Archive for May, 2008

“Fryer grease has become gold,” Mr. Damianidis said. “And just over a year ago, I had to pay someone to take it away.”

May 31, 2008

Anyone remember that episode of the simpsons?

http://www.nytimes.com/2008/05/30/us/30grease.html?em&ex=1212292800&en=ffb44d2801511502&ei=5087%0A

As Oil Prices Soar, Restaurant Grease Thefts Rise

 

Published: May 30, 2008

The bandit pulled his truck to the back of a Burger King in Northern California one afternoon last month armed with a hose and a tank. After rummaging around assorted restaurant rubbish, he dunked a tube into a smelly storage bin and, the police said, vacuumed out about 300 gallons of grease.

The man was caught before he could slip away. In his truck, the police found 2,500 gallons of used fryer grease, indicating that the Burger King had not been his first fast-food craving of the day.

Outside Seattle, cooking oil rustling has become such a problem that the owners of the Olympia Pizza and Pasta Restaurant in Arlington, Wash., are considering using a surveillance camera to keep watch on its 50-gallon grease barrel. Nick Damianidis, an owner, said the barrel had been hit seven or eight times since last summer by siphoners who strike in the night.

“Fryer grease has become gold,” Mr. Damianidis said. “And just over a year ago, I had to pay someone to take it away.”

Much to the surprise of Mr. Damianidis and many other people, processed fryer oil, which is called yellow grease, is actually not trash. The grease is traded on the booming commodities market. Its value has increased in recent months to historic highs, driven by the even higher prices of gas and ethanol, making it an ever more popular form of biodiesel to fuel cars and trucks.

In 2000, yellow grease was trading for 7.6 cents per pound. On Thursday, its price was about 33 cents a pound, or almost $2.50 a gallon. (That would make the 2,500-gallon haul in the Burger King case worth more than $6,000.)

Biodiesel is derived by processing vegetable oil or animal fat with alcohol. It is increasingly available around the country, but it is expensive. With the right kind of conversion kit (easily found on the Internet) anyone can turn discarded cooking oil into a usable engine fuel that can burn on its own, or as a cheap additive to regular diesel.

“The last time kids broke in here they went for the alcohol,” said Mr. Damianidis, who fries chicken wings and cheese sticks. “Obviously they’re stealing oil because it’s worth something.”

While there have been reports of thefts in multiple states, law enforcement officials do not compile national statistics and it remains unclear whether this is part of a passing trend or something more serious.

The suspects in a growing number of grease infractions fall into a range of categories, people interviewed on the matter said, as grease theft is a crime of opportunity. They include do-it-yourself environmentalists worried about their carbon footprints, warring waste management firms trying to beat each other on the sly, and petty thieves who are profiting from the oil’s rising value on the black market.

“It’s a new oddity,” said Officer Seth Hanson of the Federal Way Police Department, near Tacoma, Wash. He said thefts occur outside at least a couple of restaurants there each week. “We’re trying to get an eyeball on how well-organized it is, if at all. To date, we haven’t been very successful in finding anybody.”

Thefts have been reported in at least 20 states, said Christopher A. Griffin, whose family owns Griffin Industries, one of the largest grease collection and rendering companies in the country. The problem has gotten so bad, Mr. Griffin has hired two detectives to investigate thefts around the country.

“Theft is theft,” said Mr. Griffin, who is based in Cold Spring, Ky. “I don’t care if you’re stealing grease or if you’re stealing diamonds.”

Fryer oil from a restaurant that does a high volume of frying one kind of food — for example, a fried-chicken chain — is at a premium because of its relative purity. The large-scale producers of grease, restaurants mostly, own their old oil and in recent months have even made a small profit by selling it to collectors.

Because of the grease’s rancid odor, most restaurants usually store it out back with the trash.

“Once you put something in the trash, it’s abandoned property,” said Jon A. Jaworski, a lawyer in Houston who represents accused grease thieves. “A lot of times, it’s not theft.”

Even so, most restaurant owners and grease collectors say that grease is not free for the taking.

“There’s a new fight for the product, definitely a whole new demand sector,” said Bill Smith, a market reporter for Urner Barry’s Yellow Sheet, an industry newsletter that tracks yellow grease. “Grease theft is becoming a bigger and bigger issue.”

In the case of the Burger King theft, in Morgan Hill, Calif., the police were alerted to suspicious activity by a neighbor who runs his own grease collection and recycling business and is on the lookout for rustlers.

Driving through town, the neighbor, Mark Rosenzweig, said he spotted the suspect’s truck because “it stuck out.” He said he followed it for blocks before it pulled into the Burger King. Mr. Rosenzweig said he knew the man who holds the Burger King grease account, so he called him.

“I had to give everybody a roadside tutorial on grease theft,” Mr. Rosenzweig said of his next call — to the police. “Ten years ago we couldn’t give this stuff away. Now everybody’s fighting over it.”

The suspect in the case, a 49-year-old man who said he was from Las Vegas, has yet to enter a plea, and is due in court next in July.

A typical fast-food restaurant produces 150 to 250 pounds of grease a week. Many do not even know when a theft occurs because it usually happens overnight. Most security cameras and night watchmen are focused on cash registers, not the trash.

“Who do you go after?” said Jason Christensen, a trader of fats and oils for the AgriTrading Corporation, in Minnesota. “I sense you’ll start seeing more surveillance equipment put in to monitor these storage facilities at the restaurant. As the price goes up, you can afford to spend a little more to protect your interest.”

