www.forbes.com Reuters, 03.21.03, 5:03 PM ET By Tim Ahmann WASHINGTON, March 21 (Reuters) - U.S. consumer prices posted their biggest gain in more than two years in February as energy surged on the march to war with Iraq and food costs jumped, the government said on Friday. But the government's Consumer Price Index showed inflation well-contained apart from volatile food and energy costs. The CPI, the main U.S. inflation gauge, rose 0.6 percent last month, the Labor Department said. It was the biggest gain since a matching rise in January 2001 and was a touch above the O.5 percent increase expected on Wall Street. Energy prices shot up 5.9 percent, the largest increase since June 2000, while food costs staged their biggest climb since June 1996, gaining 0.7 percent. However, the so-called core CPI, which strips out food and energy, edged up just 0.1 percent, a notch below the 0.2 percent increase economists had expected and a sign that underlying inflation pressures were lacking. That meager gain brought the 12-month rise in core prices to just 1.7 percent, the smallest in nearly 37 years. In contrast, the overall CPI has risen a strong 3.0 percent over the last 12 months, mostly on higher energy costs. Markets shrugged off the data, focusing instead on the war in Iraq with investors' hopes rising that the conflict's toll on the U.S. economy would prove to be limited. Stock prices surged, with the blue chip Dow Jones industrial average <.DJI> closing up 235 points at 8,523, its best weekly gain since October 1982. Bonds sold off as investors scaled back expectations that the Federal Reserve might have to ride to the economy's rescue with interest rate cuts. A separate report released on Friday suggested the fate of the U.S. economy depends on a quick resolution of the U.S.-led war in Iraq. The Economic Cycle Research Institute said its weekly leading index fell to a 10-week low due to war worries. "If it is quicker and more decisive, we have a chance at tipping away from a recession," ECRI Managing Director Lakshman Achuthan said. "If something goes wrong and things get bogged down, we can tip toward more vulnerability which would lead to recession." OIL Many economists have worried a sharp increase in the price of oil in recent months, which helped pushed gasoline pump prices to a record high of $1.73 a gallon this week, would take a big bite out of consumers' wallets and slow the economy. Gasoline prices rose 9.9 percent in February, the largest monthly gain since June 2000, and the cost of heating oil spiked up 15.8 percent, the sharpest gain in three years. But relief may be on the way soon. Oil prices had climbed steeply through February after a now-ended workers' strike in Venezuela cut into supplies and as the United States prepared for war in Iraq. But as war began to appear inevitable and bombs started to drop, prices turned tail. Crude oil future prices fell to four-month lows in New York trade on Friday after U.S. and British troops seized control of key oil-producing areas in southern Iraq. Crude prices are now down a third from the 12-year high reached late last month. Comfortable that retail energy prices would soon recede, economists focused on the benign underlying inflation picture presented by the 0.1 percent rise in the core CPI. "Most people should not be concerned about inflation," said Lynn Reaser, chief economist at Banc of America Capital Management in St. Louis. The scant increase in core prices reflected a 0.2 percent drop in apparel costs, a 0.1 percent decrease in new vehicle prices and a 0.3 percent plunge in prescription drugs prices. An unchanged reading in shelter costs, which had been rising sharply, also helped hold core prices down. WHAT NEXT? Federal Reserve policymakers think inflation will likely drift lower this year given a high degree of slack in the economy, minutes from a January rate-setting meeting released on Thursday showed. However, officials spoke about a number of "crosscurrents" that made the inflation picture hard to judge. Still, the recent rise in oil and gold prices has eased fears that the United States could face deflation -- an outright drop in the general price level. "Inflation is in existence. We are nowhere near close to a deflationary environment," said David Durrant, chief currency strategist at Bank Julius Baer in New York. Rising service prices have ensured a modest inflation in the United States despite falling goods prices. Fed officials held interest rates steady at 1961 lows this week and said that given the high degree to which war clouds had shrouded the outlook, they could not "usefully" characterize whether economic risks were weighted toward inflation or weakness or balanced between them.

Friday, March 21, 2003

LONDON — Just a day into the U.S.-led war against Iraq, oil importers have been handed an early economic victory by an unexpectedly quick and sharp fall in the price of crude.

But analysts caution against premature celebration. Speculative hedge funds have sold heavily short on crude futures on London and New York exchanges over the past two weeks, leaving prices vulnerable to a sudden leap on signs of a snag in the military campaign.

