Oil, Gasoline Climb to Records as Investors Move to Commodities

Crude oil and gasoline rose to records as investors purchased commodities because their returns have outpaced stocks, bonds and other financial instruments.

Oil climbed to $113.93 a barrel in New York, the highest since futures began trading in 1983. Rising global demand for raw materials and a weakening dollar have led to record prices this year for commodities including corn, rice and gold. China said today diesel imports surged 49 percent in March.

Developing countries are still growing, which is boosting demand for metals, grains and energy, said Eric Wittenauer, an energy analyst at Wachovia Securities in St. Louis. It makes sense for investors and hedge funds to invest in these commodities with the weakness of other markets.

Crude oil for May delivery rose $1.80, or 1.6 percent, to $113.56 a barrel at 11:42 a.m. on the New York Mercantile Exchange.

Gasoline for May delivery climbed 3.9 cents, or 1.4 percent, to $2.8608 a gallon in New York. Futures touched $2.8715 today, an intraday record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.

U.S. pump prices are following futures higher. Regular gasoline, averaged nationwide, rose 1.3 cents to a record $3.3386 a gallon, AAA, the nation's largest motorist organization, said today on its Web site.

Oil has risen 39 percent and the dollar has dropped 12 percent against the euro since the Federal Reserve began lowering interest rates on Sept. 18.

`Attractive' Investment

This is where the funds want to be, said Daniel Flynn, a broker with Alaron Trading Corp. in Chicago. Rate cuts and a weak stock market make commodities very attractive.

The UBS Bloomberg Constant Maturity Commodity Index, which tracks 26 raw materials, gained 0.9 percent to 1503.347 today. It's up 35 percent from a year ago.

Oil in New York surged 79 percent over the past year as the Standard & Poor's 500 Index dropped 9.8 percent and the Dow Jones Industrial Average declined 3.5 percent.

It doesn't look like there's anything to get in the way of the oil market, said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $4.5 billion energy-company bond portfolio. As long as the dollar goes lower, more money will go into commodities.

Exxon Mobil Corp. and Chevron Corp. led energy shares to the highest level since January because of rising oil and gasoline prices. Exxon, the biggest U.S. oil company, climbed 26 cents to $89.96. Chevron, the country's second biggest, added 24 cents to $89.54.

Demand Growth

The Organization of Petroleum Exporting Countries left its forecast for 2008 oil demand at 86.97 million barrels a day, a 1.2 million barrel-a-day gain over 2007, according to the group's monthly demand report today. OPEC's 13 members produce more than 40 percent of the world's oil.

China, the world's second-largest energy consumer, increased diesel imports as state refiners China Petroleum & Chemical Corp. and PetroChina Co. bought more to ensure supplies for the spring planting season.

Chinese oil demand this year will rise 4.7 percent to 7.9 million barrels a day, the International Energy Agency said in a report on April 11.

Brent crude for May settlement rose $1.73, or 1.6 percent, to $111.57 a barrel on London's ICE Futures Europe exchange. The contract touched a record $112.08 a barrel.

Petroleos Mexicanos, the third-largest supplier of crude oil to the U.S., reopened two of its oil-export terminals on the Gulf of Mexico after closing them April 13 because of heavy winds and rain. The terminals at the ports of Pajaritos and Cayo Arcas opened this morning, said Martha Avelar, a spokeswoman for Mexico City-based Pemex, as the company is known.

The Pacific port of Salina Cruz and the Gulf port of Dos Bocas are still closed, Avelar said.

Oil Is Little Changed After Touching Record on Drop in Supplies

Oil was little changed in New York after touching a record $112.21 a barrel yesterday following an unexpected decline in U.S. crude supplies.

The 3.1 million-barrel drop in crude-oil stockpiles reported by the Energy Department sent the price up as much as 3.4 percent yesterday. Gasoline futures jumped as much as 2.6 percent to their highest ever. At the pump, U.S. consumers are paying a record $3.343 a gallon, said the American Automobile Association, the nation's largest motorist organization.

This reaction to the DOE numbers suggests that the supply and demand fundamentals are still important, said Adam Sieminski, Deutsche Bank's chief energy economist in Washington. It's not just the speculators that are driving prices higher.

Oil's 80 percent gain during the past year is the second biggest among 19 commodities on the Reuters/Jefferies CRB Index, trailing only wheat, which doubled. Rising global demand for raw materials and a weakening dollar have led to records this year for raw materials including corn, soybeans, rice and gold.

Crude oil for May delivery fell 31 cents to $110.56 a barrel at 9:27 a.m. Sydney time in after-hours trading on the New York Mercantile Exchange. Yesterday, futures climbed $2.37, or 2.2 percent, to settle at $110.87 a barrel, a record close. The intraday peak of $112.21 a barrel was the highest since Nymex futures trading began in 1983.

Record Pump Prices

Gasoline for May delivery fell 0.13 cent to $2.7729 a gallon after climbing 2.38 cents, or 0.9 percent, to close at $2.7742 a gallon yesterday. Futures had reached $2.8228, an intraday record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.

U.S. pump prices are following futures higher. Regular gasoline, averaged nationwide, rose 1.2 cents to the record, AAA said yesterday on its Web site. Diesel prices advanced 1.2 cents to $4.032 a gallon, AAA said. Diesel pump prices reached a record $4.037 on March 22.

Rising fuel prices and cooling demand will produce first- quarter losses at five of the seven biggest U.S. airlines, based on Bloomberg surveys of analysts. Four of the nation's five biggest airlines, all except AMR Corp.'s American Airlines, have started charging some passengers $25 for a second checked bag to blunt rising fuel costs.

Inflation has also been a source of concern, with higher commodity prices and the weaker dollar, Federal Reserve Chairman Ben S. Bernanke told Congress's Joint Economic Committee on April 2.

Demand May Drop

At the same time, Bernanke said the Fed expects inflation to moderate in coming quarters, echoing the Federal Open Market Committee's March 18 statement. A leveling out of commodity prices and slower global growth will help, Bernanke said.

U.S. gasoline demand may drop by 85,000 barrels a day this summer, Guy Caruso, administrator of the Energy Information Administration, said April 7. In 1991, gasoline use fell 1.4 percent in the summer, following a nine-month recession during George H.W. Bush's presidency, Caruso said.

Refineries operated at 83 percent of capacity last week, down from 88.4 percent a year earlier, the Energy Department report showed. Refiners operated at 82.2 percent in the week ended March 21, the lowest since October 2005.

The report is supportive across the board, said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. I'm surprised gasoline isn't up more because of the larger-than-expected drop in inventories.

Fog Delays

Supplies of gasoline and distillate fuel, including heating oil and diesel, also fell. Gasoline inventories dropped 3.44 million barrels to 221.3 million last week, yesterday's report showed. A 3-million-barrel decline was expected.

Crude-oil imports fell 13 percent to 8.91 million barrels last week, the report showed.

Most of the drop occurred on the Gulf Coast, which could be a result of fog delays in the Houston Ship Channel or because refiners may have been purchasing less oil, Evans said.

Inventories on the Gulf of Mexico coast, known as PADD 3, fell 2.4 million barrels to 167.1 million barrels, the report showed, the biggest drop since the week ended Jan. 4.

Crude-oil supplies last week were 316 million barrels, 0.1 percent above the five-year average for the period, the department said. A week earlier stockpiles were 1.8 percent higher. Gasoline inventories were 7.9 percent above the five- year average, compared with 9.1 percent above a week earlier.

Heating Oil

Heating oil for May delivery rose 12.43 cents, or 4 percent, to settle at a record $3.2345 a gallon in New York yesterday. Futures touched an intraday record of $3.2561 a gallon.

Supplies of distillate fuel fell 3.7 million barrels to 106 million last week, the report showed. A 1.5 million barrel decline was forecast.

Brent crude for May settlement rose $2.13, or 2 percent, to settle at a record $108.47 a barrel on London's ICE Futures Europe exchange yesterday. Futures earlier reached the highest- ever intraday level of $109.50.

It looks like this move will accelerate and prices will move toward $115, said Tom Bentz, a broker at BNP Paribas in New York. This is all part of the big uptrend, and where it stops nobody knows.

Wall Street cuts gains by the close as optimism about WaMu, mergers, gives way to concern about earnings

Stocks ended mixed Monday, as investors welcomed news that Washington Mutual could see a $5 billion investment, but showed caution ahead of the quarterly earnings period, due to get underway after the close.

The Dow Jones industrial average and the broader Standard & Poor's 500 index both gained a few points. The Nasdaq composite lost 0.3%.