And there is so much interest in grease these days.

The City of San Francisco has its own grease recycling program run through the Public Utilities Commission called SFGreasecycle, which collects discarded vegetable oil from city restaurants at no charge and recycles it into biodiesel for use in the city fleet.

Healy Biodiesel, a company in Sedgwick, Kan., says it offers a top-quality fuel made from local cooking oils.

Ben Healy, the owner, has contracts to collect the raw grease from several franchises around town.

“One particular night not too long ago, 9 out of 15 were stolen,” he said of the grease bins. “That’s a majority of the oil and it was a big kick in the stomach.”

At Olympia Pizza and Pasta, Mr. Damianidis, who now sells his grease for a small monthly fee, finds the problem of stolen fryer oil quite annoying and distracting. And he wants to stop the thefts. He is leaning toward a security camera and hoping for the best.

“I cook food,” Mr. Damianidis said. “I’m not going to stay up until 2 in the morning trying to catch someone stealing a barrel of grease.”

 

Martin Sosnoff argues oil is not a bubble

May 30, 2008

“While oil stocks the past 12 months showed buoyancy, they’ve underperformed recent futures market fireworks. Refining and marketing profits are shrinking with no low-cost heavy oil to refine at wide crack spreads. The golden age of refining is history. There’s no price gouging at the pump; refining margins stand paper thin”

http://www.forbes.com/home/2008/05/29/energy-oil-bubble-oped-cx_mts_0530sosnoff.html

 Commentary
Don’t Believe Oil-Bubble Babble
Martin T. Sosnoff 05.30.08, 6:00 AM ET

When I jotted down all the bubbles I experienced over the past 50 years, I was surprised how long the list ran. What touched off my list-making exercise was not action in oil futures, but the Wells notice that Hank Greenberg received from the U.S. Securities and Exchange Commission.

The long vested American International Group (nyse: AIGnews - people ) headman strove to maintain the company’s growth rate with mid-teens regularity. The bubble here was the rising price-earnings ratio that analysts assigned to this property that seemed to tick like a pricey Swiss timepiece, but overnight disintegrated into a one-horse shay.

Here’s my bubble list in no particular chronological order: Teaching machines, vending machines, conglomerates, leveraged buyouts, Nasdaq Internet properties in the 1990s, IBM (nyse: IBMnews - people ) in the ’70s, gold, the Nifty Fifty, Japanese stocks in the 80s, Chinese stocks last year, the euro today, solar energy plays, golf courses, co-op apartments in New York City, the General Motors (nyse: GMnews - people ) Building, first growth Bordeaux, Romanée Conti burgundy, Cuban cigars, junk bonds, emerging stock markets, subprime mortgages, commercial real estate, private equity, and condominiums in Las Vegas and Florida. I can’t leave out 200-foot yachts. Oh, oh! There’s also contemporary and modern art, old masters and Impressionist canvases. I’m remembering too much. What about stamps and race horses, baseball cards, soccer teams in Europe and Batman comics?

Even the S&P 500, which peaked in March of 2000 at 1,527. The compounded rate of return with dividends reinvested these past eight years is around 30 basis points. Without a valuation compass, you’re goat meat.

Why not throw oil on that list of bubbles? After all, some of us remember when oil sold at $3 a barrel scarcely more than 30 years ago.

Bubble, bubble, toil and trouble. The market is saying don’t pay attention to oil commodity futures spiking. Energy-related stocks just shaded their highs by 5 to 10%. A Goldman Sachs analyst broke into print with a $200 a barrel call on oil, but Goldman maybe talks its own book. They run commodity funds and are a major operator in oil futures trading.

The bears on oil point to short covering by traders and energy producers who sold far out futures, which spurted $10 and put the oil market close to a contango position where long futures trade above spot market quotes.

Meanwhile, oil equity analysts choose to stay behind the curve on current oil prices. At year end their earnings models carried oil at $85 a barrel for 2008. At the end of the March quarter, they moved to $95 a barrel and currently $100, far below the $130 spot price. Many analysts are modeling oil at $85 next year and beyond. The upshot of all this gamesmanship is that if oil holds above $125 a barrel, the Street’s earnings projections could be 20% too low for major energy properties.

Technology analysts model aggressively. “We don’t care what momma don’t allow, gonna raise those P/Es anyhow.” Everyone’s using fiscal 2010 in their earnings models to rationalize the price of Apple (nasdaq: AAPLnews - people ), assuming huge momentum in iPhone sales because cellular carriers are likely to subsidize handsets by $100 to $200 for new subscribers on the upcoming 3G models.

Conversely, there’s no expansion of energy price-earnings ratios. In fact, if oil holds above $125 a barrel, P/E ratios are below historic norms. Stocks like ExxonMobil (nyse: XOMnews - people ) (no recommendation) sell below highs made when oil was under $100 a barrel near year end.

In Exxon’s case there’s some justification. They can’t increase oil output and oil field operating costs are inflating 15% annually. Management hasn’t spent enough to replenish oil reserves. Obviously they were in the bear camp on oil prices since $60 a barrel, little more than a year ago.

But macro thinking on oil is changing. There is no longer just one lonesome bear on energy supply, Matt Simmons in Texas. The scarcity scenario for oil is taking shape in think tanks around the world. Lukoil believes oil reserves are peaking in Russia. Satellite photography of the Saudi elephantine fields confirms more pressure pumping activity to maintain current production levels.

