Oil falls below $50.00

Oil drops below $50 a barrel

MARK WILLIAMS
Monday, December 01, 2008
COLUMBUS, Ohio — Oil prices tumbled below $50 (U.S.) a barrel Monday as manufacturing activity in the U.S. hit a 26-year low, a showing that was much worse than expected.
The price drop also comes two days after OPEC said it would not cut production of crude before its regularly scheduled meeting in three weeks.
Manufacturing and consumer spending has eroded quickly and lowered demand for energy. That has erased nearly 66 per cent of crude's market value since July when it peaked near $150 per barrel.
Light, sweet crude for January delivery fell 9 per cent, or $5.15 to $49.28 a barrel on the New York Mercantile Exchange. The contract had settled down a penny at $54.43 on Friday.
Analyst Phil Flynn with Alaron Trading Corp. said the $50 price remains significant psychologically for traders.
“It opens up the possibility of further declines,” he said.
In a note to investors Monday, Raymond James Equity Research slashed its oil price forecast from $90 per barrel to $60 per barrel.
In London, January Brent crude fell 9 per cent, $4.85 to $48.64 on the ICE Futures exchange.
On Saturday, Saudi Oil Minister Ali Naimi said that Organization of Petroleum Exporting Countries will do what needs to be done to shore up falling oil prices when the group meets Dec. 17 in Algeria, but for now it was too early to make another cut.
Prices continued to slide despite a separate report by Iranian state TV in which OPEC Secretary-General Abdullah El-Badri said that a daily oil production cut of between 1 million and 1.5 million barrels was likely in December.
OPEC, which accounts for about 40 per cent of global supply, cut output by 1.5 million barrels a day in October, bringing total quota cuts to around 2 million barrels a day this year.
OPEC's actions have had no discernible effects on oil prices, which have fallen another 26 per cent since the last round of production cuts.
“The OPEC meeting from their viewpoint was a disaster,” Mr. Flynn said.
Internal divisions within OPEC are reminiscent of the 1990s when an oil glut forced prices down and OPEC states routinely cheated on production quotas.
In an environment of falling demand, Mr. Flynn said oil traders were also selling off as the Dow Jones industrial average gave up 400 points Monday and because of the bad manufacturing figures.
The U.S. Institute for Supply Management said its gauge of manufacturing activity fell to a reading of 36.2 in November. That was a steeper-than-expected drop from the October reading of 38.9 and underscored that the hard economic times were beginning to have a major effect on manufacturing. A reading below 50 indicates the sector is contracting.
The U.S. Commerce Department reported that construction spending dropped by 1.2 per cent in October, much bigger than the 0.9 per cent decline many analysts expected.
The decline in the stock market follows the first five-day string of gains for both the Dow and the Standard & Poor's 500 since July, 2007, and the largest five-day percentage gain in at least 75 years. The Dow has gained 16.9 per cent and the S&P 500 index 19.1 per cent since a rally that began Nov. 21.
“The explosive rally we saw last week seems like a memory today,” Mr. Flynn said.
A survey of manufacturing activity in the euro zone and Britain also points to sharper-than-expected contraction in output. In China, an equivalent survey of its manufacturing sector also made for grim reading, generating fears that one of the main engines of global growth over the last few years is slowing sharply.
Sucden Research in London cited data from the United Nations, which now expects the global economy to grow by just 1 per cent in 2009, compared with an earlier forecast expecting growth of 2.5 per cent.
Meanwhile, Saudi King Abdullah told the Kuwaiti newspaper Al-Seyassah in an interview published Saturday that oil should be priced at $75 a barrel.
Iranian Oil Minister Gholam Hossein Nozari was quoted as saying Sunday that the market was oversupplied by around 2 million barrels per day and that production should be cut by that amount.
Meanwhile, U.S. prices at the pump continued to fall, but at a slower rate. The price fell half a cent overnight to $1.82 per gallon, according to auto club AAA, the Oil Price Information Service and Wright Express. That is 64.3 cents lower than a month ago and $1.248 lower than a year ago.
In other Nymex trading, gasoline futures tumbled 9 cents to $1.1185 a gallon. Heating oil dropped 10 cents to $1.6257 a gallon. Natural gas for January delivery, however, rose $6.619 per 1,000 cubic feet.
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Uranium readies for revival

“Almost every single producer has downgraded their forecast for 2008 production guidance,” said Haywood Securities analyst Geordie Mark. “It's something like 5.5 million pounds already downgraded ... when production last year was around 107 million pounds, it's a big deal.”

With a tighter supply, the spot price for uranium climbed another $2 (U.S.) to $55 per pound the past week. That's up from a two-year low of $44 touched in October, when funds and investors sold off uranium supplies and equities.

Spot prices peaked at $136 a pound in June, 2007, compared with $7 in 2000.

