Democratic presidential candidate Barack Obama Tuesday proposed expanding federal deposit insurance for families and small businesses as a way to convince lawmakers who voted against the $700 billion federal bailout plan to change their minds.
"One step we could take to potentially broaden support for the legislation and shore up our economy would be to expand federal deposit insurance for families and small businesses across America who have invested their money in our banks.
"The majority of American families should rest assured that the deposits they have in our banks are safe," Obama said in a statement put out by his presidential campaign.
"That is why today, I am proposing that we also raise the FDIC limit to $250,000 as part of the economic rescue package - a step that would boost small businesses, make our banking system more secure and help restore public confidence in our financial system."
Currently, deposits of up to $100,000 are guaranteed by the government's Federal Deposit Insurance Corporation.
Obama said he will talk to leaders and members of Congress later Tuesday to offer his idea and urge them to act without delay to pass a rescue plan.
Economic rescue package
Monday, the House of Representatives - defying leaders of both parties, the White House and both presidential nominees - voted down the economic rescue plan by 228 to 205 margin.
The Illinois senator urged lawmakers to try again on the bailout proposal and warned of grave consequences if nothing is done.
"Continued inaction in the face of the gathering storm in our financial markets would be catastrophic for our economy and our families. At this moment, when the jobs, retirement savings and economic security of all Americans hang in the balance, it is imperative that all of us, Democrats and Republicans alike, come together to meet this crisis."
Tuesday, September 30, 2008
Bush: Congress must act
President Bush said Tuesday he was "disappointed" by the House's rejection of the $700 billion bailout plan and urged Congress to take action to save the economy.
"Unfortunately, the measure was defeated by a narrow margin," Bush said in a brief televised address at the White House. "I'm disappointed by the outcome, but I assure our citizens, and citizens around the world, that this is not the end of the legislative process."
Bush said he expects lawmakers to move forward with legislation. The House is adjourned for the Jewish holiday Rosh Hashanah and is not scheduled to return to session until Thursday at noon. The Senate is in session on Tuesday.
Senate Majority Leader Harry Reid, D-Nev., said that he would meet with some key Democratic senators - including Senate Banking Committee Chairman Christopher Dodd, D-Conn. - working on a bailout plan.
For his part, Bush said the nation is facing "the real prospect of economic hardship."
"Our economy is depending on decisive action from the government," Bush said. "The sooner we address the problem, the sooner we can get back on the path of growth and job creation. This is what elected leaders owe the American people, and I am confident that we'll deliver."
Bush is meeting with his team Tuesday morning to review options, a senior Bush administration official told CNN. On Monday night, White House staffers were in contact with Republican congressional leaders and Democratic staffers, the official said.
The official said that even Republicans who oppose the plan understand the seriousness of the situation and "want to get this done."
The Senate's lead Republican, Sen. Mitch McConnell, R-Ky., said Tuesday that lawmakers will pass a bill. "I want to reassure the American people that we intend to pass this legislation this week," he said.
On Tuesday, Bush spoke to Sens. Barack Obama and John McCain about the financial crisis, according White House spokesman Tony Fratto. The presidential candidates "offered ideas and reaffirmed what they have said publicly - that this is a critical issue that needs to be addressed," Fratto said.
Stock market reaction
The bailout package, a collaboration of Treasury Secretary Henry Paulson and leaders from both parties, was rejected by the House in a 228-205 vote Monday. Two-thirds of Republicans and about one-third of Democrats voted against the bill.
Following the defeat, the Dow Jones industrial average dropped 777 points, its biggest one-day point decline ever. The decline of nearly 7% was the largest percentage decline since the Black Monday crash of 1987.
The bill, if approved, would have allowed the federal government to buy troubled mortgage-related investments from finance companies, freeing them up for lending, to pull the economy out of its credit freeze. Proponents of the bill believe it would prevent the United States from sliding into a serious financial crisis, but opponents saw it as an unbearable burden to taxpayers and a rescue for Wall Street.
"That, no question, is a large amount of money," said Bush, referring to the $700 billion. "We're also dealing with a large problem. But to put that in perspective, the drop in the stock market yesterday represented more than a trillion dollars in losses."
"Unfortunately, the measure was defeated by a narrow margin," Bush said in a brief televised address at the White House. "I'm disappointed by the outcome, but I assure our citizens, and citizens around the world, that this is not the end of the legislative process."
Bush said he expects lawmakers to move forward with legislation. The House is adjourned for the Jewish holiday Rosh Hashanah and is not scheduled to return to session until Thursday at noon. The Senate is in session on Tuesday.
Senate Majority Leader Harry Reid, D-Nev., said that he would meet with some key Democratic senators - including Senate Banking Committee Chairman Christopher Dodd, D-Conn. - working on a bailout plan.
For his part, Bush said the nation is facing "the real prospect of economic hardship."
"Our economy is depending on decisive action from the government," Bush said. "The sooner we address the problem, the sooner we can get back on the path of growth and job creation. This is what elected leaders owe the American people, and I am confident that we'll deliver."
Bush is meeting with his team Tuesday morning to review options, a senior Bush administration official told CNN. On Monday night, White House staffers were in contact with Republican congressional leaders and Democratic staffers, the official said.
The official said that even Republicans who oppose the plan understand the seriousness of the situation and "want to get this done."
The Senate's lead Republican, Sen. Mitch McConnell, R-Ky., said Tuesday that lawmakers will pass a bill. "I want to reassure the American people that we intend to pass this legislation this week," he said.
On Tuesday, Bush spoke to Sens. Barack Obama and John McCain about the financial crisis, according White House spokesman Tony Fratto. The presidential candidates "offered ideas and reaffirmed what they have said publicly - that this is a critical issue that needs to be addressed," Fratto said.
Stock market reaction
The bailout package, a collaboration of Treasury Secretary Henry Paulson and leaders from both parties, was rejected by the House in a 228-205 vote Monday. Two-thirds of Republicans and about one-third of Democrats voted against the bill.
Following the defeat, the Dow Jones industrial average dropped 777 points, its biggest one-day point decline ever. The decline of nearly 7% was the largest percentage decline since the Black Monday crash of 1987.
The bill, if approved, would have allowed the federal government to buy troubled mortgage-related investments from finance companies, freeing them up for lending, to pull the economy out of its credit freeze. Proponents of the bill believe it would prevent the United States from sliding into a serious financial crisis, but opponents saw it as an unbearable burden to taxpayers and a rescue for Wall Street.
"That, no question, is a large amount of money," said Bush, referring to the $700 billion. "We're also dealing with a large problem. But to put that in perspective, the drop in the stock market yesterday represented more than a trillion dollars in losses."
Record 16% drop in July home prices
A closely watched index released Tuesday showed home prices tumbling by the sharpest annual rate ever in July, but the rate of monthly declines is slowing.
The Standard & Poor's/Case-Shiller 20-city housing index fell a record 16.3% in July from a year earlier, the largest drop since its inception in 2000. The 10-city index plunged 17.5%, the biggest decline in its 21-year history.
No price gains
Prices in the 20-city index have plummeted nearly 20% since peaking in July 2006. The 10-city index has fallen more than 21% since its peak in June 2006.
No city in the Case-Shiller 20-city index saw annual price gains in July, the fourth straight month that has happened.
However, the pace of monthly declines is slowing, a possible silver lining. Between May and July, for example, home prices fell at a cumulative rate of 2.2% - less than half the cumulative rate experienced between February and April.
But there's "no evidence of a bottom," said David M. Blitzer, chairman of the index committee at S&P.
Trouble in Vegas
Las Vegas prices plunged the most at nearly 30%, with Phoenix diving 29% and Miami 28%. Prices in the seven cities in the Sunbelt all fell between 20% and 30% from a year ago.
Only seven cities showed positive or flat returns from June to July, down from nine that showed month-over-month gains in June. Atlanta, Boston, Dallas, Denver and Minneapolis all posted positive returns for three months or more.
The Standard & Poor's/Case-Shiller 20-city housing index fell a record 16.3% in July from a year earlier, the largest drop since its inception in 2000. The 10-city index plunged 17.5%, the biggest decline in its 21-year history.
No price gains
Prices in the 20-city index have plummeted nearly 20% since peaking in July 2006. The 10-city index has fallen more than 21% since its peak in June 2006.
No city in the Case-Shiller 20-city index saw annual price gains in July, the fourth straight month that has happened.
However, the pace of monthly declines is slowing, a possible silver lining. Between May and July, for example, home prices fell at a cumulative rate of 2.2% - less than half the cumulative rate experienced between February and April.
But there's "no evidence of a bottom," said David M. Blitzer, chairman of the index committee at S&P.
Trouble in Vegas
Las Vegas prices plunged the most at nearly 30%, with Phoenix diving 29% and Miami 28%. Prices in the seven cities in the Sunbelt all fell between 20% and 30% from a year ago.
Only seven cities showed positive or flat returns from June to July, down from nine that showed month-over-month gains in June. Atlanta, Boston, Dallas, Denver and Minneapolis all posted positive returns for three months or more.
Run ends on money market funds
Investors have stopped fleeing money-market funds, a week after the federal government said it would insure fund shares don't lose their value.
Under the program, which began Monday, the Treasury Department will guarantee that the value of participating money funds will not fall below the standard $1 a share. Fund companies must pay for the insurance and only shares held on or before Sept. 19 will be covered.
The rapid exodus from money funds began after The Reserve Fund announced on Sept. 16 that shares in its primary fund fell to 97 cents due to losses incurred when Lehman Brothers declared bankruptcy.
The total held in money funds, which had hit a record high of $3.535 trillion on Sept. 9, plummeted to $3.288 trillion 10 days later, when the government plan was unveiled.
Since then, investors have slowly returned to the securities, which held a total of $3.348 trillion as of Monday. Until the recent crisis, money funds have been considered as safe as cash. Unlike bank accounts, however, money funds are not FDIC-insured.
However, the money is mainly going to funds that hold Treasurys, said Connie Bugbee, managing editor of iMoneyNet, which follows money funds. Retail and institutional investors pumped up their holdings in such funds to $1.2 trillion Monday, up from $924 billion two weeks ago.
Conversely, funds that invest in riskier commercial paper, or short-term corporate debt, have dropped to $1.6 trillion, down from $2 trillion. Investors are avoiding these so-called prime funds because the commercial paper market has frozen in recent weeks. Few investors are buying commercial paper these days, fearing additional corporate defaults.
The chaos on Wall Street has also widened the difference in yields between Treasury funds and prime funds. Normally only a quarter to a half percentage point, the spread is now closer to two points, with Treasury funds offering a 0.4% rate and prime funds yielding 2.2%.
"People are going to wait for a little bit to make sure no other mutual funds break the buck," said Peter Crane, head of Crane Data, which tracks money funds. "But you can't hide in Treasurys forever. The fear of principal loss is dominating, but the loss of interest income will start to bite."
Meanwhile, Northern Trust Corp. announced Monday it would prop up four of its money funds so they maintain a share value of $1.
Money fund experts say it will take a few more weeks to see whether the Treasury Department plan entices investors back to prime money funds. It will depend in part on how many fund companies sign up for the insurance, although that guarantee does not extend to shares bought after Sept. 19.
To participate, funds with a share value of $0.9975 or greater, will pay an upfront fee of 0.01% per share, while those with a share value of between $0.995 and $0.9975 will pay 0.015%. Funds whose share value is below $0.995 cannot participate.
Funds should apply by Oct. 8 for the insurance program, which lasts for up to a year.
Investors also will have more cash to invest in October as they receive stock dividends and corporate bond payouts. Experts will be watching to see where people put their money.
"Until we see prime funds consistently picking up assets, I wouldn't consider the market comfortable," Bugbee said. "There is so much happening out there. People have been stung and may not move back into money funds quickly."
Under the program, which began Monday, the Treasury Department will guarantee that the value of participating money funds will not fall below the standard $1 a share. Fund companies must pay for the insurance and only shares held on or before Sept. 19 will be covered.
The rapid exodus from money funds began after The Reserve Fund announced on Sept. 16 that shares in its primary fund fell to 97 cents due to losses incurred when Lehman Brothers declared bankruptcy.
