Oil futures tumble on questions about supply and economy - May. 29, 2008NEW YORK (CNNMoney.com) -- Oil prices fell over $4 Thursday, a day of wild price swings on the back of plummeting crude supplies, signs of a strong economy, and news the government is six months into an oil trading investigation.
U.S. light crude for July delivery settled down $4.41 at $126.62 a barrel on the New York Mercantile Exchange. The 3.37% decline was the biggest on a percentage basis since March 19, according to the Energy Information Administration.
A report on oil inventories was perhaps the most closely watched factor.
In its weekly inventory report, the Energy Information Administration (EIA) said crude stocks decreased by 8.8 million barrels last week. Analysts were looking for an increase of 750,000 barrels, according to a survey from Platts, an energy research firm.
But the report issued online by the EIA said "the drop was due to temporary delays in crude oil tanker off-loadings on the Gulf Coast."
Oil futures, down $1.80 to $129.23 just prior to the report, surged as high as $133.12 minutes after the 10:30 a.m. ET release.
"Everybody reacted to the headline number, but then the report says that a lot of the drawbacks are due to imports," said Phil Flynn, senior market analyst at Alaron Trading.
He said the oil that was missing from the report could very well be floating in tankers on the Gulf of Mexico, where fog often closes ports this time of year.
The report was "not quite as bullish as it might be on first glance," he said, and the price began a fall of as much as $7.
News of a government investigation into oil trading came later in the day.
The Commodity Futures Trading Commission said it launched a nationwide investigation into the purchase, transportation, storage, and trading of crude oil and other petroleum product contracts back in December.
While CFTC investigations are usually secret, the agency said it is making this one publicly known in response to "today's market conditions" - which include surging oil prices and a growing chorus of people who blame them on speculative investors causing a price bubble.
The CFTC did not indicate when the investigation would be completed or when the results will be made public.
The agency, which has previously said it had found no evidence speculators are artificially driving up crude prices, also said it would better monitor the oil futures markets by requesting more information from overseas exchanges. It also will require investors who do not take delivery of oil - such as indexes and retirement funds - to provide more information about their trading practices.
Also contributing to the drop in crude prices Thursday was a U.S. gross domestic product report for the first quarter that was stronger than originally reported.
If the economy appears stronger than initially expected, there is a perception that interest rate cuts are over, which would push the dollar higher, said Flynn.
"If the dollar continues to strengthen, it will continue to put downward pressure on the price of oil," he added.
The dollar has risen steadily this week, gaining more than a penny against the euro and about 2 yen. Crude oil is traded around the globe in U.S. greenbacks, and so if the dollar loses value, crude oil becomes more expensive.
By the numbersThe draw in crude oil was the largest weekly decline in crude stockpiles since September 2004, according to Amanda Kurzendoerfer, a commodity analyst at Summit Energy.
At 311.6 million barrels, U.S. crude oil inventories were in the lower half of the average range for this time of year.
Distillates, used to make heating oil and diesel fuel, increased by 1.6 million barrels and were in the lower half of the average range for this time of year. Analysts were looking for a more modest 800,000 build in distillate supplies for the week ended May 23.
Gasoline supplies decreased by 3.2 million barrels last week and were near the lower limit of the average range. Analysts were looking for a 400,000 barrel gain in gasoline stockpiles.
Refinery utilization for the week came in at 87.9%, unchanged from the previous week and less that what analysts were expecting. Analysts were looking for a 0.5 percentage point increase to 88.4% operable capacity, according to the Platts survey. At this time of year, refineries should be operating at around 90% capacity.
Retail gas prices hit record highs for the 22nd day in a row, motorist group AAA's Web site showed Thursday. The nationwide average for a gallon of regular unleaded rose 0.8 cent to $3.952, marking the 23rd straight day that gas prices have increased.
The AAA online survey showed gas prices up nearly 10% from a month ago and almost 24% higher from year-ago levels.
While the price at the pump is painful for consumers, "if you were to look at the spread between crude and gas at this time last year and then applied that to this year, you would see much higher prices at the pump," said Kurzendoerfer.
As crude oil prices have more than doubled in price, however, gas prices have not kept pace. "Crude was at $65 a barrel in June of 2007 and now we are about double that price and gasoline prices certainly have not doubled," said Kurzendoerfer.
