he had dressed as Groucho Marx, the leader of Freedonia in the movie "Duck Soup," rousing the troops in song: "In case you haven't heard before, I think they think we're going to war...We're going to war!"

The end of the State of the Union address is the start of a State of Higher Anxiety for oil markets, with the sole focus now the timeline for an assault on Iraq.

Crude oil futures prices, trading above $30 for the last 30 days on Nymex, face the real prospect of a spike or collapse in coming weeks - with a good probability of both. It's quite likely we'll have seen crude near $40 and near $20 by the end of March.

The pace of the march toward war grows faster each day. The next major milestone will be Feb. 5 when, Bush revealed last night, Secretary of State Colin Powell will address the United Nations Security Council, disclosing thus-far secret intelligence showing Iraq is hiding weapons of mass destruction from U.N. inspectors.

The next key date will be Feb. 14, with what we see as the last report of U.N. weapons inspectors to the Security Council before war.

There's little reason to expect Iraq will reverse its policy of obfuscation of inspectors by then, but Germany, which chairs the Council next month, has asked for a further report. The U.S. and the U.K. have signaled they don't have a problem waiting a few more weeks, as this will allow further deployment of troops and materiel to the region.

Oil traders have to figure out how they are going to trade at what will be a crucial - perhaps decisive - time. That's because the New York Mercantile Exchange,- the world's biggest oil market, will be shut when the drums of war, no doubt, will bang louder.

Nymex Holiday May Put Traders On Ice

Nymex is scheduled to shut early (1300 local time) on Friday, Feb. 14, ahead of the Presidents' Day holiday on Monday, when the market will be closed. After-hours Access trading won't begin until 1900 local time on Feb. 17.

While no one is giving clear timing for bombs over Baghdad, we continue to hear that a U.S. offensive could begin much sooner than indicated and with fewer troops in position than are anticipated by the middle, or the foreboding Ides, of March.

The rhetoric on Iraq will reach fever pitch in coming days. Bush will be joined in Washington later this week by his chief ally on Iraq, British Prime Minister Tony Blair. Blair's foreign secretary, Jack Straw, declares Iraq in "material breach" of U.N. ceasefire resolutions signed at the end of the 1991 Gulf War. Simply put, that means that if the ceasefire isn't valid, the war is still on.

Saddam's top aide, Tariq Aziz, also sounds as if he thinks the 1991 war is still on. Aziz pointedly warns that Kuwait could face attack again, if it serves as a launching post for a U.S. strike.

While that isn't exactly surprising, it's clearly causing ripples in the region and fears that Saddam may lash out in all directions when he feels he has no other option. Saddam is nothing but unpredictable - who foresaw the lighting of the Kuwaiti oil field fires? - but the most optimistic in the Gulf hope that he'll decide on exile once - and only when - the bombs start falling.

Our soundings from Saudi Arabia these days are tinged with more concern about managing a fierce fall in oil prices after a quick conflict, rather than trying to cap a spike. While that may be overly optimistic, the thinking is that although oil prices will skyrocket with word of the first U.S. missile launch, Saddam's forces, by and large, will crack like an eggshell and refuse to fight, as in 1991.

There will be an inevitable cutoff of oil supplies - perhaps throughout the Gulf region - just at the time the fighting begins, but shipments (except from Iraq) will quickly resume.

There's widespread anticipation that the U.S. and its partners in the International Energy Agency will release crude oil from emergency stockpiles to assuage supply fears. And, if 1991 is an indicator, that will be the beginning of the end for high crude prices.

First A Spike, Then A Glut

While the Saudis have pumped up supplies to about 9 million barrels a day, as expected, and there's talk of going higher, if needed, the real concern is on how to avoid a coming glut.

That puts focus squarely on the Organization of Petroleum Exporting Countries and its March 11 meeting.

After boosting output to cover lost supplies from Venezuela and build a cushion ahead of war with Iraq, OPEC will likely have to focus on the seasonal drop of more than 2 million b/d expected at the start of the second quarter.

We're reminded that although OPEC's basket price is averaging $30.31 so far this year - well above its $22-$28 target range - the always-conservative Saudi budget is pegged at a price of under $20. And that speaks volumes to the difficulty OPEC will face in trying to put a floor under prices.