The developing world is using more and more oil. Even if China’s monetary authorities kill off an inflationary economy with high interest rates, their gross domestic product (GDP) isn’t going to zero from the present 10%-a-year growth rate.

The near-term test for oil is the U.S economy. If we sink into a deep recession, oil demand sloughs off. So far, with GDP near zero, daily oil imports are down just 200,000 barrels on an 11 million barrel base. Demand destruction is coming with diesel at $5.19 a gallon.

Pickup trucks stay parked in driveways. Ford Motor (nyse: Fnews - people ) just owned up to falling demand for pickups and SUVs, always the most profitable models in their line. They no longer see any daylight for earnings this year. Our airlines just sank into the sunset with share prices down to low single digits for Delta (nyse: DAL]news - people ), U.S. Airways (nyse: LCCnews - people ) and American Airlines (nyse: AMRnews - people ). They are largely un-hedged in jet fuel, burning 500 million or more gallons, quarterly.

The arithmetic of the situation is dolorous. Airlines can’t get ahead of the curve with incremental fuel bills rising into the billions for all carriers. They carry sufficient liquid assets to get them through 2008. In a recession setting next year, bankruptcies are an even money bet.

While oil stocks the past 12 months showed buoyancy, they’ve underperformed recent futures market fireworks. Refining and marketing profits are shrinking with no low-cost heavy oil to refine at wide crack spreads. The golden age of refining is history. There’s no price gouging at the pump; refining margins stand paper thin.

The S&P 500 Index at 1,400 can’t shake off the economic consequences of escalating oil costs. Consumer spending is suspect, and the cost of doing business rises for everyone–retailers, industrials and utilities. What’s saving the economy from stagflation is declining home prices and the absence of wage inflation.

Growth stocks, so far this quarter, have surged 380 basis points ahead of value stocks with technology spearheading the advance. Tech is multinational, less dependent on the domestic economy and operationally oil-free. Google (nasdaq: GOOGnews - people ) continues to gain market share in Web search advertising.

Energy stocks do not meet my criteria of a bubble. The sector peaked above a 25% weighting in the S&P 500 Index more than 25 years ago. Today, energy is a 14% weighting in the index, up from 6% a couple of years ago. A year from now, I expect energy to approach 20% of the index and to give the tech sector a good run for market primacy.

Reservations center on rapidly rising operating costs for all producers, minimal refining margins and cyclically vulnerable chemicals earnings. Everyone’s drilling and exploration activity needs to step up. This will boost depreciation expense for years to come.

My oil portfolio embraces service operators like Schlumberger (nyse: SLBnews - people ) and deep-water rig properties like Transocean (nyse: RIGnews - people ) and Diamond Offshore Drilling (nyse: DOnews - people ). They also face fairly sharp increases in costs for materials and labor, but drilling day rates continue to escalate going out five years on operating leases.

Oil and gas producers with rising production still get my money: Occidental Petroleum (nyse: OXYnews - people ), Apache (nyse: APAnews - people ) and Devon Energy (nyse: DVNnews - people ). Apache and Devon could be acquisition targets, as it may be cheaper to buy reserves than to drill for them. ExxonMobil sits smugly on $32 billion in liquid assets earning peanuts.

Valuation is not stretched for the energy sector unless you believe that George Soros is right and that the worldwide credit crisis cuts deeper and lasts longer. Martin Feldstein, back at Harvard, thinks we face the worst recession in the entire postwar period. Alan Greenspan is less definitive, but still worried. Keep in mind that Soros is a fox and could reverse his tracks on a dime. Economists take a little longer. There’s always “the other hand.”

As far as bubbles that never happened, the Turkish rugs I owned and my grandfather clocks never took off into the stratosphere. Maybe there’s just too much supply. With oil, the supply is something less than endless, and the stuff is harder to find.

Martin T. Sosnoff is chairman and founder of Atalanta/Sosnoff Capital, a private-investment management company with over $9 billion in assets under management. Sosnoff has published two books about his experiences on Wall Street, Humble on Wall Street and Silent Investor, Silent Loser. He was a columnist for many years at Forbes magazine and for three years at the New York Post. Martin Sosnoff owns personally, and Atalanta/Sosnoff Capital owns for clients, the following stocks cited in this commentary: IBM, Goldman Sachs, Apple, Google, Schlumberger, Devon, Occidental, Apache, Transocean and Diamond Offshore.

5/30/08 NYMEX Crude closes at $126.62, hits low of $126.13

May 30, 2008

http://afp.google.com/article/ALeqM5jl_ZztP8p3JUwuq-BYpGG8UOehzQ

Oil prices ease further after sharp falls

SINGAPORE (AFP) — World oil prices eased slightly in Asian trade on Friday after sharp earlier falls triggered by concerns about falling demand in the United States and other developed countries, analysts said.

New York’s main oil futures contract, light sweet crude for July delivery, was 49 cents lower at 126.13 dollars per barrel after losing a hefty 4.41 dollars to close at 126.62 dollars in New York trading Thursday.

Brent North Sea crude for July delivery was 24 cents lower at 126.65 dollars per barrel following a slide of 4.04 dollars to 126.89 dollars on Thursday in London.

The slide in prices came after both contracts struck historic peaks a week ago. Brent hit 135.14 dollars and New York prices reached 135.09 dollars on tight supply fears.

“I guess the market’s sort of factoring in the growing understanding that demand in the US is just not gonna recover,” said Jason Feer of energy market analysts Argus Media Ltd. in Singapore.