The major gauges struggled higher through the morning as investors welcomed corporate news, including the latest for the possible Microsoft-Yahoo combination and $5 billion investment for mortgage lender Washington Mutual.

But a spike in oil, gold and gas prices and some selling in the technology sector dragged on stocks in the afternoon, with the Nasdaq ending the session lower.

After the close, Dow component and aluminum producer Alcoa reported quarterly earnings that fell from a year ago and missed estimates on sales that fell from a year ago and beat estimates. As is traditional, Alcoa's earnings mark the unofficial start of the quarterly reporting period.

Results for the overall S&P 500 are expected to decline versus a year ago, due largely to a big drop in financial sector results amid the credit and housing market crises.

No big market-moving earnings are due Tuesday, with the focus instead on the morning's economic news.

The February pending home sales index is due in the morning and the minutes from the last Federal Reserve policy meeting are due in the afternoon.

Investors will also be sorting through comments from a pair of Fed officials expected late Monday night. Federal Reserve Vice Chairman Donald Kohn and San Francisco Fed President Janet Yellen are both expected to speak tonight in San Francisco.

Washington Mutual rumors. Earlier, financial stocks had rallied as investors continued to bet that the worst is over with for the market.

The potential ($5 billion) Washington Mutual investment was important for investor sentiment amid ongoing questions about whether the credit crisis has seen a turning point, said Joseph Saluzzi, co-head of equity trading at Themis Trading.

Private equity is generally seen as the smart money, and its been sitting on the sidelines lately, he said. So if this deal turns out to be true and the smart money is seeing value in companies like Washington Mutual, that's a good sign.

He said the market was also benefiting from an improvement in sentiment seen last week, when investors welcomed news that UBS and Lehman Brothers are raising cash - and took in stride a dismal March jobs report.

Washington Mutual is in talks to receive a $5 billion investment from private equity firm TPG and other investors, The Wall Street Journal reported. Shares jumped 29%.

Microsoft said over the weekend that Yahoo has three weeks to agree to a takeover or face a proxy fight for control of the company. On Monday, Yahoo said it isn't opposed to a deal, but wants a better offer than the current $41 billion.

Swiss drugmaker Novartis is buying 25% of Alcon with an option to ultimately buy more than 75% of the eye-care company in a deal that could be worth as much as $38 billion.

Market breadth was mixed. On the New York Stock Exchange, winners topped losers by 9 to 7 on volume of 1.27 billion shares. On the Nasdaq, decliners narrowly edged advancers on volume of 1.78 billion shares.

Commodity prices. U.S. light crude oil for May delivery rose $2.86 to settle at $109.09 a barrel on the New York Mercantile Exchange.

COMEX gold for June delivery rose $11.80 to $925 an ounce.

Other markets. The dollar rose versus the euro and the yen.

Treasury prices slumped, raising the yield on the benchmark 10-year note to 3.56% from 3.46% late Thursday. Bond prices and yields move in opposite directions.

$100 oil hurts, just like a recession

Economists, once so dismissive of pricey crude's economic impact, say it's going to hurt.

Five months ago many economists said high oil prices wouldn't hurt the economy - now they're eating their words.

Back in October, when oil prices were near $90 a barrel and the economy was still humming along economists said high oil prices shouldn't cut into economic growth. The economy used oil more efficiently than it did in the 1970s, and spending on gas was just a small percent of people's budget, the experts said.

Fast forward to March and you've got a sputtering economy, and economists saying $105 oil deserves a big part of the blame.

Even the White House is beginning to sound more pessimistic, predicting Friday that the the economy could contract.

You have a very significant restraint on consumer spending, said Chris Lafakis, an associate economist at Moody's Economy.com, an economic consultancy. It acts as a tax would.

Lafakis said consumers spend an extra $5 billion each year for each $1 increase in the price of crude.

When economists were predicting that oil wouldn't negatively impact the economy, they based their assertion on a price of about $80 a barrel.

But if oil stays at $100 a barrel for the next 12 months, consumers will have shelled out an extra $100 billion on oil by next year. That's an extra $100 billion not being spent at the mall, mega-mart or multiplex.

The entire stimulus package could be drained by higher energy costs, Lafakis said, referring to the $120 billion lawmakers will refund to taxpayers in an effort to keep the economy out of recession. That has the potential to turn a mild recession into something more dark.

Worse to come

Of course, high oil prices are not the only thing weighing on consumer spending, which accounts for about two-thirds of all U.S. economic activity. Declining home values mean people can't access cash through a home equity loan or profit from higher sale prices. In addition, the economy is shedding jobs, and unemployed people tend to spend less money.

On its own, $100 oil wouldn't pull the economy into recession, said Beth Ann Bovino, a senior economist at Standard and Poor's. But given the other factors, it's just another shoe to drop.

Both Bovino and Lafakis have similar predictions for the economy - a mild recession lasting the first and second quarters of 2008, then a modest recovery beginning in the second half of this year.

However, if oil goes to $115 or $120 a barrel - certainly not an outlandish thought given that crude prices have nearly doubled over the last 12 months - then those bets may be off.

Bovino said $115 oil, along with worsening conditions in the credit and foreign investment market, could be enough to keep the economy in recession through the first part of 2009.

It would sure give the pessimistic forecast more credibility, she said.

Oil Trades Near Record on OPEC Output, Drop in U.S. Inventories

Crude oil traded near a record $104.95 a barrel in New York after U.S. fuel inventories dropped and OPEC refrained from raising production.

The Organization of Petroleum Exporting Countries agreed to maintain output targets at a meeting yesterday in Vienna. U.S. inventories fell for the first time in eight weeks, the Energy Department said.

Those factors encouraged buying here in Asia, extending what we saw in the U.S., said Tetsu Emori, a fund manager at Astmax Ltd. in Tokyo. The drop in U.S. inventories, which generated panic-like buying, was a surprise. Crude oil, which has not seen the gains recorded by core commodities, suddenly emerged center stage.

Crude oil for April delivery was at $104.35 a barrel, down 17 cents, in after hours electronic trading on the New York Mercantile Exchange at 10:51 a.m. in Singapore.

Oil rose $5 to settle at $104.52 a barrel yesterday, a record close and the biggest one-day increase since Jan. 30, 2007. Futures earlier touched the highest since trading began in 1983.

Brent crude for April settlement was trading 12 cents lower at $101.52 on London's ICE Futures Europe at 10:50 a.m. in Singapore. Yesterday the contract rose $4.12, or 4.2 percent, to $101.64 a barrel exchange, a record close. Futures reached a $102.29 a barrel on March 3, the highest-ever intraday price.

U.S. Supplies

Crude-oil supplies fell 3.06 million barrels to 305.4 million in the week ended Feb. 29, according to the Energy Department. A 2.4-million-barrel gain was forecast, according to the median of responses by 15 analysts surveyed by Bloomberg.

Crude oil processing at U.S. refineries rose to the highest in six weeks, climbing 1.2 percentage points to 85.9 percent for the week ended Feb. 29, the Energy Department reported.

On the heels of OPEC's decision, this week's U.S. oil statistics turned out to be bullish, said Harry Tchilinguirian, a senior oil market analyst with BNP Paribas SA. OPEC's decision to roll over output quotas is likely to cap any significant crude oil inventory builds ahead of the summer as Atlantic Basin refiners emerge from maintenance and increase crude demand.

U.S. refiners typically lift crude-oil processing toward the end of the second quarter to meet summer demand.

Supplies of distillate fuels, a category that includes heating oil and diesel, fell 2.33 million barrels from 117.6 million barrels last week, the report showed.

Heating oil for April delivery rose 15.13 cents, or 5.4 percent, to $2.9431 a gallon, a record close. The contract touched $2.9491, the highest intraday price since trading began in 1978.

Colombia, Ecuador

Colombia and Ecuador, an OPEC member, moved closer to settling a dispute stemming from Colombia's cross-border military incursion to kill a rebel leader last week.

The deal calls for Organization of American States Secretary-General Jose Miguel Insulza to form a panel to probe the incident and convene a meeting of foreign ministers to consider the results.

It may help lower tension in the region, and comes as Venezuela, the fourth-largest supplier of crude tom the U.S., moved tanks to the Colombian border on orders from President Hugo Chavez, who said Colombia's March 1 strike risks a war.

Gold Climbs to Record, Oil, Grains Advance as Dollar Weakens

Gold advanced to a record and energy, metals and agricultural commodities rose as the dollar weakened and investors bought raw materials as a hedge against inflation.

Gold, copper and nickel are off to the best start since at least 1980. Crude oil gained, after reaching a record $100 last week, before a U.S. report that may show inventories fell for an eighth week. Corn climbed to an 11-year high as index managers increased the proportion of grains held in their funds.