The total held in money funds, which had hit a record high of $3.535 trillion on Sept. 9, plummeted to $3.288 trillion 10 days later, when the government plan was unveiled.
Since then, investors have slowly returned to the securities, which held a total of $3.348 trillion as of Monday. Until the recent crisis, money funds have been considered as safe as cash. Unlike bank accounts, however, money funds are not FDIC-insured.
However, the money is mainly going to funds that hold Treasurys, said Connie Bugbee, managing editor of iMoneyNet, which follows money funds. Retail and institutional investors pumped up their holdings in such funds to $1.2 trillion Monday, up from $924 billion two weeks ago.
Conversely, funds that invest in riskier commercial paper, or short-term corporate debt, have dropped to $1.6 trillion, down from $2 trillion. Investors are avoiding these so-called prime funds because the commercial paper market has frozen in recent weeks. Few investors are buying commercial paper these days, fearing additional corporate defaults.
The chaos on Wall Street has also widened the difference in yields between Treasury funds and prime funds. Normally only a quarter to a half percentage point, the spread is now closer to two points, with Treasury funds offering a 0.4% rate and prime funds yielding 2.2%.
"People are going to wait for a little bit to make sure no other mutual funds break the buck," said Peter Crane, head of Crane Data, which tracks money funds. "But you can't hide in Treasurys forever. The fear of principal loss is dominating, but the loss of interest income will start to bite."
Meanwhile, Northern Trust Corp. announced Monday it would prop up four of its money funds so they maintain a share value of $1.
Money fund experts say it will take a few more weeks to see whether the Treasury Department plan entices investors back to prime money funds. It will depend in part on how many fund companies sign up for the insurance, although that guarantee does not extend to shares bought after Sept. 19.
To participate, funds with a share value of $0.9975 or greater, will pay an upfront fee of 0.01% per share, while those with a share value of between $0.995 and $0.9975 will pay 0.015%. Funds whose share value is below $0.995 cannot participate.
Funds should apply by Oct. 8 for the insurance program, which lasts for up to a year.
Investors also will have more cash to invest in October as they receive stock dividends and corporate bond payouts. Experts will be watching to see where people put their money.
"Until we see prime funds consistently picking up assets, I wouldn't consider the market comfortable," Bugbee said. "There is so much happening out there. People have been stung and may not move back into money funds quickly."
Monday, September 29, 2008
Oil slips amid growing global woes
Oil prices fell to near $103 a barrel Monday on concern that economic growth will slow across the globe despite a tentative agreement in Washington on a $700 billion bailout package to stabilize the U.S. financial system.
By midday in Europe, light, sweet crude for November delivery was down $3.50 to $103.39 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.13 Friday to settle at $106.89.
In London, November Brent crude fell $3.39 to $100.15 a barrel on the ICE Futures exchange.
Bailout plan goes to House
Congressional leaders and the White House agreed Sunday to a rescue of the ailing financial industry after lawmakers insisted on sharing spending controls with the Bush administration. The biggest U.S. bailout in history won the tentative support of both presidential candidates and goes to the House of Representatives for a vote Monday.
"The bailout package reduces the chance of a complete meltdown," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "But worries on the demand side will continue to weigh on oil prices."
The plan would give the administration broad power to use hundreds of billions of taxpayer dollars to purchase devalued mortgage-related assets held by cash-starved financial firms.
Congress insisted on a stronger hand in controlling the money than the White House had wanted. The government would take over huge amounts of devalued assets from beleaguered financial companies in hopes of unlocking frozen credit.
"It's still a crisis situation," Shum said. "The market is concerned about the depth and breadth of this global downturn."
JBC Energy in Vienna, Austria, also was cautious about the effects the rescue package could have on U.S. economic growth.
"The latest government reports show sales of new homes at a 17-year low in August and orders for durable goods falling stronger than expected," JBC said in a research note. "It is far from certain that (the bailout) will prevent an economic downturn."
Dollar stronger
Prices were also pushed down by a stronger dollar. Investors often buy crude futures as a hedge against a weakening dollar and inflation, and sell when the dollar strengthens.
While the dollar gained as details of the bailout package become known, analysts said the euro was weaker also because of growing economic problems in Europe.
"It is also a question of the euro losing ground due to a continued deterioration in the euro zone," said Olivier Jakob of Petromatrix in Switzerland. "With the rate of bank failures increasing in Europe and the economy slowing more rapidly than expected, pressure will continue to mount on the (European Central Bank) to lower (interest) rates."
The 15-nation euro fell Monday to $1.4361 from $1.4614 on Friday while the dollar rose to 106.23 yen from 106.01.
"The bailout should inject confidence in the markets in the short-term," Shum said. "Longer term, it increases money supply, inflation and likely weakens the dollar - all of which supports oil prices."
By midday in Europe, light, sweet crude for November delivery was down $3.50 to $103.39 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.13 Friday to settle at $106.89.
In London, November Brent crude fell $3.39 to $100.15 a barrel on the ICE Futures exchange.
Bailout plan goes to House
Congressional leaders and the White House agreed Sunday to a rescue of the ailing financial industry after lawmakers insisted on sharing spending controls with the Bush administration. The biggest U.S. bailout in history won the tentative support of both presidential candidates and goes to the House of Representatives for a vote Monday.
"The bailout package reduces the chance of a complete meltdown," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "But worries on the demand side will continue to weigh on oil prices."
The plan would give the administration broad power to use hundreds of billions of taxpayer dollars to purchase devalued mortgage-related assets held by cash-starved financial firms.
Congress insisted on a stronger hand in controlling the money than the White House had wanted. The government would take over huge amounts of devalued assets from beleaguered financial companies in hopes of unlocking frozen credit.
"It's still a crisis situation," Shum said. "The market is concerned about the depth and breadth of this global downturn."
JBC Energy in Vienna, Austria, also was cautious about the effects the rescue package could have on U.S. economic growth.
"The latest government reports show sales of new homes at a 17-year low in August and orders for durable goods falling stronger than expected," JBC said in a research note. "It is far from certain that (the bailout) will prevent an economic downturn."
Dollar stronger
Prices were also pushed down by a stronger dollar. Investors often buy crude futures as a hedge against a weakening dollar and inflation, and sell when the dollar strengthens.
While the dollar gained as details of the bailout package become known, analysts said the euro was weaker also because of growing economic problems in Europe.
"It is also a question of the euro losing ground due to a continued deterioration in the euro zone," said Olivier Jakob of Petromatrix in Switzerland. "With the rate of bank failures increasing in Europe and the economy slowing more rapidly than expected, pressure will continue to mount on the (European Central Bank) to lower (interest) rates."
The 15-nation euro fell Monday to $1.4361 from $1.4614 on Friday while the dollar rose to 106.23 yen from 106.01.
"The bailout should inject confidence in the markets in the short-term," Shum said. "Longer term, it increases money supply, inflation and likely weakens the dollar - all of which supports oil prices."
Sunday, September 28, 2008
GM to build $370 million engine plant
General Motors Corp. said Thursday it will build a new factory in Flint to make four-cylinder engines for the Chevrolet Volt rechargeable electric car and other models.
GM Chairman and Chief Executive Rick Wagoner said the new plant will build a 1.4-liter four-cylinder engine that will extend the range of the Volt, and a turbocharged version that will power the Chevrolet Cruze, a new compact car to be built in Lordstown, Ohio.
"This will be one of the places. You will be one of the teams that help GM lead into our second century," Wagoner told workers and government officials gathered for the announcement.
Production at the new $370 million plant will begin in 2010, and both cars are slated to go on sale in the same year.
Workers at the nearby Flint Engine North plant, which GM (GM, Fortune 500) is in the process of closing, said the announcement is good news for an area hard hit by auto job losses.
Although GM said the new plant won't create any new jobs, it will retain about 300 hourly positions, and workers said they are hopeful the new plant will create more employment in the industrial city about 50 miles northwest of Detroit.
"This also means that there's a future for our youth in this area," worker Jean Adams-Anderson said.
The state of Michigan on Tuesday approved $132.5 million in tax incentives for the automaker to spend $838 million on the new plant and to upgrade four other facilities, including the Detroit-Hamtramck assembly plant where the Volt will be built.
The Flint investment includes the 552,000-square-foot plant as well as machinery and other equipment. GM says it will invest another $21 million in tooling for its suppliers to support the new Flint factory.
The new plant will double its global production of GM's small four-cylinder engines by 2011, with more than half the increase going into North America.
The factory, GM said, will have 300 flexible work stations that will allow the company to build different four-cylinder engines without retooling.
GM's U.S. sales are down 18% so far this year due to a declining market and high gasoline prices that have caused a dramatic shift away from trucks and sport utility vehicles to smaller, more efficient cars.
The new plant will help GM roll out new models designed to adjust to the shift, which GM and other automakers say is permanent.
The struggling automaker has lost $57.5 billion in the past 18 months, including $15.5 billion in the second quarter. Its U.S. market share has fallen to about 23% this year from a peak of nearly 51% in 1962.
The company is banking on the much-ballyhooed Volt to be its car of the future, although it conceded this week that the Volt won't operate exactly as advertised.
GM initially said the Volt would be able to run 40 miles on its lithium-ion batteries, with a small internal combustion engine recharging the batteries to extend the range hundreds of miles. A top executive said the same thing as recently as last week.
But company spokesman Rob Peterson said Wednesday that engineers changed the design so the Volt engine will power a generator that would run the electric motor after the batteries are depleted. A small amount of power from the generator will recharge the batteries, but most will be used to directly run the car, he said.
He said bypassing the batteries is more efficient, and GM did not intend to deceive people by maintaining that he motor would only be used to recharge the batteries.
"At the end of the day, to the consumer, the vehicle will operate much the same way," he said.
GM Chairman and Chief Executive Rick Wagoner said the new plant will build a 1.4-liter four-cylinder engine that will extend the range of the Volt, and a turbocharged version that will power the Chevrolet Cruze, a new compact car to be built in Lordstown, Ohio.
"This will be one of the places. You will be one of the teams that help GM lead into our second century," Wagoner told workers and government officials gathered for the announcement.
Production at the new $370 million plant will begin in 2010, and both cars are slated to go on sale in the same year.
Workers at the nearby Flint Engine North plant, which GM (GM, Fortune 500) is in the process of closing, said the announcement is good news for an area hard hit by auto job losses.
Although GM said the new plant won't create any new jobs, it will retain about 300 hourly positions, and workers said they are hopeful the new plant will create more employment in the industrial city about 50 miles northwest of Detroit.
"This also means that there's a future for our youth in this area," worker Jean Adams-Anderson said.
The state of Michigan on Tuesday approved $132.5 million in tax incentives for the automaker to spend $838 million on the new plant and to upgrade four other facilities, including the Detroit-Hamtramck assembly plant where the Volt will be built.
The Flint investment includes the 552,000-square-foot plant as well as machinery and other equipment. GM says it will invest another $21 million in tooling for its suppliers to support the new Flint factory.
The new plant will double its global production of GM's small four-cylinder engines by 2011, with more than half the increase going into North America.
The factory, GM said, will have 300 flexible work stations that will allow the company to build different four-cylinder engines without retooling.
GM's U.S. sales are down 18% so far this year due to a declining market and high gasoline prices that have caused a dramatic shift away from trucks and sport utility vehicles to smaller, more efficient cars.
The new plant will help GM roll out new models designed to adjust to the shift, which GM and other automakers say is permanent.
The struggling automaker has lost $57.5 billion in the past 18 months, including $15.5 billion in the second quarter. Its U.S. market share has fallen to about 23% this year from a peak of nearly 51% in 1962.
The company is banking on the much-ballyhooed Volt to be its car of the future, although it conceded this week that the Volt won't operate exactly as advertised.
GM initially said the Volt would be able to run 40 miles on its lithium-ion batteries, with a small internal combustion engine recharging the batteries to extend the range hundreds of miles. A top executive said the same thing as recently as last week.
But company spokesman Rob Peterson said Wednesday that engineers changed the design so the Volt engine will power a generator that would run the electric motor after the batteries are depleted. A small amount of power from the generator will recharge the batteries, but most will be used to directly run the car, he said.