Prices initially jumped higher Thursday after a weekly report on United States energy stockpiles. Values then tumbled as some analysts questioned if energy demand was dropping amid sky-high prices.

In its report, the US Department of Energy (DoE) said American crude reserves slumped 8.8 million barrels in the week ending May 23.

Feer said analysts concluded there had been a problem unloading stocks of crude because of fog at US terminals, and in fact there is a lot of oil “sitting in tankers offshore.”

Gasoline or petrol stockpiles tumbled 3.2 million barrels, the DoE said. Market expectations had been for no change.

The DoE report was published one day later than usual due to a public holiday in the United States on Monday.

Despite decreasing demand in the West, Feer said prices remain supported by continuing strong demand from China, India and the Middle East.

French Economy Minister Christine Lagarde has written to her counterparts in the top industrial powers urging the Group of Eight countries to call on oil producers to hike production, her office said Thursday.

“We should urgently reiterate our call on oil producing countries to increase their production levels in order to alleviate tensions in the oil market and better anchor expectations,” she wrote in the letter, the text of which was released by her office.

The Organisation of the Petroleum Exporting Countries (OPEC), which pumps 40 percent of the world’s oil, has proven reluctant to bend to US-led demands for it to produce more crude to help cool prices.

U.S. Probes Crude Oil Trading for Price Manipulation

May 30, 2008

http://www.bloomberg.com/apps/news?pid=20601082&sid=ad.d2jiev_EA&refer=canada

By Matthew Leising and Alexander Kwiatkowski

May 30 (Bloomberg) — The U.S. Commodity Futures Trading Commission, the watchdog for commodity transactions, is investigating U.S. crude oil trading to determine whether the surge to record prices is the result of manipulation or fraud.

The CFTC has been investigating the transportation, storage and trading of crude oil in the U.S. since December, it said in a statement posted on its Web site yesterday. The probe includes oil futures contracts, which have soared as much as 40 percent this year to a record above $135 a barrel.

“It’s unprecedented for the CFTC to say that they are in the midst of an investigation.” Michael Haigh, head of U.S. commodities research in New York at Societe Generale SA, and a former CFTC associate chief economist, said in an interview. “They may be under pressure from Congress to look at this market given the high prices.”

U.S. crude rose as high as $135.09 a barrel on the New York Mercantile Exchange on May 22. Brent crude oil, the main contract on Intercontinental Exchange Inc.’s London market, climbed to $135.14 the same day. Record prices have led some analysts and the producer group OPEC to claim that the market is driven by speculation rather than the demand and supply of oil.

Confidential

“The Commission is taking the extraordinary step of disclosing this investigation because of today’s unprecedented market conditions,” CFTC Acting Chairman Walt Lukken said in the statement. The Washington-based regulator, which generally keeps its inquiries confidential, didn’t say when the probe will end and didn’t name any companies being targeted. The details of the investigation were confidential, it added.

In the same week that crude prices touched records above $135, the number of outstanding futures contracts on Nymex, known as open interest, fell. This suggested some traders were buying contracts to cover wrong-way bets based on speculation that prices would decline, analysts said. Falling open interest coinciding with rising prices are signs that traders are buying to exit so-called short positions.

Concurrent with the investigation, the commission said it was taking measures to improve transparency in energy market trading, including greater monitoring of U.S. crude oil trading on Intercontinental’s ICE Futures Europe exchange in London.

Lip Service

“The CFTC is paying lip service to congress by having to be seen to be investigating speculation,” said Rob Laughlin, senior broker at MF Global Ltd. in London. “They will spend months, and quite possibly millions of dollars, to find nothing. The reality is now there are thousands more participants trading oil, and oil contracts, especially since electronic trading has become the norm.”

The CFTC said it has reached an agreement with the U.K.’s Financial Services Authority and ICE to expand surveillance on the London exchange, where all transactions are made electronically. ICE Futures offers trading in U.S. West Texas Intermediate crude oil futures contracts, the grade that sets prices within the U.S., and its flagship North Sea crude, Brent.

The agreement with the FSA “will enhance the amount and quality of the information the CFTC receives regarding crude oil trading in the U.K. and will enhance the agency’s already vigorous surveillance activity,” according to the statement.

Large Positions

Nymex has about 75 percent of the open interest, or outstanding contracts, in U.S. WTI crude oil futures and ICE Futures Europe has the remaining 25 percent, the CFTC said.

Under the agreement, the FSA and ICE will provide the U.S. regulator with information about daily large trader positions in the WTI contract on the U.K. exchange. Information will pertain to all contract months traded, as opposed to just near-term contracts, the statement said.

The FSA and ICE have also agreed to give the CFTC more information about traders and to provide trading data in a format that is easier to monitor. ICE Futures Europe will also notify the CFTC when traders “exceed position accountability levels,” the statement said.

The FSA is “committed to working closely with the CFTC to address and mitigate risk” of manipulation, said FSA spokeswoman Teresa La Thangue. The U.K. body regularly shares information with the CFTC “to assist in the detection of potential abuse and manipulation that relate to contracts on the U.S. and U.K. derivatives exchanges,” she said by phone from London today. She declined to comment on the CFTC investigation.

Not Justified

During testimonies to Congress last week, oil executives said that while limited access to foreign resources and rising industry costs have helped push prices higher, the current level isn’t justified by oil market fundamentals.

The price of oil should be “somewhere between $35 and $65 a barrel,” John Hofmeister, president of Shell Oil Co., the Houston-based subsidiary of Royal Dutch Shell Plc, said at a Senate hearing on May 21. John Lowe, executive vice president of ConocoPhillips, said oil should be “about $90 a barrel in this environment.”