The U.S. dollar is weakening and oil has picked back up, said David Thurtell, a metals analyst at BNP Paribas SA in London. There are a lot of supportive reasons to buy and not many reasons to sell.

Gold for immediate delivery rose as much as $18.52, or 2.2 percent, to $876.67 an ounce in London, exceeding the previous record of $868.89 set Jan. 3. The metal traded at $874 as of 3:06 p.m. in London. Gold for February delivery rose as much as $17.40, or 2 percent, to $879.40 an ounce on the Comex division of the New York Mercantile Exchange.

The metal last reached an all-time high in New York in 1980, when the dollar was weakening, oil prices were rising and the U.S. and Iran were at loggerheads.

U.S. warships were confronted by Iranian fast boats in the Straits of Hormuz on Jan. 6, the U.S. Defense Department said yesterday. The straits are the sea route for about a quarter of the world's oil. The dollar fell today against 15 of 16 major currencies.

The geopolitical situation is having an impact, Mario Innecco, a futures broker at MF Global Ltd. in London, said by phone.

Dollar Weakens

Crude for February delivery was up $1.99, or 2.1 percent, at $97.08 a barrel in electronic trading on the New York Mercantile Exchange. Corn for March delivery rose 4.75 cents, or 1 percent, to $4.71 a bushel in after-hours electronic trading on the Chicago Board of Trade, the highest since June 1996.

Gold advanced 31 percent last year, the biggest gain since 1979, when U.S. inflation was more than 13 percent. U.S. consumer prices increased 0.8 percent in November, the most in more than two years. Inflation in the 13-nation euro region accelerated to 3.1 percent in November, the fastest since 2001, according to Eurostat.

We remain bullish longer-term due to lower interest-rate expectations, oil-related inflation and the current geo- political climate, James Moore, a precious metals analyst with TheBullionDesk.com, wrote today in an e-mail.

Alternative Investment

Investors are also buying gold as an alternative investment after the Standard & Poor's 500 Index had its worst start to a year since 2000.

Hedge-fund managers and other large speculators increased their net-long positions in New York gold futures in the week ended Jan. 1, according to U.S. Commodity Futures Trading Commission data.

Gold should continue to gain in value, aided by stagnating mine output, mounting demand from investors and central banks, and its close link to the dollar, Commerzbank AG analysts based in Frankfurt wrote in a report today.

Speculative long positions, or bets prices will rise, outnumbered short positions by 199,438 contracts on the Comex division of the New York Mercantile Exchange, the Washington- based commission said in its Commitments of Traders report. Net- long positions rose by 15,063 contracts, or 8 percent, from a week earlier.

$800 Average

Among other precious metals, silver for immediate delivery rose 41 cents, or 2.7 percent, to $15.555 an ounce. The metal advanced 15 percent last year, for a seventh consecutive annual advance.

Platinum for immediate delivery in London climbed $19, or 1.3 percent, to $1,542 an ounce. The metal reached a record $1,555.25 on Jan. 4. Palladium rose $2.75 to $372.75 an ounce.

Platinum jumped 34 percent last year, spurred by strikes and accidents at mines in top producer South Africa, which curbed production.

Gold will probably average $800 an ounce this year, compared with $696 last year, according to the median estimate of 37 traders, analysts and investors surveyed by Bloomberg News last month. Gold was the second-best performing metal after lead on the UBS Bloomberg Constant Maturity Commodity Index last year. The index of 26 commodities climbed 22 percent.

Ross Norman, director of London-based TheBullionDesk.com and a former trader of physical bullion, forecast in a Jan. 2 interview that gold may rise well above $1,000 an ounce this year, with a price of $1,200 not out of the question.

Goldman Sachs

Goldman Sachs International Group Inc. economist James Gutman, who is tied as the most-accurate analyst in the London Bullion Market Association's 2007 gold-price forecast, wrote in a Dec. 11 report that gold will drop to $790 in six months and $750 in 12 months.

As the U.S. dollar gains strength once again, the price of gold will, in turn, likely decline, he wrote in the report. The bank recommended selling December 2008 gold futures.

Stagnating production of the metal may buoy prices. Global output fell to a 10-year low of 2,477 tons in 2006, according to the London-based research company GFMS Ltd. Supply from South Africa declined 7.5 percent to the lowest since 1922 as companies were forced to dig deeper and pay workers more.

Gold rose to $873.25 an ounce in the morning fixing in London from $859.25 at the previous afternoon fixing. The fixing is conducted by telephone twice a day, at 10:30 a.m. and 3 p.m., by five banks: Deutsche Bank AG, HSBC Holdings Ltd., Bank of Nova Scotia, Societe Generale SA and Barclays Plc.

The Shanghai Futures Exchange, China's biggest commodity bourse by value, set a reference price equivalent to 209.99 yuan a gram ($898 an ounce) for the gold futures contracts for delivery from June to December that start trading tomorrow, the exchange said in a notice posted on its Web site today.

OPEC Producing Adequate Oil, President Khelil Says

OPEC, the producer of more than 40 percent of the world's oil, is supplying the international market with enough crude and can't be blamed for record prices, the group's new president, Chakib Khelil, said.

There is enough oil in the market, Khelil, the Algerian oil minister who took over OPEC's rotating presidency for 2008, told reporters today in Algiers. It's the problems in Nigeria, in Pakistan and the credit crisis caused by the U.S. subprime- mortgage market collapse that caused prices to increase.

He declined to say whether the 13-member Organization of Petroleum Exporting Countries may decide to raise output to curb prices, when it meets on Feb. 1 to discuss production targets at its headquarters in Vienna. If we see that the U.S. economy has moved into a recession, we won't need to increase production because that will reduce demand for oil, he said.

OPEC seems happy with prices as they are, said John Hall, managing director of U.K-based John Hall Associates energy consultants. Otherwise, it would be thinking of increasing output to help the global economy and to meet rising demand from China and India.

Oil prices in New York rose to a record $100.09 on Jan. 3, as violence flared in Nigeria, Africa's largest producer, cold weather in the northern hemisphere boosted demand for fuels and investors bought commodities to hedge against inflation. Prices closed yesterday at $97.91 a barrel.

High Prices

Government reports that U.S. job growth missed forecasts and that unemployment had jumped to a two-year high of 5 percent are fueling concern that the economy is headed to a recession.

Oil prices will remain high through the first quarter of the year and they may drop in the second quarter, as winter comes to an end, said Khelil. Some non-OPEC countries can produce more crude, he said, without naming any.

OPEC members Iran, Libya and Qatar two days ago said OPEC cannot curb oil prices and that speculation and fears of supply disruption from the Middle East and Africa are fueling oil gains. Indonesia, OPEC's second-smallest producer after Ecuador, is so far the only member to publicly support increasing output.

OPEC, led by the world's top oil exporter Saudi Arabia, left production targets unchanged at its Dec. 5 meeting, ignoring U.S. and European Union calls to pump more oil.

OPEC's production ceiling now stands at 29.673 million barrels a day for 12 of its members. War-torn Iraq, which doesn't have a quota, produces about 2.3 million barrels a day.

Inadequate Capacity

Separately, Christophe de Margerie, the chief executive officer of Total SA, Europe's third-largest oil company, said he expects high prices for a long time.

There's not enough production capacity to meet demand, de Margerie said in an interview today on Europe 1, a Paris- based radio station. With strong demand like today and the inability to raise production, I don't see how prices could fall strongly and quickly.

He said the French company will strongly increase its investment budget this year from the $16 billion in 2007, adding that it will probably be raised in 2009 and 2010 as well. He warned, however, that investment decisions taken now will have an impact on capacity in five years.

A Bloomberg survey of analysts published yesterday showed crude oil may rise because of declining U.S. inventories and a weakening dollar.

Fourteen of 27 analysts surveyed, or 52 percent, said oil prices will rise through Jan. 11. Eleven of the respondents, or 41 percent, said prices will fall, and two predicted little change. Last week, 53 percent of respondents said oil would drop this week.

U.S. crude-oil inventories fell 25.1 million barrels to 289.6 million barrels in the past seven weeks, according to the Energy Department.

Source - Bloomberg

Oil rises, anticipating Fed rate cut

Analysts believe that an interest rate cut will ease worries about the U.S. economy and boost oil demand.

Oil prices rose Tuesday in anticipation that the U.S. Federal Reserve will cut interest rates later in the day, a move that would likely help the U.S. economy - the No. 1 oil consumer - and bolster demand for crude.

News of several crude oil pipeline shutdowns in the U.S. Midwest due to ice storms also supported prices.

Light, sweet crude for January delivery rose 38 cents to $88.24 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. The contract had fallen 42 cents to settle at $87.86 a barrel on Monday.