He said bypassing the batteries is more efficient, and GM did not intend to deceive people by maintaining that he motor would only be used to recharge the batteries.
"At the end of the day, to the consumer, the vehicle will operate much the same way," he said.
Saturday, September 27, 2008
Gas prices fall for 10th straight day
Gas prices fell for their 10th straight day, dropping almost 19 cents during the period, according to a nationwide survey of credit card swipes at gas stations.
The average price of unleaded regular fell by 1.6 cents to $3.667 a gallon on Saturday, from $3.683 a gallon, according to survey results from the motorist group AAA.
Gone are the high prices that followed Hurricanes Ike and Gustav weeks ago. But prices are slightly higher than a month ago, when the national average for a gallon of unleaded was $3.660. They are 30% higher than a year ago, when the average was $2.805.
The record high was on July 17, when the nationwide average for gas prices was $4.114 a gallon.
For now, Hawaii and Alaska are the only two states where gas costs more than $4 a gallon. In Alaska on Friday, the statewide average for unleaded was $4.284 a gallon, according to AAA, and the average was $4.262 in Hawaii.
The cheapest gas was in New Jersey, where the average was $3.394 for a gallon, and in Oklahoma, at $3.370 a gallon.
The average price of unleaded regular fell by 1.6 cents to $3.667 a gallon on Saturday, from $3.683 a gallon, according to survey results from the motorist group AAA.
Gone are the high prices that followed Hurricanes Ike and Gustav weeks ago. But prices are slightly higher than a month ago, when the national average for a gallon of unleaded was $3.660. They are 30% higher than a year ago, when the average was $2.805.
The record high was on July 17, when the nationwide average for gas prices was $4.114 a gallon.
For now, Hawaii and Alaska are the only two states where gas costs more than $4 a gallon. In Alaska on Friday, the statewide average for unleaded was $4.284 a gallon, according to AAA, and the average was $4.262 in Hawaii.
The cheapest gas was in New Jersey, where the average was $3.394 for a gallon, and in Oklahoma, at $3.370 a gallon.
Friday, September 26, 2008
Oil prices slip on fresh demand worries
Oil prices retreated Friday as the largest bank failure in the nation's history and uncertainty about the fate of the $700 billion bailout raised fresh concerns about the economy.
As Wall Street buckles, without clarity as to when relief should arrive from Washington, and the economy continues to sag, demand for oil will remain weak, sending oil prices lower.
Oil eased $2.46 to $105.56 a barrel. On Thursday, crude futures for November delivery settled up $2.29 to $108.02 a barrel on the New York Mercantile Exchange as the oil market focused on the way that the bailout plan would work to devalue the dollar.
Crude oil is traded in U.S. currency around the world, and so a devalued dollar means that crude oil becomes more expensive in dollar terms.
But as oil prices resumed their slide Friday, inflationary concerns took a back seat to the continued collapse of the economy, which was initially weakened by the meltdown of the housing industry.
Federal regulators seized Washington Mutual (WM, Fortune 500) and announced Thursday night that JP Morgan Chase (JPM, Fortune 500) had acquired the bank's $307 billion in assets and $188 billion in deposits. The acquisition marks another sting in a biting chain of failures on Wall Street in the past couple weeks, pulling into focus just how weak the U.S. economy has become.
There were hopes that the $700 billion bailout plan that President Bush announced Saturday in an attempt to loosen credit on Wall Street would be passed quickly. However, a proposed settlement fell through Thursday when Congressional Republicans raised objections.
The heated disagreements across party lines and the inability of key lawmakers to reach an agreement was one more sign that the already beleaguered economy may have to weather through a prolonged period of distress. On Friday, President Bush made a brief televised statement promising a rescue plan will pass..
The longer the economy remains under high stress and credit markets stay frozen, the weaker demand for oil becomes.
Oil hit a record high of $147.27 a barrel on July 11, but has fallen more than $40 since as weak demand has overpowered otherwise significant supply concerns.
Hurricanes Gustav and Ike both smashed through the Gulf of Mexico, shutting down the production and refinery rich region for a period. Recovery in the region has been slow.
And violence in Nigeria has continued, threatening pipelines and limiting oil production from the region.
As Wall Street buckles, without clarity as to when relief should arrive from Washington, and the economy continues to sag, demand for oil will remain weak, sending oil prices lower.
Oil eased $2.46 to $105.56 a barrel. On Thursday, crude futures for November delivery settled up $2.29 to $108.02 a barrel on the New York Mercantile Exchange as the oil market focused on the way that the bailout plan would work to devalue the dollar.
Crude oil is traded in U.S. currency around the world, and so a devalued dollar means that crude oil becomes more expensive in dollar terms.
But as oil prices resumed their slide Friday, inflationary concerns took a back seat to the continued collapse of the economy, which was initially weakened by the meltdown of the housing industry.
Federal regulators seized Washington Mutual (WM, Fortune 500) and announced Thursday night that JP Morgan Chase (JPM, Fortune 500) had acquired the bank's $307 billion in assets and $188 billion in deposits. The acquisition marks another sting in a biting chain of failures on Wall Street in the past couple weeks, pulling into focus just how weak the U.S. economy has become.
There were hopes that the $700 billion bailout plan that President Bush announced Saturday in an attempt to loosen credit on Wall Street would be passed quickly. However, a proposed settlement fell through Thursday when Congressional Republicans raised objections.
The heated disagreements across party lines and the inability of key lawmakers to reach an agreement was one more sign that the already beleaguered economy may have to weather through a prolonged period of distress. On Friday, President Bush made a brief televised statement promising a rescue plan will pass..
The longer the economy remains under high stress and credit markets stay frozen, the weaker demand for oil becomes.
Oil hit a record high of $147.27 a barrel on July 11, but has fallen more than $40 since as weak demand has overpowered otherwise significant supply concerns.
Hurricanes Gustav and Ike both smashed through the Gulf of Mexico, shutting down the production and refinery rich region for a period. Recovery in the region has been slow.
And violence in Nigeria has continued, threatening pipelines and limiting oil production from the region.
Thursday, September 25, 2008
Oil prices slip on economic uncertainty
Oil prices slipped Thursday as investors weighed supply delays in the Gulf of Mexico against concerns that the U.S. credit crisis will slow global economic growth and hurt crude demand.
Light, sweet crude for November delivery was down 24 cents at $105.49 a barrel in electronic trading on the New York Mercantile Exchange by afternoon in Europe. The contract fell 88 cents to settle at $105.73 on Wednesday.
About 66% of oil production and 61% of natural gas output in the Gulf of Mexico remains shut-in after the passage of Hurricanes Gustav and Ike, according to the U.S. Minerals Management Service. The Gulf area is home to a quarter of U.S. oil production and 40% of refining capacity.
Mexico's state oil company said Tuesday it temporarily reduced oil production because U.S. refineries damaged by Ike have canceled shipment orders.
Petroleos Mexicanos, or Pemex, lowered its daily output by 250,000 barrels a day. The company said it expects production to be back to normal by the end of the week. Pemex produced an average of 2.75 million barrels a day in August, the latest available output figure.
OPEC's decision earlier this month to cut production by 520,000 barrels a day and militant threats to Nigerian oil operations have added to the supply shortage.
In addition, Royal Dutch Shell PLC was forced to close one of its gasoline-making units at Pernis, Europe's largest oil refinery, on Wednesday night after a mechanical fault. The closed unit has a daily processing capacity representing 10 % of the total 400,000 barrel daily capacity of the refinery, which is located in the Netherlands.
"We don't know when it will reopen," said spokesman Wim van de Wiel.
Crisis may impact crude demand
Traders are also concerned about the turmoil in the U.S. financial system will impact economic growth and crude demand from the world's biggest economy.
President Bush strongly urged Congress to act quickly to pass a $700 billion financial industry bailout, warning Americans in Wednesday speech that failing to act fast risked dire economic consequences such as disappearing retirement savings, rising foreclosures, lost jobs and closed businesses.
"Markets hate uncertainty, and this thing is hanging over everybody's head," said Gavin Wendt, head of mining and resources research at consultancy Fat Prophets in Sydney. "I don't think anyone is too keen to take a position in oil either way right now."
With the administration's original proposal facing significant changes in Congress, top House leaders issued an upbeat statement late Wednesday saying there was progress toward revised legislation that could pass. Bush summoned presidential candidates Barack Obama, John McCain and legislative leaders to an extraordinary White House summit in hopes of hashing out a deal.
Oil investors are also eyeing the impact the bailout plan may have on the value of the dollar. Investors often buy crude futures as a hedge against a weakening dollar and inflation.
The price of oil "depends on the dollar, it has nothing to do with oil demand and supply," Chakib Khelil, the president of the Organization of the Petroleum Exporting Countries, told journalists at a press conference in Algiers on Wednesday.
He said that oil prices would rise if the dollar weakens, as investors would use oil to hedge against the depreciating currency.
The dollar fell slightly in morning trading on Thursday against both the 15-nation euro and the Japanese yen. The euro bought $1.4708, up from $1.4658 late Wednesday in New York. The dollar slipped to 105.89 Japanese yen from 105.93.
In other Nymex trading, heating oil futures for October delivery fell 3.33 cents to $2.9800 a gallon, while gasoline prices rose 0.5 cents to $2.5997 a gallon. Natural gas declined 8.5 cents to $7.594 per 1,000 cubic feet.
In London, November Brent crude fell $1.71 to $100.74 a barrel on the ICE Futures exchange.
Light, sweet crude for November delivery was down 24 cents at $105.49 a barrel in electronic trading on the New York Mercantile Exchange by afternoon in Europe. The contract fell 88 cents to settle at $105.73 on Wednesday.
About 66% of oil production and 61% of natural gas output in the Gulf of Mexico remains shut-in after the passage of Hurricanes Gustav and Ike, according to the U.S. Minerals Management Service. The Gulf area is home to a quarter of U.S. oil production and 40% of refining capacity.
Mexico's state oil company said Tuesday it temporarily reduced oil production because U.S. refineries damaged by Ike have canceled shipment orders.
Petroleos Mexicanos, or Pemex, lowered its daily output by 250,000 barrels a day. The company said it expects production to be back to normal by the end of the week. Pemex produced an average of 2.75 million barrels a day in August, the latest available output figure.
OPEC's decision earlier this month to cut production by 520,000 barrels a day and militant threats to Nigerian oil operations have added to the supply shortage.
In addition, Royal Dutch Shell PLC was forced to close one of its gasoline-making units at Pernis, Europe's largest oil refinery, on Wednesday night after a mechanical fault. The closed unit has a daily processing capacity representing 10 % of the total 400,000 barrel daily capacity of the refinery, which is located in the Netherlands.
"We don't know when it will reopen," said spokesman Wim van de Wiel.
Crisis may impact crude demand
Traders are also concerned about the turmoil in the U.S. financial system will impact economic growth and crude demand from the world's biggest economy.
President Bush strongly urged Congress to act quickly to pass a $700 billion financial industry bailout, warning Americans in Wednesday speech that failing to act fast risked dire economic consequences such as disappearing retirement savings, rising foreclosures, lost jobs and closed businesses.
"Markets hate uncertainty, and this thing is hanging over everybody's head," said Gavin Wendt, head of mining and resources research at consultancy Fat Prophets in Sydney. "I don't think anyone is too keen to take a position in oil either way right now."
With the administration's original proposal facing significant changes in Congress, top House leaders issued an upbeat statement late Wednesday saying there was progress toward revised legislation that could pass. Bush summoned presidential candidates Barack Obama, John McCain and legislative leaders to an extraordinary White House summit in hopes of hashing out a deal.
Oil investors are also eyeing the impact the bailout plan may have on the value of the dollar. Investors often buy crude futures as a hedge against a weakening dollar and inflation.
The price of oil "depends on the dollar, it has nothing to do with oil demand and supply," Chakib Khelil, the president of the Organization of the Petroleum Exporting Countries, told journalists at a press conference in Algiers on Wednesday.
He said that oil prices would rise if the dollar weakens, as investors would use oil to hedge against the depreciating currency.