The CFTC said it is also trying to improve the information it gets about index-based trading on energy futures markets so it can determine the influence this “relatively new” type of trading has on prices.

Commodity index futures such as the Reuters/Jefferies CRB Index include crude oil futures and other energy components.

The regulator will require traders to give monthly reports about their index-based trading and it plans further reviews of how these traders are classified, how they report their trading activity and how they behave, according to the statement.

To contact the reporters on this story: Matthew Leising in New York at mleising@bloomberg.net; Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net

Last Updated: May 30, 2008 11:21 EDT

Consumer spending shows slow economy

May 30, 2008

“If your income is only growing at the same pace as consumption, it just means you are holding even and more money is going to food and energy,” given the current situation of food and energy prices increasing in recent months, said Niemira. “Any leftover money from nondiscretionary spending and other living expenses is shrinking.”

http://money.cnn.com/2008/05/30/news/economy/personal_income/?postversion=2008053009

By Catherine Clifford, CNNMoney.com staff writer

Last Updated: May 30, 2008: 9:54 AM EDT

NEW YORK (CNNMoney.com) — Consumer spending and personal spending both increased at a slow pace in April, according to a government report released Friday that was in line with analyst expectations.

The Commerce Department said personal spending by individuals in current dollars rose 0.2% in April, in line with the 0.2% increase expected by economists surveyed by Briefing.com. March’s gain was a revised 0.4%.

The report showed personal income increased 0.2% in April, also in line with the 0.2% increase expected by economists. March’s gain was 0.3%.

In inflation-adjusted dollars, personal income remained flat from the prior month. Personal spending, in inflation-adjusted dollars, was also flat from the previous month. If inflation-adjusted personal spending is flat, that means that the increase in spending is entirely due to rising prices, not an increase in consumption.

“In the past couple of months, personal income and personal consumption have been moving in lockstep,” said Michael Niemira, chief economist with the International Council of Shopping Centers.

“If your income is only growing at the same pace as consumption, it just means you are holding even and more money is going to food and energy,” given the current situation of food and energy prices increasing in recent months, said Niemira. “Any leftover money from nondiscretionary spending and other living expenses is shrinking.”

In the coming months, Niemira predicts the consumer spending numbers will show improvement as consumers spend their tax rebate checks.

Inflation ticks up

A measure in the report that tracks prices consumers pay on items, excluding food and energy, rose 0.1% over the previous month, in line with analyst expectations.

The so-called core PCE rose 2.1% from the same month a year, the same as the month prior. The Federal Reserve is widely believed to prefer that this year-over-year core inflation number stay in a range of 1% to 2%.

Personal savings increased 0.7% in April, flat from a revised 0.7% in March. That means for every $1,000 that Americans bring in after taxes, they are only saving $7.

As inflation numbers tick up, concerned consumers should pull back slightly in their spending and start saving a little bit more. “That savings rate increasing is good and bad news,” said Niemira because a sagging economy depends on consumers spending their greenbacks to pump the economy back to health.

Consumer spending fuels more than two-thirds of the nation’s economic activity and is closely watched as a gauge of the economy’s health.

A report on first-quarter gross domestic product, a broad measure of the nation’s economic activity, came in at a revised 0.9% annual rate increase Thursday.

The Conference Board’s latest reading consumer confidence, released Tuesday, dropped to the lowest level in 16 years. To top of page

 

Truckers/workers protest rising fuel costs, astute enough to know it threatens their livelihood

May 29, 2008

 

Wed May 28, 2008 12:54pm EDT

By Andrew Roche

 

LONDON (Reuters) – The pain of soaring oil prices provoked new protests in Europe on Wednesday, and Britain called for “global solutions” to the energy crisis.

 

Bulgarian truck drivers rallied, following the lead of British and French truckers and French fishermen in a wave of demonstrations and blockades by groups which say fuel costs threaten their livelihoods.

 

Complicating the issue for governments in a continent dependent on imported energy, many protesters blame high duties on fuel imposed by their governments as much as international oil prices.

 

The Bulgarian truckers’ association said excise duties and value added tax contributed to surging global oil prices and made the Balkan country’s fuels too expensive. It demanded excise duty rebates.

 

More than 150 truck drivers and dozens of bus drivers from across Bulgaria converged in a convoy on the outskirts of the capital Sofia, saying high fuel prices meant they were operating at a loss.

 

Similar protests took place in the Black Sea port city of Varna, the Danube port city of Russe and other towns.

 

“Apparently we need to find a joint solution in the EU,” Transport Minister Petar Mutafchiev told reporters. “There is a transport problem not only in Bulgaria, it’s a European problem.”

 

Fuel excise duties in Bulgaria, the poorest EU nation and already suffering double-digit inflation, are still lower than those in the rest of the bloc. This means Sofia could not justify a reduction in duties, Mutafchiev said.

 

“GLOBAL SHOCK”

 

British Prime Minister Gordon Brown said there was no easy answer to spiraling oil price rises without coordinated global action, and met senior oil executives to discuss supply and demand.

 

Hundreds of protesting British truck drivers caused road chaos in London on Tuesday. Brown said he understood the impact on families, but that only an international strategy could help bring oil prices down.

 

“A global shock on this scale requires global solutions,” Brown wrote in the Guardian newspaper, pledging to put international action on oil prices at the top of the agenda at the Group of Eight (G8) summit in Japan in July.