As a result, analysts say refineries are more interested in making distillates than they are in making gasoline.
Crude oil settled at $131.03 a barrel Wednesday, but oil prices had fallen as low as $125.96 a barrel during the day, which was more than $9 off the record high that crude oil hit last week above $135 a barrel.
In the past six months, oil prices have been supported by a weak dollar and spiking global demand in emerging markets.
Kurzendoerfer said some developing countries are easing their fuel subsidies, making diesel and gas more expensive to consumers, which would in turn limit global demand if consumers cut back when they see higher prices. If fuel subsidies in emerging markets decrease demand, the price of crude could ease.
Thursday, May 29, 2008
Oil futures tumble on questions about supply and economy - May. 29, 2008
Trump Cashes In On Property Sale - TheStreet.com
Trump Cashes In On Property Sale - TheStreet.comShares of Trump Entertainment (TRMP - Cramer's Take - Stockpickr) surged more than 25% Thursday on news the casino operator inked a deal to sell one if its Atlantic City properties for a healthy price.
Trump -- a stock I've been flagging as overvalued in the Bricks and Mortar mock portfolio since last year -- sold the Trump Marina for $316 million to a private developer that plans to turn the property into a Margaritaville-branded resort.
The price amounts to 11 times 2007 earnings before interest, taxes, depreciation, amortization at the property. This is a bullish multiple on first glance. However, the property's EBITDA was also down 40% to $29 million in 2007.
The sale price amounts to just 6.6 times the 2006 cash flow at the property.
The sale is a mixed blessing for Trump. The company is losing one of its three properties in Atlantic City, a popular destination for families and retirees, but it can use the proceeds to reduce its heavy debt load.
The property is located in the city's marina district, where MGM Mirage (MGM - Cramer's Take - Stockpickr) is planning a massive casino development in the future and where the popular Borgata Resort is located.
Trump shares surged 76 cents, to $3.65 in recent trading -- a rally that's likely helped by some short-covering, since 24% of the stock's float is sold short.
A good way for investors to think about the sale is as follows:
Trump is losing about $30 million of annual EBITDA from the Marina casino (using the 2007 annual number) but will no longer need to sink maintenance capital expenditures into the property, which I estimate at roughly $15 million annually. Thus, the net loss is about $15 million of free cash flow.
Receiving a $316 million payment for that lost cash flow represents a very attractive price for Trump.
If all of the sale proceeds are used to reduce debt, then Trump should now have outstanding debt of around $1.39 billion, with $121 million of cash.
Absent the Marina property, I estimate Trump's free cash flow will now be around $110 million in 2009. This year, cash flow is messy given the weak Atlantic City market and the massive capital expenditures for the development of a new hotel tower at Trump Taj Mahal.
Given the firm's high cost of capital and a tough Atlantic City operating environment, I continue to think Trump shares represent a difficult investment. Later this year, smoking is set to be banned on all casino floors in the market, expect for isolated smoking lounges. Meanwhile, the slot parlors of nearby Pennsylvania continue to reduce travelers to the Atlantic City market.
However, today I am removing my flag rating on Trump's stock, as I now think all the negativity in Atlantic City has been properly priced into shares.
I will be removing Trump from the Bricks and Mortar portfolio at the stock's closing price today.
Even with today's rally, shares are still down about 80% since I flagged the stock as overvalued in January 2007, making it the portfolio's best position (since flags are equivalent to short sales).
Appeals court finds for Merck in Texas Vioxx case - MarketWatch
Appeals court finds for Merck in Texas Vioxx case - MarketWatchAccording to the Whitehouse Station, N.J.-based pharmaceutical giant, a Texas appeals court has reversed a 2005 jury verdict that had found Merck liable in the death of Robert Ernst, who died of a heart attack after allegedly taking the medication for several months. The Ernst case was the first Vioxx liability case to go to trial.Shares of Merck (MRK:Merck & Co., IncLast: 38.92+0.26+0.67%
4:00pm 05/29/2008
Delayed quote dataSponsored by:MRK 38.92, +0.26, +0.7%) were up 1.5% at $39.24 during a largely bullish day for the drug sector on Wall Street.