The dollar fell slightly in morning trading on Thursday against both the 15-nation euro and the Japanese yen. The euro bought $1.4708, up from $1.4658 late Wednesday in New York. The dollar slipped to 105.89 Japanese yen from 105.93.
In other Nymex trading, heating oil futures for October delivery fell 3.33 cents to $2.9800 a gallon, while gasoline prices rose 0.5 cents to $2.5997 a gallon. Natural gas declined 8.5 cents to $7.594 per 1,000 cubic feet.
In London, November Brent crude fell $1.71 to $100.74 a barrel on the ICE Futures exchange.
Wednesday, September 24, 2008
Oil raises as market waits
Oil prices rallied Wednesday as the market waits to hear from Congress about the proposed $700 bailout plan and for weekly supply data from the government.
Oil climbed $1.24 at $107.85 a barrel. On Tuesday, oil slipped $2.76 to settle at $106.61 a barrel as the market refocused on how the dour economic situation has crimped demand.
Bailout plan: The oil market has been waiting to hear from Congress about a $700 billion proposed bailout plan for beleaguered financial services companies. The debate over the rescue was very heated Tuesday.
The plan could pull oil prices higher, depending on the specific terms of the plan and depending on the economy's reaction to whatever plan is adopted.
If the bailout were passed and served to jumpstart the lethargic economy, the oil market hopes that demand for energy would recover to healthy levels. If the economy recovers and demand for oil recovers, then oil prices jump.
Dollar: At the same time, the plan involves a unprecedented shot of liquidity to the market and the sheer quantity of dollars being pumped into the market would devalue the greenback. Crude oil is traded in U.S. currency across the globe, and so when the dollar loses value, crude prices increase.
In the past couple sessions, oil prices have zig-zagged, and the dollar's volatility has contributed to the movement in the price of oil.
On Wednesday, "the dollar is down just a bit again and that is always positive" for oil prices, said Neal Dingmann, senior energy analyst for Dahlman Rose.
Demand: However, the fact that the economy is in desperate need of a lifeline highlights just how weak the economy is, and raises fresh concerns about demand. A limping economy does not have a healthy, growing appetite for oil.
The market continues to swing off the perceived level of demand for energy and the level of demand for energy swings off the strength of the economy. Therefore, the oil market watches the broader economy for clues on a daily basis.
Goldman Sachs Group (GS, Fortune 500) announced Tuesday that it will receive a $5 billion investment from Berkshire Hathaway. Goldman will sell $5 billion of preferred stock to Warren Buffett's company, which was a much-needed vote of confidence for the investment bank in a time of unprecedented uncertainty on Wall Street.
"When you have support either from Buffett or the Treasury Secretary," said Dingmann, "any support for the underlying financial markets boosts the overall market, or thus overall demand, which is positive for oil prices."
Supply report: The government's weekly supply oil data was due out later Wednesday from the Energy Information Administration. The market watches the report very closely in order to gauge demand for energy. The report should also give some indication of the stage of recovery of the Gulf region after Hurricanes Gustav and Ike.
"This will definitely give us another glimpse on the aftereffects of how the storm has played out," said Dingmann.
Crude oil stockpiles were expected to increase by 1.6 million barrels, according to a consensus estimate of industry analysts surveyed by Platts, a global energy information provider.
Gasoline stocks were expected to drop 5.1 million barrels and the Platts survey forecast that distillate stocks - used for heating oil and diesel fuel - would be 1.8 million barrels lower than the previous week. The Platts survey forecast that refinery utilization or run rate would fall 3.5 percentage points to 73.9%.
Gustav, Ike: Hurricane Gustav slammed the Gulf of Mexico on Labor Day and Hurricane Ike hit the Coast of Texas nearly a week later. The storms shook the production and refinery-rich region.
The Minerals Management Service reports that 23 manned oil platforms have been destroyed by Hurricane Ike. Of the 694 remaining platforms, 203 production platforms, equivalent to 29.3%, were still evacuated.
According to the most recent situation report from the Department of Energy, 76.6% of production in the region remained shut in and 65.5% of natural gas production was still shuttered. With 6 refineries in Texas still shut down, nearly 1.7 million barrels per day less oil have been processed in the region, according to the DOE.
Oil climbed $1.24 at $107.85 a barrel. On Tuesday, oil slipped $2.76 to settle at $106.61 a barrel as the market refocused on how the dour economic situation has crimped demand.
Bailout plan: The oil market has been waiting to hear from Congress about a $700 billion proposed bailout plan for beleaguered financial services companies. The debate over the rescue was very heated Tuesday.
The plan could pull oil prices higher, depending on the specific terms of the plan and depending on the economy's reaction to whatever plan is adopted.
If the bailout were passed and served to jumpstart the lethargic economy, the oil market hopes that demand for energy would recover to healthy levels. If the economy recovers and demand for oil recovers, then oil prices jump.
Dollar: At the same time, the plan involves a unprecedented shot of liquidity to the market and the sheer quantity of dollars being pumped into the market would devalue the greenback. Crude oil is traded in U.S. currency across the globe, and so when the dollar loses value, crude prices increase.
In the past couple sessions, oil prices have zig-zagged, and the dollar's volatility has contributed to the movement in the price of oil.
On Wednesday, "the dollar is down just a bit again and that is always positive" for oil prices, said Neal Dingmann, senior energy analyst for Dahlman Rose.
Demand: However, the fact that the economy is in desperate need of a lifeline highlights just how weak the economy is, and raises fresh concerns about demand. A limping economy does not have a healthy, growing appetite for oil.
The market continues to swing off the perceived level of demand for energy and the level of demand for energy swings off the strength of the economy. Therefore, the oil market watches the broader economy for clues on a daily basis.
Goldman Sachs Group (GS, Fortune 500) announced Tuesday that it will receive a $5 billion investment from Berkshire Hathaway. Goldman will sell $5 billion of preferred stock to Warren Buffett's company, which was a much-needed vote of confidence for the investment bank in a time of unprecedented uncertainty on Wall Street.
"When you have support either from Buffett or the Treasury Secretary," said Dingmann, "any support for the underlying financial markets boosts the overall market, or thus overall demand, which is positive for oil prices."
Supply report: The government's weekly supply oil data was due out later Wednesday from the Energy Information Administration. The market watches the report very closely in order to gauge demand for energy. The report should also give some indication of the stage of recovery of the Gulf region after Hurricanes Gustav and Ike.
"This will definitely give us another glimpse on the aftereffects of how the storm has played out," said Dingmann.
Crude oil stockpiles were expected to increase by 1.6 million barrels, according to a consensus estimate of industry analysts surveyed by Platts, a global energy information provider.
Gasoline stocks were expected to drop 5.1 million barrels and the Platts survey forecast that distillate stocks - used for heating oil and diesel fuel - would be 1.8 million barrels lower than the previous week. The Platts survey forecast that refinery utilization or run rate would fall 3.5 percentage points to 73.9%.
Gustav, Ike: Hurricane Gustav slammed the Gulf of Mexico on Labor Day and Hurricane Ike hit the Coast of Texas nearly a week later. The storms shook the production and refinery-rich region.
The Minerals Management Service reports that 23 manned oil platforms have been destroyed by Hurricane Ike. Of the 694 remaining platforms, 203 production platforms, equivalent to 29.3%, were still evacuated.
According to the most recent situation report from the Department of Energy, 76.6% of production in the region remained shut in and 65.5% of natural gas production was still shuttered. With 6 refineries in Texas still shut down, nearly 1.7 million barrels per day less oil have been processed in the region, according to the DOE.
Tuesday, September 23, 2008
Oil pulls back
Oil prices fell Tuesday as investors wait for more developments concerning the government's proposed $700 billion bailout plan and the day after a record one-day surge. Oil slipped $2.15 to $107.22 a barrel, after having traded as low as $106.07. The November contract, which as of Tuesday became the front-month contract, settled up $6.62 to $109.37 on Monday. $700 billion bailout: On Saturday, President Bush asked Congress for the authority to spend as much as $700 billion to purchase toxic mortgage debt from already struggling financial institutions in an effort to prevent the credit crisis from crippling an already beleaguered Wall Street. Investors had hoped that the bailout plan would put the nation's economy on the fast track to recovery, helping demand for energy tick higher as well. However, the unprecedented scope of the plan in combination with a lack of details as to how the plan will actually work left the stock market anxious on Monday, and the Dow ended the day 373 points lower. The oil market was hesitant on Tuesday as well, waiting for further information. "There is still some fear about the bailout package because it is still in the hands of Congress," said Tom Orr, director of research at Weeden & Co., financial services firm. "People are worried that there will have to be compromising to be made and there will be delays." "Time is a problem. Time is not on your side. It needs to be expeditious," added Orr. "Every day there is a delay, there is the risk that some other landmine goes off. People need the comfort to know that this package is in place." Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke both said Tuesday that the measures outlined for the bailout were urgently necessary. One analyst said that if the Congress does actually pass the bailout, it would likely push oil prices higher very quickly. The bailout "may get the motor running but because of the influx of so much money. They are adding liquidity to the system to the tune of $700 billion," said Mark Waggoner , president of Excel Futures. But, "adding that much liquidity to the market essentially dilutes the dollar - makes the value lower," said Waggoner. And because crude oil is traded in U.S. currency globally, a weaker dollar pushed crude prices sharply higher. The oil market was waiting to hear from Congress about the fate of the $700 bailout plan. After the spike: The November contract's substantial $6 gain on Monday was overshadowed by the historic $16 surge in the October contract. Monday was the last day that the October contract was the front-month contract, and oil posted the largest one-day gain in dollar terms ever, settling up $16.37 at $120.92 a barrel. Oil had risen as much as $25 to touch $130 a barrel. The late-session spike was due to investors having to make good on their orders before the October contract expired. The $6.62 increase in the November contract Monday would be considered a substantial move, except for its comparison with the unprecedented move in the October contract. "The market is resetting itself," said Orr, of the moderate trading on Tuesday. The spike in price on Monday "was completely aberrational. It was not indicative of what was going on in the market - it was only indicative of what was going on with the front month contract," said Orr. "People waited until the last half hour of the day and there were absolutely no sellers," said Orr. "You don't have any market makers since Wall Street is in such disarray." In response to the unprecedented run-up in oil futures, the Commodity Futures Trading Commission (CFTC) said in a statement that it was investigating the situation to be sure that there was no mishandling of the oil trade. "No one should be trying to game our nation's commodity futures markets," said CFTC Acting Chairman Walter Lukken in a written statement. Supply concerns: Lower oil prices defied several ongoing supply disruptions, which would normally cause oil prices to rally. Violence in oil-rich Nigeria has been limiting crude supplies out of the country. The Movement for the Emancipation of the Niger Delta (MEND) has been attacking oil pipelines in retaliation against government forces, limiting the amount of crude oil that can leave the country. In addition, the Gulf of Mexico was still struggling to regain footing after Hurricanes Gustav and Ike shook the oil production and refinery-rich region. According to the most recent situation report from the Department of Energy, 89.2% of oil production in the region remained shut in and 75.4% of natural gas production was still shuttered. With refineries in Texas still shut down, nearly 2.3 million barrels per day less oil have been processed in the region, according to the DOE. Russian warships have sailed for Venezuela, and that would also typically support oil prices, according to Waggoner. After the Russia-Georgia conflict last month, two Russian bombers were deployed to Venezuela as tensions with the United States mounted. Both Venezuela and Russia have large supplies of oil. According to Waggoner, the oil market will also be keeping an eye on the area in the Atlantic Ocean which the National Hurricane Center reports "has the potential to become a tropical depression at any time."
Thursday, September 18, 2008
Jobless claims on the rise
The number of out-of-work Americans who signed up for jobless benefits rose last week, the government reported Thursday, surprising economists who expected fewer claims.
The Labor Department said applications for jobless benefits rose to a seasonally adjusted 455,000, up by 10,000 from the prior week. That was above analysts' expectations of 440,000, according to a consensus compiled by Briefing.com. A year ago, initial claims stood at 319,000.
The four-week seasonally adjusted moving average of new jobless claims rose 5,000 to 445,000 in the past week. The average is used to smooth out weekly fluctuations and it stood at 323,250 a year ago.