U.S. and British troops secured some of Iraq's southern oilfields on Friday in an early success for the invasion, but some wells were set on fire and traders are on alert for any sign of long-term damage to Iraq's oil industry.

"One should appreciate how easy it is for things to go wrong," said futures brokerage Fimat in a report. "Ignoring this would be terrifically imprudent."

For weeks, analysts had expected oil prices to drop once the attack got under way as the "war premium" was eroded.

But no one was prepared for a $10-a-barrel rout that began several days before the first shot was fired.

On Friday, benchmark Brent crude for May was trading close to $25 a barrel, down from a peak of $34.55 nearly two weeks ago. U.S. crude has fallen even more heavily, having hit $39.99 at the end of February.

The steady climb in Brent prices from a November low of $23 has been all but erased in the space of seven trading days.

Barring uncertainties from Iraq, many oil traders say a Brent price of $25 is roughly in line with fundamentals but that balanced view may yet turn bearish if ultra-thin U.S. commercial stockpiles build quickly during the low-demand second quarter.

"It is the weight of oil, rather than the force of bombs, which is pushing markets lower," said Leo Drollas of London's Center for Global Energy Studies. "OPEC is now producing more oil than has been lost."

Battered equities markets have raced higher as investors and funds switched from oil and safe-haven bonds into the financial sectors depressed by months of war worries and economic gloom.

Consumers and oil-importing governments grappling with the highest prices in a decade will have breathed a sigh of relief as prices deflated, easing fears of a fully-fledged price shock on economies struggling to escape recession.

"Clearly it's a positive thing that the price has come down. It should relieve inflationary pressures and improve business and consumer sentiment. But the pace of the fall has been a surprise," said Royal Bank of Scotland economist Tony Wood.

Even OPEC producers should be pleased by the fall back into the cartel's preferred $22-$28 price band because the high price was stalling demand from importers.

The abrupt plunge was led by speculative hedge funds. As diplomacy failed and war became inevitable they took profits from long positions and then began selling heavily short as U.S. forces prepared for what many dealers believe will be a quick, overwhelming victory.

But if the campaign drags on, oilfields are severely damaged or if further disruptions to world supply emerge, speculators desperate to cover exposed short positions could send prices bouncing sharply higher.

"Instead of positive news flows, prices have been moved by a speculative bet of staggering proportions," JP Morgan oil analyst Paul Horsnell said.

"In short, the market seems to have pushed far too far, far too fast and on the basis of far too little hard information."

Prices reacted similarly during the first Gulf War, falling as U.S. troops moved into battle -- but then they were helped by the release of emergency inventories held by the International Energy Agency.

This time around the Organization of the Petroleum Exporting Countries (OPEC) pre-empted any release by pumping extra oil months in advance, with Saudi Arabia sending tens of millions of extra barrels toward the United States since January.

These barrels coupled with recovering output from strike-hit Venezuela have helped offset the effective stoppage of Iraq's 1.7 million bpd of exports, which came to an end this week as international traders shied away.

www.forbes.com Reuters, 03.21.03, 9:50 AM ET

LONDON, March 21 (Reuters) - Just a day into the U.S.-led war against Iraq, oil importers have been handed an early economic victory by an unexpectedly quick and sharp fall in the price of crude. But analysts caution against premature celebration. Speculative hedge funds have sold heavily short on crude futures on London and New York exchanges over the past two weeks, leaving prices vulnerable to a sudden leap on signs of a snag in the military campaign. U.S. and British troops secured some of Iraq's southern oilfields on Friday in an early success for the invasion, but some wells were set on fire and traders are on alert for any sign of long-term damage to Iraq's oil industry. "One should appreciate how easy it is for things to go wrong," said futures brokerage Fimat in a report. "Ignoring this would be terrifically imprudent." For weeks, analysts had expected oil prices to drop once the attack got under way as the "war premium" was eroded. But no one was prepared for a $10-a-barrel rout that began several days before the first shot was fired. On Friday, benchmark Brent crude for May was trading close to $25 a barrel, down from a peak of $34.55 nearly two weeks ago. U.S. crude has fallen even more heavily, having hit $39.99 at the end of February. The steady climb in Brent prices from a November low of $23 has been all but erased in the space of seven trading days. Barring uncertainties from Iraq, many oil traders say a Brent price of $25 is roughly in line with fundamentals but that balanced view may yet turn bearish if ultra-thin U.S. commercial stockpiles build quickly during the low-demand second quarter. "It is the weight of oil, rather than the force of bombs, which is pushing markets lower," said Leo Drollas of London's Centre for Global Energy Studies. "OPEC is now producing more oil than has been lost."