The Texas jury had originally awarded Ernst's widow a massive $254 million, which included $229 million in punitive damages. That award was later greatly reduced by a state judge to around $26 million, with punitive damages reduced to only $1.7 million under a state law that caps such awards.The Ernsts' lead attorney, Mark Lanier, said his firm plans to file an appeal on behalf of Ernst's widow."This decision was handed down by a group of judges who regularly accept campaign contributions from law firms representing corporations that appear in their courts. We will appeal this decision to the United States Supreme Court if necessary," said Lanier, in a statement.Earlier this month, a Texas state appellate court overturned a $32 million award made in a 2006 Vioxx case that found Merck liable in the heart attack death of another Texas man, Leonel Garza. That award had also been reduced to $7.75 million under Texas law.Merck also reported Thursday that a New Jersey appellate division has partially overturned a 2006 verdict against the company involving former Vioxx users Thomas Cona and John McDarby. The two plaintiff's cases had been bundled into one under a court order made by a New Jersey judge that aimed at reducing court load presented by thousands of Vioxx cases that had been filed in that state.In the original verdict, a New Jersey jury found Merck liable in the injury of McDarby, but not of Cona. Both men had asserted they suffered heart attacks after taking Vioxx for some time.Under Thursday's decision, the appellate court reversed awards against Merck for punitive damages and consumer fraud. The court did, however, uphold an award of compensatory damages to McDarby. According to reports, a jury originally awarded McDarby about $5 million in compensatory damages and $9 million in punitive damages, plus legal fees."Today's decisions overturn almost $40 million of damages and attorneys fees previously awarded to plaintiffs at trial," said Bruce Kuhlik, Merck's general counsel, in a statement."We intend to seek further review of the portion of the award that remains standing after the New Jersey decision. We continue to believe Merck acted responsibly," Kuhlik added.Vioxx was taken off the market in September 2004 after a clinical study revealed that patients who took the drug for 18 months or longer ran a significantly higher risk of suffering a heart attack or stroke. Before being recalled, Vioxx was one of Merck's biggest products, with sales of about $2.5 billion.Merck has repeatedly asserted that it behaved responsibly in its marketing of the product, amid accusations that some executives may have known some time that the drug could cause cardiovascular problems in certain users.After Vioxx's recall, thousands of alleged users filed suits against the company, mostly in the state courts of New Jersey, where Merck is headquartered, and Texas. Federal suits were compiled by the district court in New Orleans. To date, only a handful of cases have actually made it to trial.At the onset of the litigation, Merck vowed to fight each and every Vioxx case. But late last year, the drugmaker announced that it had agreed to a deal that would settle about 85% of outstanding individual claims, or about 50,000 cases, for $4.85 billion.Earlier this month, Merck agreed to pay a total of $58 million to settle a probe conducted by various states attorneys into its marketing practices for Vioxx. The settlement will be shared by 29 states and the District of Columbia.
TG Daily - U.S. carbon footprint ranking: The hotspots are in the East
TG Daily - U.S. carbon footprint ranking: The hotspots are in the EastWashington, D.C. – Public policy organization Brookings has released a detailed per-capita footprint ranking of 100 metropolitan areas in the U.S. The study reveals that residents living in the eastern half of the country produce much more carbon emissions than residents in the West. In the most extreme case, Lexington, Kentucky, has a per-capita emissions rating that is 2.5 times higher than Honolulu, Hawaii. Brookings found that these differences can often be tracked down to development patterns, rail transit, fuels used to generate electricity, energy prices, and weather.
A general look through the ranking reveals an overall mixed bag of emission trends, with some areas having succeeded in reducing their carbon footprint, while other areas have seen dramatic increases. For example, Grand Rapids, Michigan has seen its per-capita carbon emissions drop by 14.7% between 2000 and 2005 and San Antonio, Texas, achieved a 9.9% reduction in the same time frame. On the other end of the spectrum, energy use per capita surged in Chattanooga, Tennessee (+48%), Trenton, New Jersey (+48%) and in Sarasota, Florida (+30%). The scenario is equally divided among the largest areas: Heavy hitters such as Los Angeles and Chicago were able to keep their footprint at least somewhat stable (+0.35% and +0.68%, respectively), while the New York City area saw its carbon emissions grow by 7.7% per capita.