 

French President Nicolas Sarkozy called on Tuesday for a European Union cap on fuel sales tax.

 

EU Economic and Monetary Affairs Commissioner Joaquin Almunia told reporters on Wednesday Euro zone finance ministers would not back such tax changes.

 

Asked about Sarkozy’s proposal, Brown’s spokesman said tax policy would remain a matter for Britain although oil prices would also be discussed at the coming EU summit.

 

Britain levies the highest fuel duty in the EU, with nearly 65 percent of the pump price of petrol due to tax.

 

Diesel is about 130 pence ($2.57) a liter in Britain, more than double the U.S. price. Hauliers want a cut in fuel duty of 20 to 25 pence (40-50 cents) a liter.

 

Brown was meeting oil industry executives in Scotland to discuss ways to maximize production from Britain’s dwindling North Sea fields.

 

Oil fell $2 to stand near $127 a barrel by 9:00 a.m. EDT, extending a slide from the previous session amid signs Asian demand could start to falter as consumer nations look to cut subsidies by raising fuel prices.

 

Italian fishermen in the Adriatic are expected to strike from Friday and Dutch truckers plan a national day of action for Thursday. In Spain, the Fishermen’s Confederation has called a protest in Madrid for Friday and the main truckers’ association has called a strike for June 8.

 

Some travelers and sailors have been trapped for days in French ports blockaded by protesting fishermen.

 

“I think the only ones who are happy with this situation are the fish. At least they’ve got a bit longer to live,” said thwarted yachtsman Patrick Laine at St Malo in Brittany.

 

(Reporting by Anna Mudeva in Sofia, Kate Kelland and Katherine Baldwin in London and Estelle Shirbon in St Malo; editing by Timothy Heritage)

Debate continues: Speculation responsible for increase in prices?

May 29, 2008

http://www.reuters.com/article/politicsNews/idUSN2739637720080527

Tue May 27, 2008 5:22pm EDT

By Chris Baltimore

 

WASHINGTON (Reuters) – A leading U.S. senator on Tuesday pressed the top futures market regulator for more information about speculation by big investment funds in crude oil futures and other energy markets.

 

U.S. Sen. Jeff Bingaman, chairman of the U.S. Senate Energy Committee, said Commodity Futures Trading Commission (CFTC) officials provided “glaringly incomplete” data to back up testimony that speculative trading is not the chief reason behind crude oil’s rise above $135 a barrel.

 

CFTC experts testified that market forces are primarily responsible for the rising price of oil, although investors may be profiting from the trend.

 

Bingaman, a New Mexico Democrat, sent acting CFTC chairman Walter Lukken a letter asking why the agency classifies large investment banks and other swap dealers as commercial traders — the same category it uses for more traditional investors in the physical oil market such as oil companies and airlines.

 

“The practice of including investment banks in the commercial participant category calls into question the CFTC’s continued assertion that non-commercial participants, or speculators, follow rather than lead oil price movements,” Bingaman wrote in the letter.

 

Bingaman also said a recent trend of institutional investors buying petroleum storage capacity has led to “concerns regarding potential market manipulation strategies,” and asked the CFTC about how it tracks such trading activity.

 

Oil prices have doubled in the past year as big funds have poured money into commodities, seeking a hedge against inflation and the weaker dollar. The hot money has helped extend a six-year rally in oil, as supplies have failed to keep pace with surging demand in emerging economies like China.

 

Bingaman sent a wide-ranging questionnaire to Lukken, seeking a response by June 10, Bingaman also asked detailed questions about increased over-the-counter trading in U.S. oil futures contracts on foreign boards of trade.

 

The CFTC declined to comment on the letter.

 

Democrats in Congress have been looking for ways to rein in speculation in crude oil trading, which they see as the prime mover behind the surge in U.S. oil futures to record highs.

 

Senate Majority Leader Harry Reid this month proposed legislation that would prevent traders of U.S. crude oil from routing transactions through off-shore markets to evade speculative limits. It also sets forth reporting requirements.

 

The bill also requires the CFTC to boost margin requirements for all oil futures trades, in an attempt to put a lid on what Democratic Sen. Byron Dorgan has called “an orgy of speculation in the energy markets.”

 

As a part of its farm funding bill, Congress this month gave the CFTC more authority. The bill closed the so-called “Enron loophole,” which allows exempt electronic platforms like the Atlanta-based Intercontinental Exchange to trade a host of energy contracts with little government oversight, unlike the regulated New York Mercantile Exchange.

 

Last month, a CFTC economist told the Senate Energy Committee that “there is no evidence that position changes by speculators precede price changes for crude oil futures contracts.”

 

Challenging that conclusion, Bingaman asked the CFTC to detail the data used in its analysis.

 

Bingaman also asked the CFTC why it does not scrutinize energy-related contracts as closely as agricultural commodities like corn, wheat and soybeans, even though energy and food markets are increasingly tied together through biofuel use.

 

(Reporting by Chris Baltimore; Editing by David Gregorio)

The destruction(albeit slow) of the middle class.

May 29, 2008

This article makes the point that disposable income will be depleted among the middle class. What he fails to notice is that if the trend of oil prices continues, disposable income will become a thing of the past. Buying the gas to get to work, food to feed your family, and heat to keep your dwelling livable will be too much for the median income to handle.

 

http://www.reuters.com/article/idUSN2248967220080529?sp=true

By Nick Carey – Analysis

 

DALLAS, Texas (Reuters) – Sky-high oil prices are causing pain at the pump, but bills for air conditioning this summer and heating next winter — combined with rising food costs — promise to squeeze U.S. consumers even more.