In London, Brent crude futures rose 20 cents to $88.24 a barrel on the ICE Futures exchange.

The Federal Reserve is widely expected to lower its key rate, now at 4.5 percent, by a quarter of a percentage point - or perhaps more - to try to keep troubles in the housing and credit markets from sinking the economy.

"What's been weighing down on the crude oil futures market is concern about the U.S. economy," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "If the expected cut indeed holds true or is actually larger, it will bolster the U.S. economic outlook, and that's supportive of oil pricing."

Others, however, said the rate cut would have to be something other than a quarter point to affect oil prices.

"Today all eyes will be on the Fed but with a 25-basis-point cut already priced in, it will take a surprise to move (Nymex oil) out of its current trading range," said Olivier Jakob of Petromatrix in Switzerland.

Dow Jones Newswires reported that several crude oil pipelines, including ones operated by Enbridge and Magellan Midstream Partners, were affected by power outages which forced them to shutdown. There were no estimates of when the pipelines were expected to restart.

Oil futures have dropped more than $10 from their highs in recent weeks as OPEC increased output and as demand slid in the face of high prices.

Several recent reports have suggested U.S. demand for oil and gasoline is falling even as OPEC is boosting production. Total production by the Organization of Petroleum Exporting Countries rose to 31.15 million barrels a day in November, up 40,000 barrels a day from October, according to Platts, the energy research arm of McGraw-Hill Cos. Analysts surveyed by Dow Jones Newswires predict the U.S. government will report on Wednesday that domestic oil inventories rose last week.

Some analysts expect oil futures to trade in a range around $90 until more evidence surfaces of either further demand erosion or supply growth. Others believe futures have begun a seasonal move that could take them as low as $70 a barrel.

"It's nearly the end of the year and many investors are booking profits to boost their annual returns and hence their annual bonuses," Shum said. "Given that, I don't think we're going to rally to $100 a barrel again in the remaining weeks of this year unless there are some unexpected events."

Many analysts have blamed the weakening dollar, in part, for oil's run-up to nearly $100 a barrel last month. The dollar's continuing decline against the euro and other currencies makes oil look more attractive to foreign investors.

Heating oil futures rose 0.78 cents to $2.4852 a gallon (3.8 liters) while gasoline prices rose 0.23 cent to $2.2524 a gallon. Natural gas futures added 6.9 cents to $7.101 per 1,000 cubic feet.

Source - CNN Money

Wall Street bets on rate cuts

Stocks gain as investors weigh a better-than-forecast pending home sales index and await Tuesday's Federal Reserve rate-cut decision.

Stocks jumped Monday as investors welcomed a stronger-than-expected pending home sales report and geared up for Tuesday's expected interest-rate cut from the Federal Reserve.

The Dow Jones industrial average added 0.7 percent. The broader S&P 500 index added 0.8 percent and the tech-fueled Nasdaq composite added 0.5 percent.

Treasury prices slumped, boosting the corresponding yields. The dollar fell versus the euro and was little changed versus the yen. Oil prices dipped and gold prices rose.

The Fed's policy committee, meeting Tuesday, is widely expected to cut the fed funds rate, a key short-term lending rate, by a quarter-percentage point, to 4.25 percent, after cutting rates at the last two meetings.

Some Wall Streeters are looking for a cut of a half-percentage point, but such bets were diminished by last week's mostly upbeat November jobs report.

"I think people are pretty positive that we'll get a quarter-percentage point cut and also hoping that maybe we'll get a half-percentage point cut," said Curtis Teberg, portfolio manager of the Teberg Fund.

The central bank has been cutting the fed funds rate, which impacts consumer borrowing costs, since September, as a means of loosening up the credit market and trying to keep the economy out of falling into a recession.

Investors will also be looking to the statement Tuesday that accompanies the decision to shed further light on the Fed's outlook for the economy and the risks to that outlook.

Stocks are also continuing to coast on the positive momentum that has been in place for the last few weeks, said John Merrill, CEO at Tanglewood Capital Partners.

He said that the market has been driven over the last few weeks on a combination of technical factors and hopes that the Fed will cut rates again. As such, "we may see some selling after Tuesday, as investors take a buy on the rumor, sell on the news reaction," Merrill said.

Ahead of the meeting, Wall Street eyed the morning's pending home sales index, which showed a rise of 0.6 percent, versus forecasts that sales would fall 1 percent.

After the close of trade Monday, mortgage lender Washington Mutual said it was cutting its dividend and more than 3,000 jobs in the wake of the housing and credit market crisis.
The Fed's plan B

In corporate news, UBS issued a profit warning, said it will write down about $10 billion related to the credit market crisis and will borrow about $11.5 billion from outside investors.

Troubled bond insurer MBIA said Monday that it will receive a $1 billion investment from private equity firm Warburg Pincus. Shares jumped around 13 percent.

McDonald's, a Dow component, reported November sales at its stores open a year or more rose 8.2 percent, well above estimates. Shares gained nearly 3 percent.

MGI Pharma rallied nearly 20 percent after the drug company agreed to be bought by Japanese drug company Eisai for $3.9 billion in cash.

McDonald's was one of many Dow components rising, with 26 of the 30 blue-chip components higher. Other gainers included Alcoa, General Motors, Citigroup, Caterpillar, Honeywell and JP Morgan.

Market breadth was positive. On the New York Stock Exchange, winners topped losers 5 to 3 on volume of 1.17 billion shares. On the Nasdaq, advancers beat decliners eight to seven on volume of 1.81 billion shares.

Treasury prices slipped, boosting the yield on the 10-year note to 4.15 percent from 4.10 percent late Friday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar fell versus the euro and was little changed against the yen.

U.S. light crude oil for January delivery fell 42 cents to settle at $87.86 a barrel on the New York Mercantile Exchange.

COMEX gold for February delivery rallied $13.30 to settle at $813.50 an ounce.

Source - CNN Money

Bernanke Says Fed to Judge Market Turbulence Impact

Federal Reserve Chairman Ben S. Bernanke said volatility in credit markets has affected the economys prospects and policy makers must decide whether the risks between growth and inflation have now shifted.

The outlook has also been importantly affected over the past month by renewed turbulence in financial markets, Bernanke said in a speech in Charlotte, North Carolina. The committee will have to judge whether the outlook for the economy or the balance of risks has shifted materially.

Bernanke spoke a day after remarks by Vice Chairman Donald Kohn stoked investors expectations for the central bank to lower interest rates for a third straight meeting Dec. 11. While the Fed chief discussed both the risks to growth and inflation, he indicated the central bank is watching for additional signs of a pullback in spending.

Neither Bernanke nor Kohn repeated the language in last months Federal Open Market Committee statement that risks between growth and inflation were roughly balanced. Economists interpreted the Oct. 31 statement as a signal policy makers preferred to leave rates unchanged for a time.

Uncertainty around the outlook is even greater than usual, requiring the Fed to be exceptionally alert and flexible, Bernanke said at an annual meeting of the Charlotte Chamber of Commerce.

Consumer Headwinds

The combination of higher gas prices, the weak housing market, tighter credit conditions, and declines in stock prices seem likely to create some headwinds for the consumer in the months ahead, Bernanke said. Continued good performance by the labor market is important for maintaining the economic expansion.

Kohn said yesterday that officials must take account of the deterioration in credit markets when they next meet. Bernanke echoed that view.

The Federal Reserve is following the evolution of financial conditions carefully, with particular attention to the question of how strains in financial markets might affect the broader economy, Bernanke said.

Federal funds futures show traders see a 100 percent chance of a reduction in the benchmark rate next month, with a 26 percent probability of a half-point move. After the 0.75 percentage point of cuts the past two meetings, that would make the most aggressive easing since the last recession in 2001.

Treasuries Rally

Treasuries have climbed this week, sending three-month bill yields below 3 percent for the first time since August, as concern over banks willingness to lend drove investors to the relative safety of U.S. government debt.

At the same time, stocks rallied on optimism the Fed will act to keep alive the economic expansion, now entering its seventh year. The Standard & Poors 500 Index rose 4.4 percent in the past three days, to 1,469.72 at the close in New York.

Economists also predicted lower rates amid concern mounting losses on assets linked to subprime mortgages will cause banks to cut borrowing. Citigroup Inc., Merrill Lynch & Co., Barclays Plc and other banks have already warned of about $50 billion of losses.

Economic reports today indicated growth may falter after accelerating in the third quarter. New-home prices dropped the most since 1970 and jobless claims rose to a nine-month high. Government figures yesterday showed durable goods orders fell for a third month, the longest slump in 3 1/2 years.