The top three metropolitan areas in terms of the lowest power consumption were Honolulu, Los Angeles and Portland, while Cincinnati, Indianapolis and Lexington-Fayette came in last. The average resident in Honolulu created 1.356 metric tons of carbon dioxide emissions in 2005, which compares to 3.455 metric tons to residents of Lexington-Fayette.
If there is any trend in Brookings’ ranking, however, then it is certainly that the highest per-capita energy consumption results are in the eastern half of the U.S. The organization did not provide exact reasons for this trend, but stated that that the carbon footprint sizes vary due to development patterns, rail transit, fuels used to generate electricity, energy prices, and weather. For example, the mild climate on the West Coast gives California residents and advantage over people on the West Coast or in the Midwest in terms of energy that is required for heating and cooling. And, of course, the proximity of heavy industry or a port dropped a region’s ranking – Jacksonville, for example, came in at #80. However, it is interesting to note that Silicon Valley’s high-tech industry in the San Jose-Santa Clara area fared well at #23 and a per capita rating that decreased by 7.4% between 200 and 2005.
According to Brookings, the average resident of a U.S. metropolitan area caused carbon emissions of 2.235 metric tons in 2005. This number consists of 1.31 metric tons highway use (1.004 metric tons from autos and 0.305 metric tons from trucks) and 0.925 metric tons of residential energy use (0.614 metric tons from electricity and 0.314 metric tons from residential fuels). To put these numbers into perspective, U.S. government numbers suggest that 1 acre of trees can handle about 1.1 tons of carbon dioxide emissions per year – which would mean that we would need two acres of trees for each resident of a U.S. metropolitan area to equalize created emissions.
GM says 19,000 U.S. factory workers take buyouts - Forbes.com
GM says 19,000 U.S. factory workers take buyouts - Forbes.comDETROIT (Reuters) - General Motors Corp (nyse: GM - news - people ) said Thursday about 19,000 U.S. factory workers -- just over a quarter of its American blue-collar work force -- had taken buyout offers to leave the automaker.
GM is under increasing pressure to cut costs in the face of weak U.S. sales and high gas prices, and analysts said the struggling automaker would have to quickly move beyond sweeping hourly job cuts by slashing production, eliminating white-collar jobs and trimming other costs.
All of GM's roughly 74,000 U.S. factory workers had been eligible for early retirement packages and buyouts intended to clear the way for hires of lower-wage workers under a deal negotiated last year with the United Auto Workers union.
"Despite significant challenges in the U.S. market, we continue to reshape our business for long-term success," Troy Clarke, GM's president of North American operations, said in a statement.
Like other Detroit-based automakers, GM has been hit hard by a U.S. auto market that has declined by a wider margin than expected and by a faster move by consumers away from gas-guzzling trucks and SUVs due to record gas prices.
GM's U.S. sales have dropped by almost 12 percent through April, a month that saw the industry's weakest sales in a decade. Analysts expect May sales to be as weak or weaker, with an even sharper drop in sales of more profitable trucks.
The weakening market has prompted Ford Motor Co (nyse: F - news - people ) to ready plans to cut white-collar jobs this summer and expectations are building that GM Chief Executive Rick Wagoner will use next week's annual meeting to unveil further cost-cutting steps.
"These restructuring plans look aggressive when they're announced, but it turns out that they're not aggressive enough," Argus Research analyst Kevin Tynan said. "The market is moving much faster than these restructuring plans are."
GM said most of the UAW-represented workers taking buyouts and early retirement offers, which ranged up to $140,000 in one-time payouts, would leave the company by July 1.
The acceptance rate for the cost-cutting program was lower than a similar offer GM made in 2006 for its union workers and broadly in line with expectations. More than 34,000 GM workers accepted similar buyouts in 2006.
UAW President Ron Gettelfinger said in February he expected fewer than 20,000 GM workers to accept buyouts.
GM, like Ford Motor Co and privately held Chrysler LLC, reached an agreement with the UAW that allows it to hire new workers for some jobs starting at $14 per hour, or about half the current average hourly wage.
GM said it would fill openings with existing workers where possible but would also hire new UAW-represented workers at that lower wage rate at plants where more workers are needed.