A reading above 400,000 indicates weakness in employment.
The number of people continuing to receive unemployment benefits fell by 55,000, to 3.48 million in the week ended Sept. 6., compared with 2.56 million people a year ago.
The four-week moving claims average for those continuing to receive unemployment benefits rose by 29,750 to 3.46 million, compared with 2.58 million a year ago.
Earlier this month, the government reported that there were 84,000 jobs lost in August, bringing to 605,000 the number of jobs cut from payrolls by U.S. employers in the first eight months of the year.
The unemployment rate surged to 6.1% last month, a nearly five-year high and up from 5.7% in July.
On Monday, Hewlett-Packard (HPQ, Fortune 500) announced plans to cut about 24,000 employees and on Wednesday auto supplier Federal-Mogul (FDMU) said it is cutting its work force by 4,000 jobs.
North Carolina reported significant increases in initial filings, with layoffs in construction, furniture and transportation. Wisconsin also noted a surge in filings due to layoffs in manufacturing and construction. Texas and California both reported fewer layoffs in the service industry.
The Labor Department said applications for jobless benefits rose to a seasonally adjusted 455,000, up by 10,000 from the prior week. That was above analysts' expectations of 440,000, according to a consensus compiled by Briefing.com. A year ago, initial claims stood at 319,000.
The four-week seasonally adjusted moving average of new jobless claims rose 5,000 to 445,000 in the past week. The average is used to smooth out weekly fluctuations and it stood at 323,250 a year ago.
A reading above 400,000 indicates weakness in employment.
The number of people continuing to receive unemployment benefits fell by 55,000, to 3.48 million in the week ended Sept. 6., compared with 2.56 million people a year ago.
The four-week moving claims average for those continuing to receive unemployment benefits rose by 29,750 to 3.46 million, compared with 2.58 million a year ago.
Earlier this month, the government reported that there were 84,000 jobs lost in August, bringing to 605,000 the number of jobs cut from payrolls by U.S. employers in the first eight months of the year.
The unemployment rate surged to 6.1% last month, a nearly five-year high and up from 5.7% in July.
On Monday, Hewlett-Packard (HPQ, Fortune 500) announced plans to cut about 24,000 employees and on Wednesday auto supplier Federal-Mogul (FDMU) said it is cutting its work force by 4,000 jobs.
North Carolina reported significant increases in initial filings, with layoffs in construction, furniture and transportation. Wisconsin also noted a surge in filings due to layoffs in manufacturing and construction. Texas and California both reported fewer layoffs in the service industry.
Wednesday, September 17, 2008
Oil rallies as dollar weakens
Oil prices rallied Wednesday - ahead of the government's weekly supply report - as the dollar weakened against major currencies and a couple of battered financial institutions received assistance.
Oil traded up $2.74 to $93.89 a barrel after reaching as high as $95 earlier in the session. On Tuesday, oil closed $4.56 lower to $91.15 a barrel, which was the lowest settle since Feb. 7.
Crude futures are traded in U.S. currency around the globe, and so when the dollar loses ground against major currencies, oil prices increase. The dollar was lower against the euro, yen and pound.
On Monday and Tuesday, oil prices tumbled $10 to a 7-month low as an implosion of Wall Street sent shivers through the oil market because demand for energy can not recover in a staggering economy.
After the recent selloff, the oil market saw a rebound because prices "have come down too far too fast," said James Cordier, Portfolio Manager of OptionSellers.com.
Wall Street: In the recent sessions, the oil market has been directed by the sentiment on Wall Street.
"As the stock market weakens, the idea is that the demand for oil is going to weaken," said Cordier.
"There is no longer supply risk. It is all about demand," he addedr. "And demand is just falling off the table."
The Federal Reserve Board said late Tuesday it would lend as much as $85 billion to insurer American International Group (AIG, Fortune 500), which had been scrambling to come up with capital.
"There is a domino effect," said Phil Flynn, senior market analyst at Alaron Trading, and if AIG had been allowed to topple, commodity prices could have been pushed lower in the ensuing selloff.
Cordier said the fact that other banks were not able to salvage AIG was a negative sign for the markets.
"How AIG was bailed out speaks volumes about the fact that banks who had the most to lose if AIG failed had not one dollar to put into this," he said.
"That leads us to believe that there are more bad news to come," added Cordier. "Had AIG been the last of the shoes to drop, you would have seen banks stepping up."
British bank Barclays said Tuesday it was going to buy certain units of Lehman Brothers for $1.75 billion. Lehman Brothers (LEH, Fortune 500) was forced to declare bankruptcy in the wee hours of Monday after a weekend of failed negotiations.
Morgan Stanley (MS, Fortune 500) reported much better-than-expected results late Tuesday, giving a much-needed confidence boost to the financial sector.
Supply report: The oil market was waiting for the government's weekly supply report for the week ended Sept. 12, when the Gulf Coast of Mexico was shutting down in preparation for Hurricane Ike as it was only just recovering from the forces of Hurricane Gustav.
Analysts had forecast that crude oil stocks would be down by 3.7 million barrels, according to a consensus estimate of industry analysts surveyed by Platts, a global energy information provider.
Gasoline stockpiles were expected to fall by 3.6 million barrels, according to the survey by Platts. Distillates, used to make heating oil and diesel fuel, were expected to fall by 1.7 million barrels. Refinery capacity was expected to drop 0.5 percentage point to 77.8%.
Ike: Hurricane Ike slammed the Texas Gulf Coast as a Category 2 storm on Saturday. In advance of the storm, rigs were evacuated and refineries were shut down.
The storm resulted in a decrease of 3 million barrels per day of refinery capacity, with 12 refineries in Texas and Louisiana shuttered, according to the Department of Energy. Two refineries that had been closed for Ike were restarting as of Tuesday.
Refineries process crude oil into usable products, such as gasoline. Kevin Kolevar, assistant energy secretary, told reporters Tuesday the refineries in Texas will be out for another week, but that Ike caused less overall damage than was feared.
Meanwhile, 97.2% of crude production and 84.2% of natural gas production in the Gulf of Mexico were shuttered, as of Tuesday afternoon. Due to the drop off in crude in the Gulf, the Energy Department said imports have increased to compensate.
Energy bill: On Tuesday, the House of Representatives passed a bill that would permit offshore oil drilling by a vote of 236-189. The bill would allow drilling between 50 and 100 miles offshore. The Senate will vote on a drilling bill as early as this week.
Flynn said he doesn't expect the energy bill to affect the oil market in the near term.
Oil traded up $2.74 to $93.89 a barrel after reaching as high as $95 earlier in the session. On Tuesday, oil closed $4.56 lower to $91.15 a barrel, which was the lowest settle since Feb. 7.
Crude futures are traded in U.S. currency around the globe, and so when the dollar loses ground against major currencies, oil prices increase. The dollar was lower against the euro, yen and pound.
On Monday and Tuesday, oil prices tumbled $10 to a 7-month low as an implosion of Wall Street sent shivers through the oil market because demand for energy can not recover in a staggering economy.
After the recent selloff, the oil market saw a rebound because prices "have come down too far too fast," said James Cordier, Portfolio Manager of OptionSellers.com.
Wall Street: In the recent sessions, the oil market has been directed by the sentiment on Wall Street.
"As the stock market weakens, the idea is that the demand for oil is going to weaken," said Cordier.
"There is no longer supply risk. It is all about demand," he addedr. "And demand is just falling off the table."
The Federal Reserve Board said late Tuesday it would lend as much as $85 billion to insurer American International Group (AIG, Fortune 500), which had been scrambling to come up with capital.
"There is a domino effect," said Phil Flynn, senior market analyst at Alaron Trading, and if AIG had been allowed to topple, commodity prices could have been pushed lower in the ensuing selloff.
Cordier said the fact that other banks were not able to salvage AIG was a negative sign for the markets.
"How AIG was bailed out speaks volumes about the fact that banks who had the most to lose if AIG failed had not one dollar to put into this," he said.
"That leads us to believe that there are more bad news to come," added Cordier. "Had AIG been the last of the shoes to drop, you would have seen banks stepping up."
British bank Barclays said Tuesday it was going to buy certain units of Lehman Brothers for $1.75 billion. Lehman Brothers (LEH, Fortune 500) was forced to declare bankruptcy in the wee hours of Monday after a weekend of failed negotiations.
Morgan Stanley (MS, Fortune 500) reported much better-than-expected results late Tuesday, giving a much-needed confidence boost to the financial sector.
Supply report: The oil market was waiting for the government's weekly supply report for the week ended Sept. 12, when the Gulf Coast of Mexico was shutting down in preparation for Hurricane Ike as it was only just recovering from the forces of Hurricane Gustav.
Analysts had forecast that crude oil stocks would be down by 3.7 million barrels, according to a consensus estimate of industry analysts surveyed by Platts, a global energy information provider.
Gasoline stockpiles were expected to fall by 3.6 million barrels, according to the survey by Platts. Distillates, used to make heating oil and diesel fuel, were expected to fall by 1.7 million barrels. Refinery capacity was expected to drop 0.5 percentage point to 77.8%.
Ike: Hurricane Ike slammed the Texas Gulf Coast as a Category 2 storm on Saturday. In advance of the storm, rigs were evacuated and refineries were shut down.
The storm resulted in a decrease of 3 million barrels per day of refinery capacity, with 12 refineries in Texas and Louisiana shuttered, according to the Department of Energy. Two refineries that had been closed for Ike were restarting as of Tuesday.
Refineries process crude oil into usable products, such as gasoline. Kevin Kolevar, assistant energy secretary, told reporters Tuesday the refineries in Texas will be out for another week, but that Ike caused less overall damage than was feared.
Meanwhile, 97.2% of crude production and 84.2% of natural gas production in the Gulf of Mexico were shuttered, as of Tuesday afternoon. Due to the drop off in crude in the Gulf, the Energy Department said imports have increased to compensate.
Energy bill: On Tuesday, the House of Representatives passed a bill that would permit offshore oil drilling by a vote of 236-189. The bill would allow drilling between 50 and 100 miles offshore. The Senate will vote on a drilling bill as early as this week.
Flynn said he doesn't expect the energy bill to affect the oil market in the near term.
Tuesday, September 9, 2008
Stocks tumble on financial woes
Stocks tumbled Tuesday afternoon, as relief about the government rescue of Fannie Mae and Freddie Mac vied with worries about a slowing global economy and the outlook for Lehman Brothers.
The Dow Jones industrial average (INDU) lost 0.6%, the Nasdaq composite (COMP) lost 0.7% and the Standard & Poor's 500 (SPX) index lost 1.3% with about 2-1/2 hours left in the session. All three major gauges had been on both sides of unchanged in the early morning, before turning soundly lower near midday.
In part, the day's decline was in reaction to the previous day's huge rally, when the Dow jumped 290 points after the government bailout of Fannie and Freddie.
"I think the initial market reaction was a relief rally or a reduction in uncertainty, but now we have a bit of a correction as investors are going through the fine print and the euphoria is fading," said Darin Pope, chief investment officer at United Advisors of Secaucus.
He said Tuesday's market response was a bit of a reality check.
"It's the day after, and yes, the ability of the consumer to get a mortgage is better," he said. "But the economy is still struggling, the consumer is still strapped and we still have more work to do on the housing and credit market mess."
A weak read on pending home sales in July demonstrated the persistent weakness in the housing market, while Lehman Brothers' battering reminded investors that the credit crisis is far from over.
Meanwhile, regional banks and insurers tumbled in the wake of the government takeover of the two mortgage giants. (Full story).
Financials get hit: Lehman Brothers (LEH, Fortune 500) skidded 34% on reports that talks with the state-run Korea Development Bank have ended, putting to rest bets that KDB could buy as much as a 25% stake in the troubled bank.
The stock has been sliding of late as investors worry about the brokerage's ability to raise capital, and whether it can sell some or all of its operations. Lehman has also been struggling in the shadow of Bear Stearns, which the government had to rescue early this year, and in the wake of Fannie and Freddie.