 

With gas at $4.00 a gallon, households already have less to spend on a new grill at Home Depot; a vacation at Walt Disney’s Disney World; a new TV from Best Buy Co; or a new “hog” from Harley-Davidson Co.

 

And there are no signs things will get better soon for the consumer, long the driving force of U.S. economic growth.

 

“For the areas of the economy that rely on heating oil, high fuel prices are going to be another blow to the consumer this winter,” said Jack Kyser, chief economist at the LA County Economic Development Corp.

 

“The hotter states will feel the pinch during the summer months but in the mid-America states where you get hot summers and cold winters, it’s going to be very uncomfortable,” he said.

 

“This is going to eat into the disposable income of American consumers — supposing they have any left.”

 

Oil prices, now $130 a barrel, have risen six-fold since 2002. On Wednesday, heating oil reached a record high above $3.90 a gallon and the price is expected to stay high.

 

Heating oil, which cost $3.29 a gallon in January, will likely cost $3.83 in December, according to the government’s Energy Information Administration.

 

Those costs come at a time of rising food prices, forcing people to spend more on basics as wages fail to keep up. The effects on the economy could be profound.

 

“The American consumer will continue to pay for fuel, food and heat,” said University of Maryland economist Peter Morici.

 

“But they will give everything else up,” he said. “That’s going to make it harder to sell the average consumer a television, a suit, or even a meal at a restaurant.”

 

HARD TIMES

 

This could become an especially depressing reality in July and August, when back-to-school shopping starts, and in November, when holiday shopping gets under way.

 

Without strong sales during both of those shopping seasons, retailers including Wal-Mart, Target, J.C. Penney and Sears could post bleak results for the last two quarters of 2008 and the first quarter of 2009.

 

For many years, the consumer has been the engine of U.S. growth, accounting for around 70 percent of the economy.

 

But much recent spending has been done on credit, leaving Americans with a negative savings rate.

 

Now that consumers have been hit by the double-whammy of a weak economy and higher costs, the question is how much damage the engine has sustained and how long it will take to fix it.

 

Peter Schiff, president of money manager Euro Pacific Capital, warns that after years of profligate spending, the “chickens are finally coming home to roost”.

 

“Our whole phony standard of living is imploding,” he said. “We have borrowed and spent ourselves into oblivion.”

 

“It’s amazing that people can’t figure out that America is broke.”

 

WINTER OF DISCONTENT

 

Diane Swonk, chief economist of Mesirow Financial, says one of her biggest concerns for the short term is that the Bush administration’s tax rebates, which were designed to stimulate the economy, will be used by consumers to fill their tanks and use air conditioning as usual rather than cutting back.

 

Many retailers, like Wal-Mart and Sears and supermarkets Kroger and Supervalu, have offered customers incentives to spend their rebate checks with them.

 

President George W. Bush signed into law a $152 billion fiscal stimulus package earlier this year to provide tax rebates to 130 million Americans. Some $107 billion of the total was allocated for households.

 

“The tax rebate is going to be a double-edged sword for consumers,” Swonk said. “When the heating bills start coming in the fall things will not look so good.”

 

“That should contribute to a contraction in consumer spending in the fourth quarter,” she added.

 

Swonk said that among the industries that will continue to feel the pinch is the auto industry, a major employer.

 

That likely means that Thursday’s announcement by Ford Motor Co that it was abandoning its long-touted goal of returning to profitability by 2009 will be followed by more bad news from Detroit.

 

With Ford and General Motors shares getting a battering on Thursday, investors were asking if the long-term prognosis of the Detroit automakers was becoming even bleaker.

 

“The economic circumstances are not good for Ford and they are not good for any of the automakers really; this isn’t anything that is a Ford exclusive,” said Erich Merkle, director of forecasting for consulting firm IRN Inc.

 

Edward Leamer, head of the UCLA Anderson Forecast Center, said that thanks to the combination of high spending in recent years and rocketing fuel costs, the consumer-engine of U.S. economic growth is close to failing.

 

“The global markets are telling us we are not as wealthy as we think we are and that we have spent beyond our means,” he said. But Leamer said while the engine may be broken, the U.S. economic model is not: it just needs a new engine.

 

Thanks to the “rosy spot” of exports helped by a weak dollar, plus strength in commodities like coal and grains, the UCLA Anderson Forecast Center predicts the U.S. economy will suffer only a mild recession this year.

 

But without that retail engine of growth, “our long-term prospect is for sluggish U.S. economic growth,” Leamer said.

 

“Unfortunately, there is nothing on the horizon in the U.S. economy that will take over from the consumer.”

 

(Additional reporting by David Bailey in Detroit and Tom Doggett in Washington, D.C.; Editing by Patrick Fitzgibbons and Ted Kerr)

5/29/08 NYMEX crude closes at $126.62

May 29, 2008

http://www.reuters.com/article/ousiv/idUSSYD3274320080529

Thu May 29, 2008 5:00pm EDT\

By Richard Valdmanis

 

NEW YORK (Reuters) – Oil prices dropped $4 on Thursday as concerns about global energy demand and strength in the dollar countered a government report showing the biggest decline in U.S. stockpiles since 2004.

 

U.S. crude settled down $4.41 at $126.62 a barrel, while London Brent gave up $4.04 to $126.89 a barrel.