JP Morgan analyst Himanshu Patel said the buyout acceptance rate at GM was higher than he expected and could save up to $2 billion annually as the automaker cuts production.
But in a note for clients, he also said GM could take other steps that might include eliminating its dividend, salaried jobs and slower-selling truck-based models.
Ford saw about 4,200 UAW workers take a company-wide buyout offer. The No. 2 U.S. automaker, which last week abandoned its forecast for a return to profitability in 2009, is making plant-by-plant offers available in a bid to cut costs further.
GM shares touched a 27-year low this week. They rose 1.3 percent Thursday in New York Stock Exchange trade, but have dropped 25 percent since GM reported first-quarter earnings on April 30. (Additional reporting by David Bailey; Editing by Braden Reddall)
Economic Growth Is Revised Higher - NYTimes.com
The economy grew at a faster pace than originally estimated in the first quarter, the government said on Thursday, but the nation remained mired in its most stagnant period of growth in five years.
Gross domestic product, a measure of overall economic growth, expanded at an annual rate of 0.9 percent in the first three months, according to a Commerce Department report. That was higher than the initial estimate, released a month ago, which had put the growth rate at 0.6 percent.
The government revised its figures because imports dipped more than expected in the first quarter, narrowing the trade deficit. Smaller demand for imports meant less money flowed out of American businesses into foreign countries, pushing up domestic bottom lines and, in turn, the overall growth rate.
But demand for imports fell because Americans were buying less. The bleak economic outlook has made many Americans more hesitant to spend, especially on large-scale purchases like cars and kitchen appliances. Though this trend helped nudge the G.D.P. estimate up in the first quarter, it is likely to lead to a retrenchment in the business sector in the coming months.
Indeed, despite the nominal increase in the G.D.P. figure, the revised report still showed an economy struggling to tread water as the housing slump and a crisis of confidence in the credit markets weighed on investments and buying.
Inventories slipped slightly, signaling that businesses are producing fewer goods in anticipation of slack consumer demand. Imports dipped 2.6 percent, revised down from an initial estimate of a 2.5 percent increase. A measure of consumer spending, known as “real final sales growth,” was revised up from last month’s estimate of a decline of 0.2 percent, but only to the still-anemic pace of 0.7 percent.
“There is no end in sight to the economic slump,” Joshua Shapiro, an economist at the research firm MFR, wrote in a note to clients.
The Commerce Department also provides data on inflation, almost all of which remained unchanged from last month’s initial estimate. Prices rose at a 2.6 percent annualized rate in the first quarter, following an increase of 2.4 percent in the final quarter of 2007.
Over all, gross domestic product expanded 0.6 percent at the end of last year, and 4.9 percent in the third quarter of 2007.
Data on the G.D.P. is regularly revised; the Commerce Department’s final estimates for the first quarter will be released June 26.
In a separate report released Thursday, the Labor Department said that the number of new applications for unemployment insurance rose to 372,000 last week, seasonally adjusted. The increase, of 4,000 claims, was slightly more than economists had anticipated.
Dell 1Q profit, revenue top Street forecasts - Forbes.com
Dell 1Q profit, revenue top Street forecasts - Forbes.comSAN FRANCISCO (Thomson Financial) - Dell Inc. late Thursday reported first-quarter net earnings rose 4% to $784 millionm, or 38 cents a share, topping the 34-cent mean estimate of analysts polled by Thomson Reuters.
In the same period last year, the Round Rock, Texas-based computer giant earned $756 million, or 34 cents a share.
Revenue rose 9% to $16.08 billion, above the $15.7 billion consensus estimate.
Notebook unit growth in the quarter ended May 2 was 43%.
Dell (nasdaq: DELL - news - people ) said its headcount has been reduced by 7,000 in the past year, including a reduction of about 3,700 in the first quarter. The company has added about 2,700 employees through acquisitions, making the net reduction for the company about 5%.
Looking ahead, '[t]he company is seeing conservatism in IT spending in the U.S. particularly with its global and large customers as well as public, small and medium business accounts,' Dell said in a statement.
Dell expects the conservatism to continue through the summer.
The company also expects to have lower investment and other income driven by reduced investment balances with lower interest rates and increased interest expense driven by a higher level of debt.
Shares of Dell closed at $21.81.