SWITCHING OUT OF OIL Battered equities markets have raced higher as investors and funds switched from oil and safe-haven bonds into the financial sectors depressed by months of war worries and economic gloom. Consumers and oil-importing governments grappling with the highest prices in a decade will have breathed a sigh of relief as prices deflated, easing fears of a fully-fledged price shock on economies struggling to escape recession. "Clearly it's a positive thing that the price has come down. It should relieve inflationary pressures and improve business and consumer sentiment. But the pace of the fall has been a surprise," said Royal Bank of Scotland economist Tony Wood. Even OPEC producers should be pleased by the fall back into the cartel's preferred $22-$28 price band because the high price was stalling demand from importers. The abrupt plunge was led by speculative hedge funds. As diplomacy failed and war became inevitable they took profits from long positions and then began selling heavily short as U.S. forces prepared for what many dealers believe will be a quick, overwhelming victory. But if the campaign drags on, oilfields are severely damaged or if further disruptions to world supply emerge, speculators desperate to cover exposed short positions could send prices bouncing sharply higher. "Instead of positive news flows, prices have been moved by a speculative bet of staggering proportions," JP Morgan oil analyst Paul Horsnell said. "In short, the market seems to have pushed far too far, far too fast and on the basis of far too little hard information." Prices reacted similarly during the first Gulf War, falling as U.S. troops moved into battle -- but then they were helped by the release of emergency inventories held by the International Energy Agency. This time around the Organisation of the Petroleum Exporting Countries (OPEC) pre-empted any release by pumping extra oil months in advance, with Saudi Arabia sending tens of millions of extra barrels toward the United States since January. These barrels coupled with recovering output from strike-hit Venezuela have helped offset the effective stoppage of Iraq's 1.7 million bpd of exports, which came to an end this week as international traders shied away.

biz.yahoo.com Friday March 21, 4:58 pm ET

NEW YORK (Reuters) - Oil prices deepened a week-long plunge on Friday to hit four-month lows as U.S. and British forces secured key Iraqi oilfields and ports, calming market fears of widespread destruction by Iraqi troops.

The value of oil has dropped by 30 percent in a week, having peaked at nearly $40 last month. A big wave of extra OPEC (News - Websites) oil arriving in the West, replacing supply lost from war-torn Iraq, also helped ease the threat of shortages.

U.S. crude (CLK3) plumbed a four-month low of $26.30, ending the day down $1.21 cents at $26.91. Brent crude oil (LCOc1) futures in London fell $1.15 to $24.35 per barrel, having also hit a four-month low.

"The capture of key oil facilities intact is adding to bearish sentiment," said Tony Machacek, a broker at Prudential-Bache International.

British Defense Chief Sir Michael Boyce said all key components of the southern Iraqi oilfields, which normally pump half the country's output, had been secured.

British troops also captured Iraq's Faw peninsula on the Gulf, a strategic oil export route.

"We are trying to make sure that the economic infrastructure of Iraq is left as intact as possible," said Boyce.

Only seven oil wellheads had been torched in the south, less than the 30 previously reported, although oil-filled trenches were also ablaze, he added.

He could not confirm reports that Iraqi President Saddam Hussein may have been killed or injured in the first wave of attacks.

The wellhead fires are a long-term worry for oil markets, but have no immediate impact on supply because Iraq's Gulf exports stopped on Monday and this has already been factored into prices, said Leo Drollas of London's Center for Global Energy Studies.

"Whether Iraqi oil stays in the ground or is burned above ground, it still doesn't get to the market," he said.

Iraq ranked as the world's seventh largest oil exporter before the war.

EXTRA OUTPUT

OPEC exporters, especially Saudi Arabia, have hiked output over the past few months, first to cover a strike in Venezuela and then to cool a price spike fueled by war fears.

Imports of oil in the United States are rising despite the cutoff in Iraqi supplies.