 

The decline extends oil’s retreat from last week’s record above $135 a barrel amid growing signs that global energy demand growth is slowing under the strain of high costs and economic turmoil in the United States.

 

Gains in the U.S. dollar after a report that the U.S. economy grew in the first quarter at a faster pace than previously estimated added pressure to commodity markets by diminishing the purchasing power of buyers using other currencies.

 

Oil’s slump also came as the top U.S. futures market regulator said it will step up surveillance of energy trading, tracking index funds and reaching across the Atlantic to grab more information on oil contracts based on American crude that are traded in the United Kingdom.

 

U.S. lawmakers had hammered the Commodity Futures Trading Commission for months to improve monitoring and to crack down on speculators whom they blame for pushing up energy prices to record levels.

 

Oil had briefly surged into positive territory Thursday morning after the U.S. Energy Information Administration released a report showing an 8.8 million-barrel drop in U.S. crude stockpiles, the biggest fall since a hurricane shut offshore oil platforms in September 2004.

 

The unexpected decline “was due to temporary delays in crude oil tanker off-loadings on the Gulf Coast,” EIA said.

Analysts in a Reuters poll had forecast the stock level to be unchanged.

 

Stockpiles at Cushing, Oklahoma, the delivery point of U.S. crude traded on the New York Mercantile Exchange (NYMEX), increased 700,000 barrels, according to the EIA, also tempering the bullishness of the report.

 

DEMAND SLOWING

 

The EIA said on Wednesday U.S. oil demand in March fell to the lowest level for that month in five years, the latest sign that consumers are cracking under the strain of high oil prices.

 

In Britain, gasoline demand in April fell 7 percent from a year ago while diesel demand fell nearly 2 percent, government data showed on Wednesday.

 

Asian countries have also been reviewing fuel subsidies, which have sheltered drivers from the shock of steep price rises, intensifying fears of an Asian energy demand slowdown.

 

India’s oil minister, Murli Deora, said on Thursday that the government will take a decision on raising fuel prices in the next two to three days.

 

Taiwan, Indonesia and Sri Lanka have already raised domestic fuel prices.

 

(Reporting by Richard Valdmanis, Matthew Robinson, Gene Ramos and Robert Gibbons in New York; Ikuko Kao in London; Luke Pachymuthu in Singapore; editing by Matthew Lewis)

Indonesia to Withdraw from OPEC Due to High Oil Prices

May 28, 2008

http://www.moneymorning.com/2008/05/28/indonesia-to-withdraw-from-opec-due-to-high-oil-prices/

Wednesday, May 28th, 2008
By Jennifer Yousfi
Managing Editor

Indonesia, the sole Asian member of the Organization of the Petroleum Exporting Countries (OPEC), will withdraw from the oil cartel at the end of this year.

Energy Minister Purnomo Yusgiantoro announced today (Wednesday) that he would sign a decree officially withdrawing Indonesia from OPEC when its membership expires at the end of 2008.

A member since 1962, Indonesia’s exports have been waning for years due to aging oil wells and a lack of infrastructure investment by the government. Oil production is down 49% from its 1977 peak. The country has now become a net importer of oil, Purnomo said.

If production comes back to give us the status of net oil exporter then we can go back to OPEC,” Purnomo said, speaking before the Jakarta Foreign Correspondents Club today, Bloomberg News reported.

Indonesia’s withdrawal from OPEC will help the Asian nation save an estimated $3.1 million (2 million euros) in membership fees per year, Purnomo noted.

The country has more than 4 billion barrel in proven reserves, according to the AFP. However, Indonesia’s production has been dropping steadily since 1995. So while other OPEC member nations have been benefiting from high oil prices, Indonesia has suffered as it has been forced to import oil.

If OPEC had more solidarity with its members and helped those like us who are suffering from the current high prices, it would have been a different matter,” Indonesia’s Parliament energy committee chairman Agusman Effendi told the AFP.

Indonesia’s daily oil output has fallen to 927,000 barrels per day (bpd) this year, down from 950,000 barrels a day in 2007. Its daily output falls short of the nation’s daily consumption of approximately 1.2 to 1.3 million barrels per day, according to Reuters UK.

The Indonesian government heavily subsidizes retail oil sales to the tune of almost $13 million per year. But due to rising costs, the government has had to enact unpopular fuel price increases, which have sparked civilian protests.

Oil’s Bubbling Higher

 Oil reached a record high of $135 per barrel on May 22, but since then the price has dropped.

Oil prices have been volatile today. At 1:48 p.m., oil for July delivery was trading at $131.28 a barrel on the New York Mercantile Exchange. Earlier, however, crude oil traded down as low as $125.96 today, according to Bloomberg data.

But the slight reprieve we’re currently experiencing is likely to reverse itself just as quickly as we head into the summer driving season and speculators continue to drive up the price of “black gold.”

Both Goldman Sachs Group Inc. (GS) and JP Morgan Chase & Co. (JPM) recently released reports that have oil soaring over $200 a barrel within the next two years.

Money Morning Investment Director Keith Fitz-Gerald – one of the first investment gurus to predict triple-digit oil prices – has boosted his own target, suggesting that oil could go as high as $225 a barrel.

“The math is really simple here,” Fitz-Gerald said in a recent e-mail interview from China. “We are burning through supplies at a rate that’s four times to five times faster than we’re discovering new reserves. Throw in a few [surprises]… perhaps a terrorist event… and add in the accelerating use of oil and gasoline in Third World countries, and we have the recipe for far higher prices.”