Household spending data have been on the soft side, Bernanke said. The committee will have considerable additional information on consumer purchases and sentiment to digest before its next meeting.

Mixed Data

Economic data have been mixed since last months FOMC meeting, the Fed chairman said. He noted that officials will have further reports, including November payroll figures, when they gather Dec. 11.

President George W. Bushs economic advisers today followed Fed officials move last week to lower their outlook for growth next year. Fed policy makers now expect U.S. gross domestic product to increase 1.8 percent to 2.5 percent in 2008, notably below the 2.5 percent to 2.75 percent they predicted in July.

Bernanke said inflation has remained moderate. Still, increases in the prices of food, imported goods and energy products may raise inflation and inflation expectations, he said.

The effectiveness of monetary policy depends critically on maintaining the publics confidence that inflation will be well- controlled, Bernanke said. We are accordingly monitoring inflation developments closely.

Higher Risk

In financial markets, risk spreads have increased since the Fed met Oct. 30-31, an index tracked by Citigroup Global Markets Inc shows. The index rose to a high of 0.99 on Nov. 22 from 0.77 on Nov. 1, with 1 being the highest level of risk aversion. It was at 0.94 today.

Fed officials have tried to meet the surge in demand for cash, first lowering the cost of direct loans to banks in an unscheduled meeting in August. The central bank cut both the discount rate and its key rate in September and October. The New York Fed also said this week it plans a series of long-term repurchase agreements through year-end to ease funding shortages.

Source - Bloomberg

Wall Street takes another big hit

Major indexes slide into correction as investors fret that credit crisis could lead to recession.

Stocks tumbled Monday, with the market falling into the technical definition of a correction - a slide of 10 percent off the highs - for the second time in 2007.

The Dow Jones industrial average lost 237 points, or 1.8 percent, falling to a 7-month low. The S&P 500 index lost 2.3 percent and fell into negative territory for the year. The Nasdaq composite fell 2.1 percent.

Treasury prices jumped, lowering the corresponding yields to the lowest levels since mid-2005, as investors sought safety in response to the stock selloff.

Early reports from the nation's retailers were positive, but were soon overshadowed by revived worries that the financial and housing market crisis could send the economy into a recession.

Those worries were sparked by the drop in bond yields and developments in the financial sector.

"The equity market is taking more of its cues from the the bond market these days and the bond market seems to be signaling that we could be in recession," said John Davidson, president and CEO at PartnerRe Asset Management.

Adding to these concerns: news that HSBC Holdings is stepping in to bail out two of its flailing funds, bets that Citigroup could announce big layoffs and analyst downgrades of government-backed mortgage lenders Fannie Mae and Freddie Macslumped on an analyst downgrade.

"The fear is that there is more bad news out there, considering that it continues to dribble out from financial institutions," said Timothy Ghriskey, chief investment officer at Solaris Asset Management.

Ghriskey said that stocks are unlikely to bounce back on a significant level until there is a sense that the bad news is all out in the open.
Here comes the recession

The S&P 500 index "corrected" this summer, dropping more than 10 percent off its 2007 peak to hit that low during the session on Aug. 16, at the height of the credit market panic. The Dow and Nasdaq composite saw declines of just short of 10 percent at that time.

But the Federal Reserve stepped in shortly after, injecting billions into the banking system to loosen up the frozen credit markets, cutting the discount bank lending rate, and ultimately cutting the fed funds rate, which affects consumer loans.

That sparked a broad rally leading through October, when the major gauges peaked again. On Oct. 9, the Dow and S&P 500 ended at all-time highs, while the Nasdaq hit an almost 7-year high on Oct. 31.

Stocks have been sliding since then, as Wall Street pros have cashed out after the rally, and as analysts and investors have begun to worry that the Fed is behind the curve and a recession could be underway.

As of Monday's close, the Dow is down 10 percent from its October high and the S&P 500 is down 10.1 percent. The Nasdaq is off 11.1 percent.

A correction could spell the start of a bigger downturn, or it could prove to be the impetus to bring wary traders back in, starting another wave up.

Ghriskey said he thinks the current "correction" is worse than the one over the summer, and that there is little to suggest a change in direction any time soon.
Cheney: No bailouts, no tax hikes

Early reports on Black Friday and the weekend showed a strong turnout of shoppers, although no big splurgers. Investors were also tracking Cyber Monday results. But the upbeat early signs about consumer spending failed to distract Wall Street from the broader worries.

Tuesday kicks off a big week for economic news, with reports due on consumer confidence, existing home sales, and personal income and spending, among other things.

While those reports are important, investors will especially be looking to the November employment report due the following week and the upcoming Fed meeting, said Ron Kiddoo, chief investment officer at Cozad Asset Management.

The Fed's last scheduled policy meeting of the year is on Dec. 11 and many market watchers are betting that the central bankers will choose to cut the fed funds rate again, to help temper the speed of the economic slowdown.

The fed funds rate currently stands at 4.5 percent. Fed watchers are split about whether the bank will cut the rate by a quarter or half percentage point, or possibly not at all.

On Monday, the Fed's New York branch said it will offer a series of special short-term loans to make sure banks have enough cash available.
Stocks: When to bail

Among other stock movers, E*Trade Financial slipped in active Nasdaq trade after a Wall Street Journal article said that any potential buyout could be delayed by concerns about its weakened mortgage portfolio. On Friday, E*Trade shares jumped on buyout talk.

Citigroup lowered its near-term outlook on the homebuilders, saying it is hard to see when the bottom will be made for the hard-hit industry. Centex (Charts, Fortune 500), Lennarand KB Homewere among the names cited in the report.

On the upside, Dow component Boeinginched higher after Wachovia upgraded the jet maker to "outperform" from "market perform," according to Briefing.com.

But it was one of the few Dow gainers, with 28 out of 30 blue chip stocks falling.

All financial markets were closed Thursday for Thanksgiving, and closed early Friday, with many Wall Streeters making a four-day weekend of it.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by over three to one on volume of 1.50 billion shares. On the Nasdaq, decliners beat advancers by seven to three on volume of 2,01 billion shares.

Treasury prices jumped, lowering the yield on the benchmark 10-year note to 3.83 percent - the lowest level since June 2005 - from 4 percent late Friday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar dipped versus the euro, but held above the all-time low hit on Friday. The greenback fell versus the yen.

U.S. light crude oil for January delivery fell 48 cents to settle at $97.70 on the New York Mercantile Exchange, erasing earlier gains.

COMEX gold for December delivery settled at $826.50 an ounce, down from Friday's close.

Source - Bloomberg

Federal Reserve battles recession fears

Rising oil prices and falling bond yields are making the Fed's job tougher. But Wall Street is still hoping for a rate cut in December and more in 2008.

With oil prices approaching $100 and the yield on the benchmark 10-year U.S. Treasury note briefly dipping below 4 percent Wednesday, Ben Bernanke and his fellow Federal Reserve policymakers find themselves in a serious quandary.

On the one hand, the spike in oil prices could clearly be viewed as a sign of inflation. So that's a good argument for the Fed to keep its key federal funds rate unchanged when it has its next meeting on December 11, some economists say.

However, the spike in oil has the potential to lead to higher gas prices at the pump as well as steeper home heating costs this winter. With that in mind, $100 oil might be more of a tax on consumers and could weaken the economy.

The economy is on the brink of a recession, said Mark Zandi, chief economist with Moody's Economy.com, an independent research firm. Hand wringing about inflation is misplaced. The Fed should be focused on growth. Inflation is not an issue for 2008.

Falling bond yields also paint a gloomier picture of the economy, one of weakness. Bond yields typically fall when the economy is slumping. The yield on the 10-year has slipped from about 4.7 percent in mid-October to its current level. And the subprime mortgage crisis appears to be getting worse.

Several financial institutions, ranging from big mortgage lenders such as Washington Mutual and Countrywide Financial to more diversified banks like Citigroup, Wachovia and Bank of America, have been hit hard by rising delinquencies and mortgage investments gone sour.

The mortgage woes have also led to problems at prominent investment banks such as Merrill Lynch as well as Fannie Mae and Freddie Mac, the two government sponsored enterprises which play an important role in the home buying process since they are the largest purchasers and guarantor of residential loans.

The housing market may not turn around anytime soon either. To that end, the Fed lowered its economic growth forecast for 2008 Tuesday, citing weakness in housing.

And Treasury Secretary Henry Paulson told The Wall Street Journal Wednesday that he expected the potential number of mortgage defaults in 2008 to be significantly bigger than this year. This surprised some market observers since Paulson had previously been more upbeat about the outlook for next year.