Lehman is a different situation than Bear Stearns in that it has more value, said Thomas Nyheim, portfolio manager at Christiana Bank & Trust Company, whereas with Bear Steans, the bad loans engulfed all of their other assets. But although the circumstances are different, the concerns are similar.
Additionally, Lehman is suffering in the wake of Fannie and Freddie because while the government intervention helped the mortgage giant's bonds, the stocks have been tumbling. There may be a similar bet about Lehman, he said.
"The thought is if the Fed comes in and takes action, Lehman bonds might be OK, like Fannie and Freddie, but Lehman equity holders are going to get hit," Nyheim said.
Among other financial stocks falling, Washington Mutual (WM, Fortune 500) lost 19%, AIG (AIG, Fortune 500) lost 12%, Wachovia (WB, Fortune 500) lost 9%, Merrill Lynch (MER, Fortune 500) lost 6%, Citigroup (C, Fortune 500) lost 4% and American Express (AXP, Fortune 500) and JP Morgan Chase (JPM, Fortune 500) each lost 3%.
The broad Philadelphia Bank sector index dropped 2.8% and the Amex Securities Broker/Dealer index tumbled 6%
Fannie Mae (FNM, Fortune 500) shares rallied after plunging in the previous session, while Freddie Mac (FRE, Fortune 500) continued its decline.
Economic reports: The number of pending home sales fell 3.2% in July after rising in June, according to a report from the National Association of Realtors released Tuesday. The report is a forward-looking indicator of the housing market, tracking contracts signed during the month. (Full story).
Wholesale inventories rose 1.4% in July, according to a government report released Tuesday. That topped forecasts for an increase of 0.7%, according to a consensus of economists surveyed by Briefing.com. June wholesale inventories rose a revised 0.9%.
Meanwhile, federal officials warned Tuesday that the budget deficit will be substantially higher this year, rising $246 billion to $407 billion, reflecting the tax rebates and an increase in spending. (Full story).
Fannie and Freddie: The Bush administration said Sunday that it was taking control of the two companies in an attempt to help stabilize the battered housing market and bring down mortgage rates.
The plan included putting the companies under a government conservatorship, and replacing both chief executives. Additionally, the Treasury Department will put up to $100 billion in each company to keep them afloat, in exchange for senior preferred stock. (Full story)
The two government-sponsored firms own or back about half the mortgage debt in the country and have lost billions in the housing market collapse. The plan should lower mortgage rates by lowering Fannie and Freddie's borrowing costs.
There's a certain level of risk that's been taken out of the market as a result of this plan, said Tom Sowanick, chief investment officer at Clearbrook Financial, but that doesn't mean it can stabilize the housing market.
(Why the bailout is not a quick fix for the economy)
What is more likely is that the plan means that "Wall Street will, at least for a while, be on good behavior," he said.
Companies will need to create structured products that will work, and there will be new regulation that will help better protect the investor, he said. "The way companies manage risk is going to be on the front burner for quite some time."
Company news: Dell (DELL, Fortune 500) founder Michael Dell bought $100 million of Dell shares last week, it was announced after the close of trade Monday. Shares of the PC-maker slipped in the afternoon, giving up morning gains.
McDonald's (MCD, Fortune 500) said August sales at its stores open a year or more rose 8.5% in the month, topping forecasts. Shares gained 2.5%.
Market breadth was negative. On the New York Stock Exchange, losers beat winners by three to one on volume of 800 million shares. On the Nasdaq, decliners topped advancers by eight to five as 1.37 billion shares changed hands.
Fuel prices: Oil prices fell as investors awaited the conclusion of an OPEC meeting in Vienna, in which it is expected that the cartel will hold production levels steady despite the recent price slide.
Also impacting oil prices: signs that Hurricane Ike is weakening and is less likely to cause severe damage to oil facilities in the Gulf of Mexico, which accounts for about 25% of U.S. oil production. (Full story).
U.S. light crude oil for October delivery slid $1.82 to $104.52 a barrel on the New York Mercantile Exchange.
Prices have fallen more than $40 a barrel from a record high of $147.20 in July, on bets that a sluggish global economy is cutting into demand.
Gas prices declined for a ninth straight day, according to a national survey of credit-card activity.
Other markets: In global trade, European and Asian markets both ended lower.
In the bond market, Treasury prices rallied, lowering the yield on the benchmark 10-year note to 3.61% from 3.67% late Monday. Prices and yields move in opposite directions.
The dollar fell versus the euro and the yen.
COMEX gold for December delivery fell $11.50 to $791 an ounce.
The Dow Jones industrial average (INDU) lost 0.6%, the Nasdaq composite (COMP) lost 0.7% and the Standard & Poor's 500 (SPX) index lost 1.3% with about 2-1/2 hours left in the session. All three major gauges had been on both sides of unchanged in the early morning, before turning soundly lower near midday.
In part, the day's decline was in reaction to the previous day's huge rally, when the Dow jumped 290 points after the government bailout of Fannie and Freddie.
"I think the initial market reaction was a relief rally or a reduction in uncertainty, but now we have a bit of a correction as investors are going through the fine print and the euphoria is fading," said Darin Pope, chief investment officer at United Advisors of Secaucus.
He said Tuesday's market response was a bit of a reality check.
"It's the day after, and yes, the ability of the consumer to get a mortgage is better," he said. "But the economy is still struggling, the consumer is still strapped and we still have more work to do on the housing and credit market mess."
A weak read on pending home sales in July demonstrated the persistent weakness in the housing market, while Lehman Brothers' battering reminded investors that the credit crisis is far from over.
Meanwhile, regional banks and insurers tumbled in the wake of the government takeover of the two mortgage giants. (Full story).
Financials get hit: Lehman Brothers (LEH, Fortune 500) skidded 34% on reports that talks with the state-run Korea Development Bank have ended, putting to rest bets that KDB could buy as much as a 25% stake in the troubled bank.
The stock has been sliding of late as investors worry about the brokerage's ability to raise capital, and whether it can sell some or all of its operations. Lehman has also been struggling in the shadow of Bear Stearns, which the government had to rescue early this year, and in the wake of Fannie and Freddie.
Lehman is a different situation than Bear Stearns in that it has more value, said Thomas Nyheim, portfolio manager at Christiana Bank & Trust Company, whereas with Bear Steans, the bad loans engulfed all of their other assets. But although the circumstances are different, the concerns are similar.
Additionally, Lehman is suffering in the wake of Fannie and Freddie because while the government intervention helped the mortgage giant's bonds, the stocks have been tumbling. There may be a similar bet about Lehman, he said.
"The thought is if the Fed comes in and takes action, Lehman bonds might be OK, like Fannie and Freddie, but Lehman equity holders are going to get hit," Nyheim said.
Among other financial stocks falling, Washington Mutual (WM, Fortune 500) lost 19%, AIG (AIG, Fortune 500) lost 12%, Wachovia (WB, Fortune 500) lost 9%, Merrill Lynch (MER, Fortune 500) lost 6%, Citigroup (C, Fortune 500) lost 4% and American Express (AXP, Fortune 500) and JP Morgan Chase (JPM, Fortune 500) each lost 3%.
The broad Philadelphia Bank sector index dropped 2.8% and the Amex Securities Broker/Dealer index tumbled 6%
Fannie Mae (FNM, Fortune 500) shares rallied after plunging in the previous session, while Freddie Mac (FRE, Fortune 500) continued its decline.
Economic reports: The number of pending home sales fell 3.2% in July after rising in June, according to a report from the National Association of Realtors released Tuesday. The report is a forward-looking indicator of the housing market, tracking contracts signed during the month. (Full story).
Wholesale inventories rose 1.4% in July, according to a government report released Tuesday. That topped forecasts for an increase of 0.7%, according to a consensus of economists surveyed by Briefing.com. June wholesale inventories rose a revised 0.9%.
Meanwhile, federal officials warned Tuesday that the budget deficit will be substantially higher this year, rising $246 billion to $407 billion, reflecting the tax rebates and an increase in spending. (Full story).
Fannie and Freddie: The Bush administration said Sunday that it was taking control of the two companies in an attempt to help stabilize the battered housing market and bring down mortgage rates.
The plan included putting the companies under a government conservatorship, and replacing both chief executives. Additionally, the Treasury Department will put up to $100 billion in each company to keep them afloat, in exchange for senior preferred stock. (Full story)
The two government-sponsored firms own or back about half the mortgage debt in the country and have lost billions in the housing market collapse. The plan should lower mortgage rates by lowering Fannie and Freddie's borrowing costs.
There's a certain level of risk that's been taken out of the market as a result of this plan, said Tom Sowanick, chief investment officer at Clearbrook Financial, but that doesn't mean it can stabilize the housing market.
(Why the bailout is not a quick fix for the economy)
What is more likely is that the plan means that "Wall Street will, at least for a while, be on good behavior," he said.
Companies will need to create structured products that will work, and there will be new regulation that will help better protect the investor, he said. "The way companies manage risk is going to be on the front burner for quite some time."
Company news: Dell (DELL, Fortune 500) founder Michael Dell bought $100 million of Dell shares last week, it was announced after the close of trade Monday. Shares of the PC-maker slipped in the afternoon, giving up morning gains.
McDonald's (MCD, Fortune 500) said August sales at its stores open a year or more rose 8.5% in the month, topping forecasts. Shares gained 2.5%.
Market breadth was negative. On the New York Stock Exchange, losers beat winners by three to one on volume of 800 million shares. On the Nasdaq, decliners topped advancers by eight to five as 1.37 billion shares changed hands.
Fuel prices: Oil prices fell as investors awaited the conclusion of an OPEC meeting in Vienna, in which it is expected that the cartel will hold production levels steady despite the recent price slide.
Also impacting oil prices: signs that Hurricane Ike is weakening and is less likely to cause severe damage to oil facilities in the Gulf of Mexico, which accounts for about 25% of U.S. oil production. (Full story).
U.S. light crude oil for October delivery slid $1.82 to $104.52 a barrel on the New York Mercantile Exchange.
Prices have fallen more than $40 a barrel from a record high of $147.20 in July, on bets that a sluggish global economy is cutting into demand.
Gas prices declined for a ninth straight day, according to a national survey of credit-card activity.
Other markets: In global trade, European and Asian markets both ended lower.
In the bond market, Treasury prices rallied, lowering the yield on the benchmark 10-year note to 3.61% from 3.67% late Monday. Prices and yields move in opposite directions.
The dollar fell versus the euro and the yen.
COMEX gold for December delivery fell $11.50 to $791 an ounce.
Apple unveils new iPod
Apple, the consumer electronics giant, on Tuesday announced new versions of its popular iPod music player.
The announcement was made by CEO Steve Jobs at a press event in San Francisco, which Apple dubbed "Let's Rock."
The iPod Nano, which comes with a video player, is thinner than previous models and slightly curved. Among other features, the display screen changes orientation from horizontal to vertical depending on how the user holds the device. An 8-gigabyte model costs $150, the same price as the original 1-gigabyte model from two years ago.
The Nano also features a new service called Genius, which recommends songs or movies based on a user's interests and creates playlists based on songs the user has chosen. The device will also shuffle the playlist if a user shakes it.
The announcement of a new line of iPods was widely expected. This time last year Apple announced the Touch, a touchscreen-only music player, and, the year before that, the Nano. The new products are timed for the holiday shopping season.
The move is considered critical to the future of the music devices as the iPhone, which comes with its own built-in MP3 player, threatens to make them obsolete.
As of July, Apple has sold more than 184 million iPods since their debut in 2001. Sales of the iPod, which once accounted for nearly 50% of Apple's annual revenue, were nearly flat last Christmas. Apple says the iPod has 73.4% of the portable music device market, according to NPD data.
All eyes Tuesday were also on Jobs' health. Jobs was treated for pancreatic cancer several years ago and has been looking surprisingly thin in recent appearances, unnerving investors. He looked as thin Tuesday as he did at his last appearance in June.
Apple (AAPL, Fortune 500) shares were flat Tuesday.
The announcement was made by CEO Steve Jobs at a press event in San Francisco, which Apple dubbed "Let's Rock."