While low U.S. oil inventories and the need for restocking may soften the impact of a price freefall, the season of heavy refinery maintenance is near, cutting real demand for crude, too.

Latest data show U.S. stocks still hover near critical levels, with Midwest crude stocks at their lowest-ever weekly level since government data collection began in 1990. Midwest stocks are a crucial indicator because the region houses the delivery point for crude against the Nymex futures contract.

Tight U.S. stocks will continue as a prop for high prices as the war scenario develops.

Venezuela Can't Find Its Customers

Venezuela remains a wild card for the market. As a widespread strike nears the start of its third month, crude output has crept up to 1 million b/d from about 400,000 b/d earlier this month, but is still at one-third of its November level.

The third-biggest producer within OPEC still faces huge hurdles in getting operations anywhere near normal. The extent of difficulties is clearly shown in pleading notices posted on the state oil company's oil trading Website, Pepex.

State oil company Petroleos de Venezuela reveals on the Website that striking workers sabotaged company records. They don't seem to know who their customers are or how to find them, now that they've got some oil to sell.

PDVSA is now essentially pleading with former customers to tell them "as soon as possible" who they are, how much oil they were buying and under what terms, and - if it's not too much of a problem - provide "copies of sales contracts."

As prospects for peace look worse in a roiling oil market, here's a simple verse as Valentine's Day nears:

Roses are red,

Violets are blue.

Bush is ready for war.

So, are you?

-By David Bird, Dow Jones Newswires; 201-938-4423; david.bird@dowjones.com

(David Bird is senior energy correspondent for Dow Jones Newswires.)

Subscribers can find Energy Matters Wednesdays on:

• Telerate page 28050

• Dow Jones Newswires by searching the code N/POV

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www.stripes.osd.mil By Terry Boyd, Stars and StripesEuropean edition, Wednesday, January 29, 2003

Terry Boyd / S&S

Rising gas prices "might slow down the travel" around Germany in the family’s Jeep SUV, said Sgt. Scott Crum of Headquarters, Headquarters Co., 40th Engineering Battalion, as he gassed up Tuesday.

Terry Boyd / S&S

A German ESSO truck driver hooks up the hoses, ready to pump tens of thousands of liters of gas into the Baumholder shoppette's underground tanks.

BAUMHOLDER, Germany — Gas prices at AAFES pumps are on the way up again.

All grades of fuel across Europe will cost an average of 7 cents more per gallon beginning Feb. 1, according to an Army and Air Force Exchange Service news release.

In Germany, where the majority of U.S. military personnel in Europe are based, unleaded gas will increase to $1.61 per gallon from $1.53. Super unleaded will rise to $1.70 per gallon from $1.63, and super-plus will go to $1.80 from $1.72. Diesel will rise to $1.64 per gallon from $1.57.

If interviews with about a dozen Baumholder drivers are any indication, few consumers will notice.

As she filled up her mini-van at Baumholder’s Shoppette on Tuesday, civilian Kathy Madison said, “To tell you truth, I’d don’t even look at the [gas] prices.”

The only effect he foresees is that 7 cents more per gallon “might slow down the travel” around Germany in the family’s Jeep sport utility vehicle, said Sgt. Scott Crum, Headquarters, Headquarters Co., 40th Engineering Battalion.

A number of factors are forcing prices up, including possible market disruptions due to war with Iraq. In addition, striking oil workers in Venezuela and continuing cold weather on America’s East Coast are tightening oil supplies, according to the Lundberg Survey Inc., the Camarillo, Calif.-based newsletter that tracks petroleum industry trends.

The average weighted price for gas stateside, including all grades and taxes, was about $1.52 per gallon Friday, up from $1.50 on Jan. 10, according to the Lundberg Survey of 8,000 stations nationwide.

While prices at AAFES pumps are higher than those stateside, they’re a bargain compared to filling up on the economy.

Germans pay about four times as much for gasoline — about 1.03 Euro per liter, or about $4.50 per gallon.

Whatever the price, consumers are going to ante up, said Pfc. Joseph Grooms, Service Battery, 4th Battalion, 27th Field Artillery. “It’s a necessity,” he said. “You have to have it!”