This is a significant change coming from Paulson given his optimism previously, said Ken Kim, an economist with Stone & McCarthy Research Associates, a fixed income and economic research firm based in Princeton.

As such, Wall Street now expects the Fed to cut rates by at least a quarter of a percentage point on December 11. What's more, investors are pricing in an 8 percent chance that the central bank will lower rates by a half of a percentage point, to 4 percent, according to fed funds futures listed on the Chicago Board of Trade.

The Fed cut its key federal funds rate, an overnight bank lending rate that influences what consumers pay on various types of loans, by a half-percentage point on September 18 and followed that with a quarter-point cut on October 31.

Still, some market observers and economists are debating what the Fed's next move really should be.

Drew Matus, an economist with Lehman Brothers, argues that the Fed should hold rates steady at its December meeting. He said the Fed needs to assert itself to Wall Street and show that it is more concerned about what's going on in the actual economy, not with stock prices.

Yes, the financial markets are saying that the Fed needs to cut again. But if you look at the economy rather than the financial markets, the economy is in okay shape, he said. Are we going to be rejoicing about the rate of growth? No. But it will be growth and not a decline.

According to the Fed's new outlook, the central bank is predicting that the economy will grow at between a 1.8 percent and 2.5 percent clip in 2008, down from an anticipated growth rate of 2.4 percent to 2.5 percent this year.

Phil Dow, director of equity strategy with RBC Dain Rauscher, also thinks that the economy is in reasonably decent shape.

There is a disconnect. The economic reality isn't as bad as some are indicating, Dow said. A mentor of mine told me that real risk is at its highest when perceived risk is low. But right now, people are afraid of their own shadow.

Dow argues that the recent volatility in the markets has more to do with hedge funds trying to lock in gains following a strong market rally from mid-August through late October and is not a sign that Wall Street now thinks a recession is imminent.

He added that once banks report their fourth-quarter results in January, which he believes will include a kitchen sink of charges and writedowns related to the mortgage meltdown, market sentiment may finally begin to improve.

Nonetheless, Dow thinks the Fed will, and should cut rates by a quarter-point. He thinks the Fed would send the wrong message, however, by slashing rates by a half-point.

A half-point cut on top of all the negative news would just make things worse, he said.

But Zandi thinks a half-point cut is not out of the question, especially if stocks continue to decline. He also said the Fed might need to consider cutting its discount rate, a largely symbolic rate that determines how much banks pay when borrowing directly from the Federal Reserve, before the December 11 meeting.

The Fed did exactly that in August, lowering the discount rate by a half-point in an unscheduled meeting. It lowered the discount rate again in September and October along with the federal funds rate.

But there still is the issue of oil prices and the weak dollar. If the Fed continues to lower interest rates, that could help the economy by restoring confidence in the financial system, particularly the mortgage market.

It comes at a cost, however, as more rate cuts could put further upward pressure on oil and downward pressure on the dollar. That might be a risk the Fed needs to take though.

Oil and the dollar could throw a monkey wrench in the Fed's plans but if you put everything together, rising oil prices should eventually crimp demand and that should keep inflation under wrap, Kim said.

As for the dollar, it would weaken further with rates going lower but it's a consequence the Fed would have to accept because at the end of the day, the Fed is trying to promote maximum employment as well as stable prices, Kim added.

And Lehman's Matus said the weak dollar is actually having some big benefits. In fact, he believes that it might be what keeps the economy from slipping into a recession in 2008. He said that if consumer spending slows in 2008 because of the mortgage crisis and corporations also pull back on spending, robust exports to countries with stronger currencies could be the economy's salvation.

The exports side is what saves us. One of the implications of the Fed cutting rates would be keeping exports up with a weak dollar, Matus said.

With that in mind, even though Matus does not think the Fed will cut rates in December, he does believe the Fed will lower rates several times next year, perhaps to as low as 3.75 percent.

But Stefane Marion, assistant chief economist with National Bank Financial in Montreal, said that as long as more bad news keeps coming out of financial institutions, the Fed should be even more aggressive.

We're in unchartered territory because of what we are seeing with Fannie and Freddie. It is difficult to assess what the final end point is in this scenario, Marion said. He argues that the Fed could cut rates several times in 2008, bringing them perhaps as low as 3 percent by next summer.

Source - CNN Money

Oil Surges Above $99 as Weaker Dollar Spurs Commodity Demand

Crude oil rose above $99 a barrel for the first time in New York as a weakening U.S. dollar increased demand for commodities.

Oil, gold and silver gained as the dollar fell yesterday to a record low against the euro on speculation that the Federal Reserve will lower interest rates for a third time this year. Oil gained after Royal Dutch Shell Plc said a fire more than halved output from a 155,000 barrel-a-day oil-sands plant in Alberta, potentially cutting shipments to U.S. refineries.

Oil has become a hedge for investors and the weaker U.S. dollar has contributed to the rise in gold and oil, said Victor Shum, senior principal at consultants Purvin & Gertz Inc. in Singapore. The price strength in oil is also supported by the tight fundamentals.

Crude oil for January delivery climbed as much as $1.26, or 1.3 percent, to a record $99.29 a barrel in after-hours electronic trading on the New York Mercantile Exchange. The contract was at $98.90 at 11:11 a.m. in Singapore.

The contract climbed $3.39, or 3.6 percent, to $98.03 a barrel yesterday, the highest close since trading began in 1983.

Brent crude oil for January settlement gained as much as $1.04, or 1.1 percent, to $96.53 a barrel on the London-based ICE Futures Europe exchange, the highest since trading started in 1988. It was at $96.20 at 11:11 a.m. Singapore time.

Nobody wants to sell, said Tom Hartmann, commodity broker at Altavest Worldwide Trading Inc. in Mission Viejo, California. Oil has its own bullish factors but on top of that, with the weaker dollar, prices kind of have to go up, he said.

Dollar, Heating Oil

The dollar touched $1.4854 per euro yesterday, the lowest since the 13-nation currency was started in 1999. U.S. Federal Reserve policy makers yesterday lowered their growth forecast for 2008 on concern that the housing slump and credit market losses risked slowing growth in the world's biggest economy.

The financial pundits all interpreted that to mean the Fed might cut interest rates again in December and that would further weaken the dollar, said Purvin & Gertz's Shum.

West Texas Intermediate, the New York-traded crude-oil benchmark, is up 61 percent this year. Oil has gained 43 percent in euros, 53 percent in British pounds and 49 percent in yen.

Crude also gained as distillate fuel prices surged to a record the day before an Energy Department report that may indicate supplies declined last week. Oil demand typically peaks in the fourth quarter during the Northern Hemisphere winter.

Gasoline Surges

U.S. retail unleaded gasoline prices have climbed above $3 a gallon, reaching as high as $3.11 on Nov. 14, a level not seen since June. About 38.7 million people will travel more than 50 miles for the Thanksgiving holiday tomorrow, according to the American Automobile Association, more than the previous mark of 38.1 million last year.

Distillate-fuel stockpiles, which include heating oil and diesel, probably dropped 450,000 barrels, according to the median of 16 analyst estimates in a Bloomberg News survey. The futures also rose as forecasters said most of the U.S. will experience below-normal temperatures over the next two weeks.

Heating oil for December delivery rose 1.59 cents, or 0.6 percent, to a record $2.7060 a gallon on the New York Mercantile Exchange at 10:40 a.m. Singapore time. It rose 3.3 percent, to settle at $2.6901 yesterday and is up 61 percent from a year ago.

Inventories

An Energy Department report today is expected to show that U.S. crude-oil inventories rose a second time, gaining 750,000 barrels last week, according to the median estimate from a Bloomberg News survey of 16 analysts.

There will be no floor trading in New York tomorrow because of the Thanksgiving holiday in the U.S.

Trading volumes the past three sessions have been light and prices would have probably fallen yesterday had it not been for the weak dollar, Altavest's Hartmann said. Light trading again today is likely to exaggerate any reaction to the inventory data.

We could be in for a wild day, he said. We could have a big exhaustion tail where people take profits before the long weekend.

Source - Bloomberg

Tough day on Wall Street

Stocks tumble in late-session selloff as investors bail out of banks, techs and commodity shares. Oil prices dip on strong inventory report.

Stocks tumbled Thursday, with financial, commodity and technology shares leading the charge lower as investors continued to worry about the credit market crisis and the strength of the consumer.

The Dow Jones industrial average lost 0.9 percent. The S&P 500 index lost 1.3 percent. The Nasdaq composite declined 1 percent.

Small caps were hit harder with the Russell 2000 index falling 1.4 percent.

Treasury prices rallied, lowering the corresponding yields. The dollar recovered a bit against the euro but fell versus the yen. Oil and gold prices slipped.