The iPod Nano, which comes with a video player, is thinner than previous models and slightly curved. Among other features, the display screen changes orientation from horizontal to vertical depending on how the user holds the device. An 8-gigabyte model costs $150, the same price as the original 1-gigabyte model from two years ago.
The Nano also features a new service called Genius, which recommends songs or movies based on a user's interests and creates playlists based on songs the user has chosen. The device will also shuffle the playlist if a user shakes it.
The announcement of a new line of iPods was widely expected. This time last year Apple announced the Touch, a touchscreen-only music player, and, the year before that, the Nano. The new products are timed for the holiday shopping season.
The move is considered critical to the future of the music devices as the iPhone, which comes with its own built-in MP3 player, threatens to make them obsolete.
As of July, Apple has sold more than 184 million iPods since their debut in 2001. Sales of the iPod, which once accounted for nearly 50% of Apple's annual revenue, were nearly flat last Christmas. Apple says the iPod has 73.4% of the portable music device market, according to NPD data.
All eyes Tuesday were also on Jobs' health. Jobs was treated for pancreatic cancer several years ago and has been looking surprisingly thin in recent appearances, unnerving investors. He looked as thin Tuesday as he did at his last appearance in June.
Apple (AAPL, Fortune 500) shares were flat Tuesday.
Oil prices fall ahead of OPEC
Oil prices fell Tuesday as market watchers waited for OPEC leaders in Vienna to formally announce whether the organization will change production level requirements.
Also pushing oil prices lower: Hurricane Ike was downgraded to a Category 1 storm and fear eased that it would cause major damage to Gulf of Mexico oil production facilities.
Oil slid $2.37 to $103.97 a barrel.
On Monday, U.S. crude oil for October delivery settled up 11 cents to $106.34 a barrel, but not before falling from a trading high of $109.89 earlier in the day. A dollar rally on Monday moved oil prices back more than $3 off early session highs.
Waiting for OPEC: Slumping demand for expensive energy has caused the price of crude to fall off sharply from the record high price of $147.27 a barrel, set on July 11.
The drop of more than $40 in oil prices has market watchers paying close attention to the Organization of Petroleum Exporting Countries meeting happening on Tuesday in Vienna, Austria. Market watchers were listening for any production level cuts.
The oil minister of Saudi Arabia, Ali Naimi, indicated that he does not think the production levels need to be changed, according to reports from the Associated Press.
"The market is fairly well balanced," Naimi told the AP on Tuesday. "I think things are in balance, in a healthy position." Because Saudi Arabia is a heavyweight in the cartel, Naimi's comments were closely watched.
OPEC leaders ought to leave production levels set because if the cartel were to cut production levels in order to prop up oil prices, many counties would be angry, according to Phil Flynn, senior market analyst at Alaron Trading.
"If they cut production to try to shore up prices, that would be viewed very unfavorably by the markets that are struggling," said Flynn.
"I don't think OPEC wants to be viewed as muddying up the waters here so they will be forced to do nothing," he said. "My general sense right now is that OPEC is more concerned about demand destruction than about the price drop."
Another analyst said that while it looks that OPEC will not officially cut production, it may try to adhere to quotas more strictly.
"They are probably 700,000 - 800,000 barrels each day over their quotas," said Andrew Lebow, a broker at MF Global in New York. "The chat is that they might adhere more to the quotas."
"As usual, the Saudis are the key," said Lebow. When it comes to the "increase over the quotas, they are the ones that have the lion share."
Hurricane Ike: While Ike killed 73 people when it passed over Haiti, the storm slowed over Cuba, and was downgraded to a Category 1 hurricane, according to the National Hurricane Center.
"There is a sense that the storm might not be as bad as originally feared, and that is good news for the market, but it is also bearish news," said Flynn.
If supply is not impacted, then prices move lower, as the market focuses on sagging demand.
It seems that Ike "is going to miss most of the U.S. crude production and natural gas production areas, and track more toward Southern Texas and the Yucatan peninsula in Mexico," said Lebow. But the oil market will continue to monitor Ike, because the track can change.
The storm was expected to reach the southeastern Gulf of Mexico as early as Tuesday afternoon. "Some weakening is likely as Ike crosses Western Cuba," the Hurricane Center's public advisory said. "But restrengthening is expected once Ike moves into the Gulf of Mexico."
Gustav: Ike threatened oil production rigs and refineries in the Gulf region more than a week after Hurricane Gustav slammed into the coast of Louisiana. About one quarter of the nation's oil production facilities are located in the Gulf.
As of Tuesday, 79.4% of crude oil production and 64.2% of natural gas production in the Gulf of Mexico remained shut from Gustav, according to the Department of Energy.
Gustav damaged two offshore drilling rigs owned by Transocean (RIG) in the Gulf of Mexico, according to Guy Cantwell, a spokesman for the company. Gustav also damaged the mooring system on a third rig, the company said Monday.
Shell has decided to wait until after Ike to return completely into the Gulf.
"Remaining production recovery from Gustav will be delayed until after we can redeploy after Hurricane Ike has safely passed," according to a written statement on Shell's Web site.
Currently, Shell has 240 personnel working on offshore facilities, but plans to "evacuate most or all of our Shell operated assets by Wednesday or Thursday."
Fannie, Freddie: The government announced a plan Sunday to bailout the struggling mortgage giants. The twin companies own $5 trillion in home loans and the mortgage meltdown in the U.S. has crippled the two companies in the past year.
The plan gave Wall Street a jolt of confidence on Monday, and set the Dow soaring 290 points. As Wall Street cheered the rescue of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), investors moved assets away from the commodity market, where they had been hiding cash as a hedge against inflation and other economic uncertainties.
"People moved to commodities, and now that Fannie and Freddie have been bailed out, a lot of that play is coming off the table right now," said Flynn.
Also pushing oil prices lower: Hurricane Ike was downgraded to a Category 1 storm and fear eased that it would cause major damage to Gulf of Mexico oil production facilities.
Oil slid $2.37 to $103.97 a barrel.
On Monday, U.S. crude oil for October delivery settled up 11 cents to $106.34 a barrel, but not before falling from a trading high of $109.89 earlier in the day. A dollar rally on Monday moved oil prices back more than $3 off early session highs.
Waiting for OPEC: Slumping demand for expensive energy has caused the price of crude to fall off sharply from the record high price of $147.27 a barrel, set on July 11.
The drop of more than $40 in oil prices has market watchers paying close attention to the Organization of Petroleum Exporting Countries meeting happening on Tuesday in Vienna, Austria. Market watchers were listening for any production level cuts.
The oil minister of Saudi Arabia, Ali Naimi, indicated that he does not think the production levels need to be changed, according to reports from the Associated Press.
"The market is fairly well balanced," Naimi told the AP on Tuesday. "I think things are in balance, in a healthy position." Because Saudi Arabia is a heavyweight in the cartel, Naimi's comments were closely watched.
OPEC leaders ought to leave production levels set because if the cartel were to cut production levels in order to prop up oil prices, many counties would be angry, according to Phil Flynn, senior market analyst at Alaron Trading.
"If they cut production to try to shore up prices, that would be viewed very unfavorably by the markets that are struggling," said Flynn.
"I don't think OPEC wants to be viewed as muddying up the waters here so they will be forced to do nothing," he said. "My general sense right now is that OPEC is more concerned about demand destruction than about the price drop."
Another analyst said that while it looks that OPEC will not officially cut production, it may try to adhere to quotas more strictly.
"They are probably 700,000 - 800,000 barrels each day over their quotas," said Andrew Lebow, a broker at MF Global in New York. "The chat is that they might adhere more to the quotas."
"As usual, the Saudis are the key," said Lebow. When it comes to the "increase over the quotas, they are the ones that have the lion share."
Hurricane Ike: While Ike killed 73 people when it passed over Haiti, the storm slowed over Cuba, and was downgraded to a Category 1 hurricane, according to the National Hurricane Center.
"There is a sense that the storm might not be as bad as originally feared, and that is good news for the market, but it is also bearish news," said Flynn.
If supply is not impacted, then prices move lower, as the market focuses on sagging demand.
It seems that Ike "is going to miss most of the U.S. crude production and natural gas production areas, and track more toward Southern Texas and the Yucatan peninsula in Mexico," said Lebow. But the oil market will continue to monitor Ike, because the track can change.
The storm was expected to reach the southeastern Gulf of Mexico as early as Tuesday afternoon. "Some weakening is likely as Ike crosses Western Cuba," the Hurricane Center's public advisory said. "But restrengthening is expected once Ike moves into the Gulf of Mexico."
Gustav: Ike threatened oil production rigs and refineries in the Gulf region more than a week after Hurricane Gustav slammed into the coast of Louisiana. About one quarter of the nation's oil production facilities are located in the Gulf.
As of Tuesday, 79.4% of crude oil production and 64.2% of natural gas production in the Gulf of Mexico remained shut from Gustav, according to the Department of Energy.
Gustav damaged two offshore drilling rigs owned by Transocean (RIG) in the Gulf of Mexico, according to Guy Cantwell, a spokesman for the company. Gustav also damaged the mooring system on a third rig, the company said Monday.
Shell has decided to wait until after Ike to return completely into the Gulf.
"Remaining production recovery from Gustav will be delayed until after we can redeploy after Hurricane Ike has safely passed," according to a written statement on Shell's Web site.
Currently, Shell has 240 personnel working on offshore facilities, but plans to "evacuate most or all of our Shell operated assets by Wednesday or Thursday."
Fannie, Freddie: The government announced a plan Sunday to bailout the struggling mortgage giants. The twin companies own $5 trillion in home loans and the mortgage meltdown in the U.S. has crippled the two companies in the past year.
The plan gave Wall Street a jolt of confidence on Monday, and set the Dow soaring 290 points. As Wall Street cheered the rescue of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), investors moved assets away from the commodity market, where they had been hiding cash as a hedge against inflation and other economic uncertainties.
"People moved to commodities, and now that Fannie and Freddie have been bailed out, a lot of that play is coming off the table right now," said Flynn.
Sunday, September 7, 2008
Auto industry to press Congress for $50B in loans
Auto industry allies hope to secure up to $50 billion in government loans this month that would pay to modernize plants and help struggling car makers build more fuel-efficient vehicles.
With Congress returning this coming week from its summer break, the industry plans an aggressive lobbying campaign for the low-interest loans. The situation is growing dire after months of tumbling sales, high gasoline prices and consumers' abandoning profitable trucks and sport utility vehicles.
Lawmakers authorized $25 billion in loans in last year's energy bill to help the companies build fuel-efficient vehicles such as hybrids and electric vehicles. With credit tight, automakers and suppliers now want lawmakers to come up with the money for the program _ and expand the pool of money available to $50 billion over three years.
Industry leaders have argued that the loan guarantees are not a government bailout because it would hasten production of fuel-efficient vehicles and reduce dependence on imported oil.
"This is not about benefiting Wall Street," said Ford Motor Co.'s President of the Americas Mark Fields, referencing recent federal support for the investment firm Bear Stearns and troubled mortgage companies Fannie Mae and Freddie Mac. "This is benefiting Main Street, the working men and women. The auto industry is part of the backbone of the U.S. economy."
The low-interest loans, at rates of about 4 percent to 5 percent, would pay for up to 30 percent of the cost of retooling plants to build hybrids, plug-in hybrids, electric cars and other alternatives.
Ford and General Motors Corp.'s credit ratings have fallen below investment grade, making it difficult for the companies to borrow money at affordable rates. Chrysler, which has been heavily dependent upon truck sales, has been privately held since last year and faces similar problems accessing capital.
"This industry could fall down, literally, or be absorbed if they don't get something in place very soon. I think it's that severe," said Rep. Joe Knollenberg, R-Mich. "Something has to happen pretty quickly because they can't compete paying 15 to 20 percent (interest)."
Industry lobbyists pressed the issue at the recent presidential conventions in Denver and St. Paul, Minn., and members of Michigan's congressional delegation have talked to legislative leaders and the Bush administration about the program. Discussions surround a three-year plan that would make $25 billion in loans available in the first year, followed by $15 billion the second year and $10 billion in the third.
To provide $50 billion in loans, Congress would need to set aside about $7.5 billion to guard against a loan default.