"It is the weight of oil, rather than the force of bombs, which is pushing markets lower," Drollas said. "OPEC is now producing more oil than has been lost."

U.S. Energy Secretary Spencer Abraham said OPEC output was now in line with its total level last November despite shortfalls from Iraq, Venezuela and Nigeria.

Western oil companies operating in Nigeria have slashed production and are expected to close a key export terminal this weekend because of political unrest.

Brokers said investors were selling positions built up on futures markets when U.S. crude rallied to a 12-year peak close to $40 in late February.

"The market has now moved from a war premium to a victory discount," said independent oil analyst Simon Games-Thomas.

OPEC ROW

Price hawks in OPEC are already concerned about the slump, which is good news for world economic growth, but hits revenue for the cartel of mostly Middle Eastern countries.

The dive has also revealed deep splits in the 11-member Organization of the Petroleum Exporting Countries.

OPEC Secretary-General Alvaro Silva said on Thursday that members have been authorized to use spare output capacity if necessary to make up a shortfall in Iraq supply.

But Iranian Oil Ministry Adviser Hossein Kazempour Ardebili said any output hike would be a "violation" since no decision had been taken to raise OPEC quota limits.

He said extra oil would be a "green light" to the United States to launch an attack on one of OPEC's founding members.

Saudi Arabia, the world's top exporter and a key U.S. ally, is pumping more than a million bpd above its quota of 8 million bpd, according independent estimates.

So far Gulf states near Iraq have reported no disruptions to oil production, nor any disturbances to tanker movements in the Gulf, which is the artery for 40 percent of world oil exports.

An oil refinery depot in southwestern Iran close to the border with Iraq was hit by a rocket on Friday, Iranian government sources said. It was not clear where the rocket, which hit the depot in the city of Abadan, had come from.

Iraq's neighbor, Kuwait, said it cut throughput at its refineries as a precautionary move after a near miss by two Iraqi missiles on Thursday.

www.upi.com By Ellen Beck United Press International From the Life & Mind Desk Published 3/21/2003 4:00 AM

THINGS WE DON'T UNDERSTAND The Catholic faithful in Caracas, Venezuela, are lining up to see the small Mary Mystic Rose statue of the Virgin Mary -- which appears to be weeping tears of blood, the Ultimas Noticias newspaper reports.

The statue at Belen College, a "servant of Jesus" named Maritza told the paper, "cried of sadness" because many of God's children "have a heart of stone."

The paper says a video shows the statue weeping on Monday. Another episode in which the statue bled from its eyes occurred Wednesday.

The Roman Catholic Church says it will investigate.

-0- NEWS OF OTHER LIFE FORMS The Fed Ex facility at the Port Columbus airport in Ohio was evacuated after a small package containing organs from birds that had tested positive for the West Nile Virus exploded.

WTAM-TV in Cleveland reports Ohio Health Department officials said the virus was live -- but Fed Ex workers should not worry.

Since the virus was frozen, the only way it could be transmitted is if someone with an open wound came into direct contact with it, WTAM reports.

There was no evidence anyone had tampered with the package.

-0- TODAY'S SIGN THE WORLD IS ENDING Mooning the judge will get you another six months. It was that simple in an Athens, Texas, courtroom for 40-year-old Ray Mason who had just pleaded guilty to aggravated assault.

The Athens Daily Review reports Mason was sentenced to eight years in prison and then, as he crossed in front of the bench on his way to his seat, he dropped his pants and gave Judge Jim Parsons a full view of his soon-to-be-incarcerated derriere.

Apparently not satisfied with just Parson's purview, Mason did a little pirouette and showed the entire courtroom.

Parsons didn't think it was funny, the paper notes, adding six months to Mason's sentence for contempt of court.

-0- AND FINALLY, TODAY'S UPLIFTING STORY Readlyn, Iowa, is known for being the home of 857 friendly people and one old grump. A sign outside town even says so.

This weekend the fun begins -- choosing the one old grump for 2003 -- and the Waterloo Courier reports six finalists are vying for the title.

The paper says residents will vote at the Readlyn Community Club membership dinner and a grump coronation is the defining moment of Readlyn's Grump Days celebration in June. The winner will be crowned with a ceremonial white baseball cap at the beginning of Grump Days.

Qualifications are easy -- you must be at least 65 years old and live in town. You don't even have to be grumpy.