Stocks were mixed throughout the morning as investors mulled steady consumer inflation, stronger readings on manufacturing and the latest credit market troubles - amid a decline in oil prices.

But the market began deteriorating heading into the afternoon, reflecting the recent pattern of gyrating throughout the session and then making a decisive move near the close.

And more selling may be on tap, said Joseph Saluzzi, co-head of equity trading at Themis Trading.

He said that with the exception of Tuesday's blockbuster rally, Wall Street's been pretty negative of late and that could continue leading into the Thanksgiving holiday next week.

Friday brings readings on industrial production and capacity utilization, as well as a speech from Federal Reserve Governor Randall Kroszner, a voting member of the central bank's policy committee.

The Consumer Price Index (CPI) rose 0.3 percent in October, matching September's rise and meeting forecasts. So-called core CPI, which excludes food and energy, rose 0.2 percent, also matching September and also in line with forecasts.

Investors have been looking for signs that pricing pressures are remaining mild, even with lower interest rates and higher oil and gas prices threatening to drive up inflation.

The weekly jobless claims report showed a surprisingly large jump in new claims last week.

The fact that the CPI came in as expected was probably positive, although it shows inflation pressures remain a risk, said Douglas Roberts, chief investment strategist at Channel Capital Research.

He said the rise in jobless claims was worrisome in that if the trend continues to higher levels of unemployment - at the same time that pricing pressures remain steady - that will pressure the already taxed consumer. Consumer spending fuels around two-thirds of the economy.

But crude inventories came out kind of confirming that the pressures from oil are dipping in the short term, Roberts said.

U.S. light crude oil for December delivery fell 66 cents to settle at $93.43 a barrel on the New York Mercantile Exchange after the weekly oil inventories report showed a surprise gain in crude supplies last week.

Two more banks were in focus, amid ongoing questions about the fallout from the credit market crisis.

Barclays Capital, a unit of Barclays Group PLC, said it took $2.7 billion in writedowns related to the credit market. The figure was smaller than what some analysts were calling for a week ago. Additionally, the U.K.-based bank said that 2007 profits are running ahead of last year's performance.

Additionally, Swiss financial behemoth UBS could take up to $7.1 billion in writedowns, related to the deteriorating mortgage market, according to a Wall Street Journal article Thursday.

Also reflecting the credit market turmoil, General Electric confirmed reports that a short-term bond fund it manages has suffered big losses in mortgage-backed securities and that as a result, outside investors have dumped their holdings. However, the conglomerate said that the impact won't be felt in current quarter or full-year earnings. GE shares lost 1.8 percent.

A variety of bank stocks retreated, including JP Morgan, Citigroup, Morgan Stanley and Merrill Lynch.

J.C. Penney said that third-quarter earnings fell from a year ago and warned that full-year profits will miss forecasts as well.

In other news, Kraft Foods said it will sell its two dozen Post cereals to Ralcorp Holdings in a stock deal worth $1.7 billion, plus the assumption of debt.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by almost 4 to 1 on volume of 1.47 billion shares. On the Nasdaq, decliners topped advancers by 7 to 3 on volume of 2.34 billion shares.

In addition to CPI and jobless claims, two regional manufacturing reports were released Thursday.

The Philadelphia Fed index rose to 8.2 from 6.8 in November, topping forecasts for a dip to 5.0. Earlier, the NY Empire State index fell to 27.4 in November from 28.8 in October, versus forecasts for a steeper drop to 18.0.

Treasury prices rose, lowering the yield on the 10-year note to 4.15 percent from 4.25 percent late Wednesday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar rebounded a bit against the euro and declined versus the yen.

COMEX gold for December delivery fell $27.40 to $787.30 an ounce.

Oil's march to $100 stalls

Crude comes within $1.38 of triple-digit levels, but gains are tempered after U.S. inventories fall less than expected.

Oil prices rose Wednesday and remained within striking distance of $100 a barrel, but the assault on the triple-digit number was thwarted by a report showing supplies in the U.S. fell less than expected.
U.S. light crude for December delivery rose 65 cents to $97.65 a barrel on the New York Mercantile Exchange, after setting a new trading high overnight of $98.62. The price stood at $97.60 just before the inventory report was released.

Oil's assault on $100 a barrel stalled Wednesday after U.S. supplies fell less than expected.

Traders were expecting oil prices to climb following the inventory report. Instead, oil seesawed after the announcement that supplies declined but not as much as expected.

In its weekly inventory report, the Energy Information Administration said crude stocks fell by 800,000 barrels last week. Analysts were looking for a drop of 1.6 million barrels, according to a Dow Jones poll.

Distillates, used to make heating oil and diesel fuel, rose by 100,000 barrels while gasoline supplies fell by 800,000 barrels. Analysts were looking for a 500,000 barrel decline in distillate supplies and a 200,000 barrel gain in gasoline stockpiles.

Most of the decline in crude is being blamed on an outage from Pemex, Mexico's national oil company. Mexico, after Canada, is the second largest source of imported U.S. oil.

While oil has been expected to test the $100 mark for several days, one analyst said crossing the psychologically important threshold may prove a challenge.

Many hedge funds bought when prices were around $80 a barrel, and many may want to cash out and take the $16 or $18 profit without waiting around to see if the $100 level can be broken, according to Peter Beutel, an oil analyst at Cameron Hanover.

We certainly would not risk $16 or more for the last $2 or $3 a barrel, Beutel wrote in a research note.

Prices hit a new record earlier in the day after the International Energy Agency said China and India will sap world oil supplies faster than previously thought.

In its yearly forecast, the agency said under current policies the world will use 50 percent more energy by 2030 than it uses today, with 45 percent of that demand coming from India and China.

The two countries are expected to use nearly four times more oil by 2030, and IEA questioned the world's ability to meet such rampant demand.

A falling dollar also pushed prices higher. The dollar hit a fresh low of $1.4729 against the euro Wednesday on speculation that China would seek to diversify some of its foreign currency reserves.

The falling U.S. dollar has also played a role, as oil worldwide is priced in dollars. Oil-producing nations have less incentive to ramp up output if the buying power they receive per barrel is declining, and foreign consumers have less incentive to reduce demand if oil is, relatively, getting cheaper for them.

Source - CNN Money

Gold Reaches 27-Year High on Dollar, Oil Records; Silver Gains

Gold rose to the highest since 1980 as record oil prices and a slumping dollar increased concern that inflation will accelerate. Silver jumped to the highest in 26 years.

Oil surged as high as $97 a barrel in New York and the dollar extended its slide to the lowest ever against the euro, boosting the appeal of precious metals as an inflation hedge. Investment in the StreetTracks Gold Trust, an exchange-traded fund backed by bullion, has risen 32 percent this year to a record 598 metric tons.

This gold market is up, up and away,said Ron Goodis, futures trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. The dollar is going to keep skidding. We don't know if it's going to be a recession, inflation, stagflation. People want to buy gold.

Gold futures for December delivery rose $14, or 1.7 percent, to $824.80 an ounce at 10:42 a.m. on the Comex division of the New York Mercantile Exchange. The price earlier climbed to $826.40, the highest for a most-active contract since Jan. 21, 1980, the day gold reached a record $873. Gold has rallied 29 percent this year and is heading for the seventh straight annual gain.

Silver futures for December delivery rose 56.5 cents, or 3.8 percent, to $15.35 an ounce, after earlier reaching $15.405, the highest price for a most-active contract since Jan. 21, 1981. Before today, the metal climbed 14 percent this year.

Weakening Dollar

The dollar fell to $1.457 against the euro, the lowest ever, on speculation losses related to U.S. subprime-mortgage defaults will prompt the Federal Reserve to reduce interest rates for a third time this year.

Gold gained 23 percent last year when the dollar dropped 10 percent against the euro. The dollar is down 9.3 percent against the euro in 2007 and has fallen 3.9 percent since Sept. 18, when the Fed lowered the overnight lending rate for the first time in four years. The Fed cut rates again by 0.25 percentage point to 4.5 percent on Oct. 31.

Five of the past six bear markets for the U.S. currency have resulted in a gold rally. Interest-rate futures indicate investors believe there is a 62 percent chance the Fed will lower rates to 4.25 percent by Dec. 11, compared with a 6 percent chance a month ago.

Everyone should keep accumulating gold and selling dollars,said James Turk, founder of GoldMoney.com, which had $237 million of gold and silver in storage for investors at the end of October.

Turk expects gold to breach $1,000 in 2008. He correctly predicted last year gold would rise above $800 in 2007. Gold remains cheap and the dollar is still way overvalued,he said.