Automakers want to secure the money for the loans before November's election because a new president and Congress could delay the companies' ability to access the loans.
The White House said last week it was talking to members of Congress and the industry about the financing. The issue, meanwhile, has gained a foothold in the presidential campaign in states with many auto workers such as Michigan and Ohio.
Democrat Barack Obama has criticized Republican rival John McCain for not supporting the full $50 billion loan program. McCain said last week he supported fully covering the $25 billion loan program in the energy law.
Congressional leaders have said they are open to an expanded program. But the industry will face a compressed schedule in an election year when many lawmakers will push to leave Washington so they can campaign for re-election this fall.
"We're hopeful that we're making an effective case to get this done between now and the end of this session," said John Bozzella, Chrysler's vice president of external affairs and public policy.
The loans would be available to foreign automakers, but the companies are not expected to seek the money because they are in a better financial situation and priority would be given to companies with plants 20 years or older.
With Congress returning this coming week from its summer break, the industry plans an aggressive lobbying campaign for the low-interest loans. The situation is growing dire after months of tumbling sales, high gasoline prices and consumers' abandoning profitable trucks and sport utility vehicles.
Lawmakers authorized $25 billion in loans in last year's energy bill to help the companies build fuel-efficient vehicles such as hybrids and electric vehicles. With credit tight, automakers and suppliers now want lawmakers to come up with the money for the program _ and expand the pool of money available to $50 billion over three years.
Industry leaders have argued that the loan guarantees are not a government bailout because it would hasten production of fuel-efficient vehicles and reduce dependence on imported oil.
"This is not about benefiting Wall Street," said Ford Motor Co.'s President of the Americas Mark Fields, referencing recent federal support for the investment firm Bear Stearns and troubled mortgage companies Fannie Mae and Freddie Mac. "This is benefiting Main Street, the working men and women. The auto industry is part of the backbone of the U.S. economy."
The low-interest loans, at rates of about 4 percent to 5 percent, would pay for up to 30 percent of the cost of retooling plants to build hybrids, plug-in hybrids, electric cars and other alternatives.
Ford and General Motors Corp.'s credit ratings have fallen below investment grade, making it difficult for the companies to borrow money at affordable rates. Chrysler, which has been heavily dependent upon truck sales, has been privately held since last year and faces similar problems accessing capital.
"This industry could fall down, literally, or be absorbed if they don't get something in place very soon. I think it's that severe," said Rep. Joe Knollenberg, R-Mich. "Something has to happen pretty quickly because they can't compete paying 15 to 20 percent (interest)."
Industry lobbyists pressed the issue at the recent presidential conventions in Denver and St. Paul, Minn., and members of Michigan's congressional delegation have talked to legislative leaders and the Bush administration about the program. Discussions surround a three-year plan that would make $25 billion in loans available in the first year, followed by $15 billion the second year and $10 billion in the third.
To provide $50 billion in loans, Congress would need to set aside about $7.5 billion to guard against a loan default.
Automakers want to secure the money for the loans before November's election because a new president and Congress could delay the companies' ability to access the loans.
The White House said last week it was talking to members of Congress and the industry about the financing. The issue, meanwhile, has gained a foothold in the presidential campaign in states with many auto workers such as Michigan and Ohio.
Democrat Barack Obama has criticized Republican rival John McCain for not supporting the full $50 billion loan program. McCain said last week he supported fully covering the $25 billion loan program in the energy law.
Congressional leaders have said they are open to an expanded program. But the industry will face a compressed schedule in an election year when many lawmakers will push to leave Washington so they can campaign for re-election this fall.
"We're hopeful that we're making an effective case to get this done between now and the end of this session," said John Bozzella, Chrysler's vice president of external affairs and public policy.
The loans would be available to foreign automakers, but the companies are not expected to seek the money because they are in a better financial situation and priority would be given to companies with plants 20 years or older.
Union strikes Boeing
Workers at Boeing walked off the job on Saturday after nearly two days of around-the-clock talks failed to avert what could one of the nation's most disruptive strikes in more than a decade.
About 25,000 members of the International Association of Machinists in the Seattle area and another 2,250 in Oregon and Kansas started striking at 12:01 a.m. PT.
The company had offered union members raises over the next three years totaling 11% of current pay. Boeing also offered bonuses and pension improvements it said would give the typical worker about $34,000 in additional pay and benefits during that time.
"We are certainly disappointed," said Boeing spokesman Tim Healy. "We were certainly hopeful that members would look at that offer and the amount of money they would have in their pocket over the next three years, and that they would vote in their best interests."
But the union argues that contract changes demanded by the company would weaken job security and cause more work to be outsourced to contractors and suppliers, as well as drive up members' out-of-pocket health care costs.
"The details in the contract language is something we can't live with," said Connie Kelliher, a union spokeswoman. "We heard again and again from rank and file, 'The best pay and benefits are no good if you're not on the payroll tomorrow to collect them.' "
Workers voted 80% against the company's final offer on Wednesday and 87% in favor of a strike. They had been set to walk off the job early Thursday morning, but the union agreed to participate in two days of federally mediated talks at the request of Washington Gov. Chris Gregoire.
Talks took place at Walt Disney World in Florida, where the union was holding its regularly scheduled convention.
"If this company wants to talk, they have my number, they can reach me on the picket line," said a statement to members from Tom Wroblewski, the head of the bargaining team.
Boeing (BA, Fortune 500) said it would not try to assemble planes during the strike. Healy said the company stands ready to resume talks whenever the union is willing.
"Over the past two days, Boeing, the union and the federal mediator worked hard in pursuing good-faith explorations of options that could lead to an agreement," said Scott Carson, president and chief executive of Boeing Commercial Airplanes, on Friday. "Unfortunately, the differences were too great to close."
Dreamliner delivery at risk
The strike will push back delivery of the first of the fuel-efficient 787 Dreamliner jets, which are in strong demand by airlines struggling to deal with high fuel prices.
The Dreamliner, for which Boeing has taken about 900 orders from 58 airlines worldwide, is already two years behind its original delivery schedule. In April, Boeing was forced to push back its first delivery target until the third quarter of 2009.
The job action could cost Boeing an estimated $100 million a day in revenue and perhaps $7 million a day in net income, according to financial analysts. The company's revenue in the first half of the year was nearly $33 billion and net income was $2 billion.
Boeing has a history of rocky labor relations with its unionized workers, who struck three years ago for 28 days. The contract that ended that strike did not include many of the provisions the union had opposed, but it also did not include increases in base wages other than previously-negotiated cost-of-living adjustments.
That contract was reached at a time when airlines with about half of U.S. capacity were in bankruptcy protection and industry losses were continuing to mount.
Since then strong sales and production at Boeing have led to record profits at the aircraft maker.
The size of Boeing's unionized workforce has grown in the face of the strong demand, up by nearly half during the life of the contract. At a time when employers nationwide have trimmed more than 600,000 jobs from payrolls in the face of a weakening U.S. economy, Boeing is adding dozens of workers a day, according to the union.
Starting workers earn just under $9 an hour in base wages, according to Kelliher, the union spokeswoman. The typical Machinist at Boeing earns about $27 an hour, or $54,000 a year before benefits and overtime, according to the union. The most senior union members earn about $35 an hour, or just over $70,000 a year before benefits and overtime.
Exports of aircraft have become important to the U.S. economy, which as seen huge trade deficits that only recently started to retreat due to lower demand for imports by U.S. consumers and stronger demand for U.S. goods due partly to a weaker dollar.
In the first half of 2008, total U.S. civilian aircraft exports rose 14% to nearly $25 billion, and parts exports for those aircraft other than engines rose nearly 11% to more than $10 billion.
Last fall, the United Auto Workers union staged brief strikes at General Motors and Chrysler LLC over the companies' efforts to shift the responsibility for retiree health care costs to union-controlled trust funds rather than the companies' battered finances.
A strike by 87,000 workers at Verizon Communications in August 2000 failed to shut down the company. The last time that a strike larger than the walk-out at Boeing shut down a company's operations for an extended period was the 14-day strike at United Parcel Service by the Teamsters union in 1997.
About 25,000 members of the International Association of Machinists in the Seattle area and another 2,250 in Oregon and Kansas started striking at 12:01 a.m. PT.
The company had offered union members raises over the next three years totaling 11% of current pay. Boeing also offered bonuses and pension improvements it said would give the typical worker about $34,000 in additional pay and benefits during that time.
"We are certainly disappointed," said Boeing spokesman Tim Healy. "We were certainly hopeful that members would look at that offer and the amount of money they would have in their pocket over the next three years, and that they would vote in their best interests."
But the union argues that contract changes demanded by the company would weaken job security and cause more work to be outsourced to contractors and suppliers, as well as drive up members' out-of-pocket health care costs.
"The details in the contract language is something we can't live with," said Connie Kelliher, a union spokeswoman. "We heard again and again from rank and file, 'The best pay and benefits are no good if you're not on the payroll tomorrow to collect them.' "
Workers voted 80% against the company's final offer on Wednesday and 87% in favor of a strike. They had been set to walk off the job early Thursday morning, but the union agreed to participate in two days of federally mediated talks at the request of Washington Gov. Chris Gregoire.
Talks took place at Walt Disney World in Florida, where the union was holding its regularly scheduled convention.
"If this company wants to talk, they have my number, they can reach me on the picket line," said a statement to members from Tom Wroblewski, the head of the bargaining team.
Boeing (BA, Fortune 500) said it would not try to assemble planes during the strike. Healy said the company stands ready to resume talks whenever the union is willing.
"Over the past two days, Boeing, the union and the federal mediator worked hard in pursuing good-faith explorations of options that could lead to an agreement," said Scott Carson, president and chief executive of Boeing Commercial Airplanes, on Friday. "Unfortunately, the differences were too great to close."
Dreamliner delivery at risk
The strike will push back delivery of the first of the fuel-efficient 787 Dreamliner jets, which are in strong demand by airlines struggling to deal with high fuel prices.
The Dreamliner, for which Boeing has taken about 900 orders from 58 airlines worldwide, is already two years behind its original delivery schedule. In April, Boeing was forced to push back its first delivery target until the third quarter of 2009.
The job action could cost Boeing an estimated $100 million a day in revenue and perhaps $7 million a day in net income, according to financial analysts. The company's revenue in the first half of the year was nearly $33 billion and net income was $2 billion.
Boeing has a history of rocky labor relations with its unionized workers, who struck three years ago for 28 days. The contract that ended that strike did not include many of the provisions the union had opposed, but it also did not include increases in base wages other than previously-negotiated cost-of-living adjustments.
That contract was reached at a time when airlines with about half of U.S. capacity were in bankruptcy protection and industry losses were continuing to mount.
Since then strong sales and production at Boeing have led to record profits at the aircraft maker.
The size of Boeing's unionized workforce has grown in the face of the strong demand, up by nearly half during the life of the contract. At a time when employers nationwide have trimmed more than 600,000 jobs from payrolls in the face of a weakening U.S. economy, Boeing is adding dozens of workers a day, according to the union.
Starting workers earn just under $9 an hour in base wages, according to Kelliher, the union spokeswoman. The typical Machinist at Boeing earns about $27 an hour, or $54,000 a year before benefits and overtime, according to the union. The most senior union members earn about $35 an hour, or just over $70,000 a year before benefits and overtime.
Exports of aircraft have become important to the U.S. economy, which as seen huge trade deficits that only recently started to retreat due to lower demand for imports by U.S. consumers and stronger demand for U.S. goods due partly to a weaker dollar.
In the first half of 2008, total U.S. civilian aircraft exports rose 14% to nearly $25 billion, and parts exports for those aircraft other than engines rose nearly 11% to more than $10 billion.
Last fall, the United Auto Workers union staged brief strikes at General Motors and Chrysler LLC over the companies' efforts to shift the responsibility for retiree health care costs to union-controlled trust funds rather than the companies' battered finances.
A strike by 87,000 workers at Verizon Communications in August 2000 failed to shut down the company. The last time that a strike larger than the walk-out at Boeing shut down a company's operations for an extended period was the 14-day strike at United Parcel Service by the Teamsters union in 1997.
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