With the two external drivers of gold -- a weak U.S. dollar and strong oil -- together conspiring to lift the metal higher, we are now in range of a move to the all-time nominal high of $850,said UBS AG analyst John Reade.

Gold for immediate delivery in London rose $16.22, or 2 percent, to $822.72. The spot price has averaged $677.64 this year.

Crude-oil futures traded higher on concern demand will outpace supply. Gold reached its record in January 1980 after oil costs doubled in a year, sparking a surge in the inflation rate.

Source - Bloomberg

What is the reason for high Oil prices?

High crude oil prices could be due to a shortage of oil supplies. High prices for oil products - as purchased by end consumers such as motorists - are more likely to reflect other factors, such as taxation.

Crude oil prices react to the balance of demand and supply in the short term, and the rate of investment in the longer term. If investment is not made far enough in advance, oil supplies could be limited in the longer term, thus raising prices.

Sentiment is also an important factor: if traders in the oil market believe there will be a shortage of oil supplies, they may raise prices before a shortage actually occurs.

Other factors influencing the price of crude oil include accidents, bad weather, increasing demand, halting transport of oil from producers, labour disputes (strikes) as well as other disruptions to production including war and natural disasters.

Crude oil now represents less than a quarter of the price of oil products in many countries. Therefore, taxes have more influence over the price of oil products.

When oil taxes are raised, end consumers often mistakenly blame the oil producers, but it is really their own governments that are responsible.

OPEC seeks a stable oil market, without sudden price changes or excessively high or low prices.

OPEC regularly meets with other oil producers and with consumers in an effort to improve understanding and trust in the oil industry and to seek policies and measures that do not create unnecessary economic hardship for oil producers or consumers.

Source - Commodity Online

Oil hovers near new record around $96

The price of oil rose to a new record above $96 a barrel Thursday after a surprise drop in U.S. crude stockpiles raised concerns about supplies for coming winter demand. Other energy futures also gained.

It was the second week in a row the U.S. Energy Information Administration reported a sharp and unexpected drop in oil inventories.

The decline in U.S. crude oil inventories has been a key driver of oil prices, said David Moore, commodity strategist at the Commonwealth Bank of Australia in Sydney.

Light, sweet crude for December delivery rose as high as $96.24 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore before dropping back to $95.59 a barrel.
Crude prices have reached inflation-adjusted highs set in early 1980. Depending on the how the adjustment is calculated, $38 a barrel then would be worth $96 to $101 or more today.

Recession risk rises with record oil

Economists say economic expansion that shrugged off $70 or $80 oil could finally be tripped up by oil above $90 a barrel.

There was a time when economists predicted that $60-a-barrel oil would cause a recession. Then they said $70 oil would. Then $80.

So it might be tough to take the recession threat of $90 a barrel oil very seriously. But some economists say that would be a mistake. They note that the current record-high oil prices are hitting when the economy is at its most vulnerable point in years - with the housing downturn, credit crunch and sliding value of the dollar posing threats that weren't present when oil passed its previous benchmarks.

The whole game has changed, said John Silvia chief economist of Wachovia. If they're sustained here, going into the holiday season, you're going to have a pretty horrendous fourth quarter.

Silvia said the downturn in housing and the problems in credit markets that hit in August have left the employment picture significantly weaker than it was six or nine months ago, when oil prices took gasoline prices into record territory.

The background is totally different now than it was in the spring, he said. The ability of the system to respond just isn't as great as it was then.

Still, Silvia says there slightly less than a 50-50 chance of a recession in the coming months, even if oil prices don't ease up. He said he expects that the Federal Reserve will step up its rate-cutting efforts and go beyond the quarter-point cut he is expecting from the central bank on Wednesday.

David Wyss, chief economist with Standard & Poor's, puts the chance of a recession at less than 50 percent. But he agrees with Silvia that the risks are greater with the combination of increased oil prices and the current weakness in other parts of the economy.

The more things that go wrong, the less room there is for anything else to go wrong, he said. With housing diving, the problems in the credit market and rising oil prices, eventually one of these things is going to break the camel's back.

Wyss still thinks that the current record highs are just short of the breaking point needed to tip the economy into recession.

My feeling is $90 doesn't get us there, he said. My guess is we have to go over $100 to get to a recession. How much over $100, I'm not sure.

Wyss said that the economy is less susceptible to oil shocks than in 1980 and 1981, when oil hit what was widely seen as record highs. Adjusted for inflation, the price then was between $93 and $101 a barrel, depending upon how those historical prices are calculated.

The growth of the service sector and the shift away from manufacturing means oil prices are less important to corporate profits and overall economic activity today than they were then. But the current economy is hardly immune to such problems.

Procter & Gamble, the nation's leading maker of consumer products, warned Tuesday that profit margins and earnings in the current quarter would likely be less than forecasts, citing increased energy prices as part of the reason. Auto sales, particularly among U.S. automakers, have taken a hit from high gasoline prices this year, Wyss points out.

And some service sector companies can also be squeezed by higher oil.

Retailers could be hurt if consumers cut back purchases due to higher gasoline prices, while higher fuel would jump could hurt some transport firms, particularly airlines.

Oil's impact is smaller than it used to be, but that sure doesn't mean it's trivial, Wyss said.

But Lakshman Achuthan, managing director of the Economic Cycle Research Institute, believes that the economy has shown enough underlying strength, especially in the labor market, to take even this latest oil shock.

There's obviously not a magic number [on oil prices] that defines if economy will tip into recession, he said. It might be easier if prices were lower. It doesn't feel good to dig into your pocket for extra gas or mortgage money. But it makes a big difference whether or not you're getting a paycheck.

Achuthan points out that despite all the focus on the credit crunch and housing downturn this year, the economy grew at a 3.8 percent annual rate in the second quarter. Furthermore, the third quarter is only forecast to slow to a 3.1 percent pace of growth when the government gives its first reading on the quarter's gross domestic product on Wednesday.

Certainly we're slowing, but you have some room to slow without going in recession, he said. You can never say never, but it [a recession] should not be the predominant concern. There's more resilience in this economy than people think, because you have not had a recessionary downturn in this employment market yet.

Source - CNNMoney

Dollar Falls to Record Low Versus Euro Before Fed Rate Meeting

The dollar fell to a record low against the euro on signs a slump in housing is hurting the U.S. economy, bolstering the case for the Federal Reserve to lower interest rates next week.

The U.S. currency has weakened three straight weeks on speculation the housing recession will spread to consumers and erode corporate earnings. Sales of previously owned homes declined last month by almost twice the rate economists forecast, and consumer confidence dropped to the lowest since May 2006.

The dollar will continue to fall as long as the Fed is cutting interest rates, said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto.

The dollar weakened 0.6 percent this week to $1.4393 per euro. It touched an all-time low of $1.4395 per euro yesterday and declined against 15 of the 16 major currencies this week. The U.S. currency dropped 0.3 percent this week to 114.19 yen.

The U.S. Dollar Index, measuring the dollar's performance against six major peers, has lost 8 percent in 2007 and set a record low of 76.977 on Oct. 26.

Interest-rate futures traded on the Chicago Board of Trade show a 92 percent chance the Fed will lower its benchmark overnight rate a quarter-percentage point to 4.50 percent on Oct. 31, after reducing the rate a half-point on Sept. 18 in the first cut since 2003. Futures show an 8 percent chance of a half-point cut on Oct. 31.

Slowing Economy

A government report on Oct. 31 may show U.S. gross domestic product slowed to an annualized 3.1 percent growth rate last quarter, from a 3.8 percent clip in the prior quarter, according to the median estimate in a Bloomberg News survey.

Sales of previously owned homes fell 8 percent last month, while the median price dropped the most in almost a year, the National Association of Realtors said this week. Countrywide Financial Corp., the biggest U.S. mortgage lender, reported its first quarterly loss in 25 years yesterday as borrowers defaulted.

Oil rose above $92 a barrel for the first time in New York this week, pushing Canada's dollar to the highest since 1974 versus the U.S. dollar.

The yuan had its biggest weekly advance in six weeks, to 7.4877 per dollar, reaching the strongest since China ended a peg to the dollar in July 2005. Finance ministers and central bankers from the Group of Seven major industrialized nations last week called for a faster appreciation in the yuan, which they contend is artificially cheap.

A recovery in global stocks this week gave investors confidence to resume carry-trade bets, where they buy assets in countries with high yields, using loans in low-yielding currencies such as the yen. The Standard and Poor's 500 Index gained 2.3 percent this week, following a 3.9 percent tumble the week before.

The yen fell 0.3 percent this week to 164.34 per euro, and dropped 2.2 percent versus the New Zealand dollar.