The world's nuclear reactors require an estimated 170 million pounds of uranium annually, said Mr. Talbot, who forecasts supply at 107 million pounds this year.

There are nearly 440 nuclear reactors producing electricity around the world, with construction under way on 35 plants, notably in China, South Korea, Japan and Russia, according to the World Nuclear Association. Construction of a further 60 reactors is forecast in the next 15 years.

Against that backdrop, Mr. Talbot said the time is right for investors to warm up to uranium stocks.

“These things trade on the spot price and the spot price seems to have bottomed at $44. Now it looks like it's rising due to supply-demand fundamentals,” he said.

“What we notice, when the stocks rise, is that they rise fairly quickly. You would rather be in the space early than sitting on the sidelines.”

Among producers, he likes Paladin Energy , which recently hiked estimates for its Kayelekera project in Malawi and its Langer Heinrich mine in Australia. He said Uranium One [UUU-T]could benefit from its low-cost operations if uranium prices do not continue climbing.

Among juniors, he prefers “cashed-up” UR Energy, which sees production at its Wyoming project in 2010, and Athabasca Basin explorers UEX Corp and Hathor Exploration .

Mr. Talbot also likes Strateco Resources [RSC-T], which he said is the only junior currently in the permitting stage. It is seeking permits for its Matoush project in Quebec.

Inventory funds, such as Canada's Uranium Participation Corp [U-T], are a good way to enter the sector with lower risk, Mr. Mark said.

“The metal is already there, it's housed, so all you're doing is (being) exposed to changes in, effectively, the metal price, which we think will rise over the coming year.”

Analysts also say merger and acquisition activity is set to sweep the sector, in deals with potential to enrich investors. Buyers appear willing to pay prices well above stock market valuations for assets, said Mr. Talbot, pointing to Forsys Metals [FSY-T], which was sold recently at a 51 per cent premium.

“We're right at the cusp, in the sense that the companies are getting closer and closer to being cash-strapped and requiring financing,” Mr. Mark said. “M&A is going to happen, particularly because there are very few new players that are going to be producers in the next five years.”

Stocks: Brace for a rocky week ahead

Stocks: Brace for a rocky week ahead

Investors await retail sales figures, and the latest readings on the health of the economy, with a close eye on the labor market.

Ben Rooney and Alexandra Twin, CNNMoney.com staff writers
November 29, 2008: 10:13 PM ET

NEW YORK (CNNMoney.com) -- Investors may be in for another challenging week as the market braces for the fallout from Black Friday sales and as a flurry of economic reports continue painting a dour picture.

"What would be more significant would be if stocks react positively [this] week in spite of bad news from the retailers," noted John Merrill, chief investment officer at Tanglewood Capital Management. "That would suggest that the market is starting to look forward."

Stocks managed gains in last week's holiday-shortened week, with all three major gauges rising after 3 straight weeks of declines.

The week ended with "Black Friday," the traditional kickoff to the holiday shopping season. Investors are expecting dismal retail sales as the weak economy continues weighing on household budgets.

Sales are going to be "really bad," predicted Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams in New York. "The consensus is that parents will buy presents for their kids but not for each other."

But first results Saturday from retail research firm ShopperTrak RCT indicated a 3% gain in Black Friday sales from a year ago, although there was some concern about whether the sales could be sustained.

In addition, investors will be keeping an eye on a slew of economic reports, including readings on manufacturing, construction, factory orders and the labor market.

Thursday's weekly jobless claims report is "the only thing that matters [and] it's going to be a horror show," Rovelli said.

The jobs picture could get even darker on Friday when the government's closely watched monthly jobs report comes out. The unemployment rate is expected to climb to 6.8% from 6.5%.

Automakers will also be in focus amid growing bets that the industry will receive a government bailout after all. GM (GM, Fortune 500), Ford (F, Fortune 500) and Chrysler's pleas were rebuffed earlier this month, but the group will appeal to Congress a second time this week.

Over the past five days, the Dow gained nearly 10%, the S&P 500 surged 12% and the Nasdaq rose almost 11%. The Dow's winning streak marked the first time the blue-chip index held gains for five days in a row since November 2007.

Stocks had rallied last week as President-elect Barack Obama announced his economic team, and the government unveiled a plan to pump $800 billion into the economy to get banks to lend to consumers and small businesses.

The gains were a strong end to a brutal month. In November, the Dow lost 5%, the S&P 500 lost 7% and the Nasdaq lost 11%.
Economy

Monday: The Institute for Supply Management (ISM) releases what is expected to be a grim report on manufacturing in the morning. November ISM is expected to fall to a 26-year low of 38, according to a consensus of economists surveyed by Briefing.com, versus a reading of 38.9 in October.

Construction spending likely fell in October, with economists expecting the government report to decline by 0.9% after it fell by 0.3% in September.

Also on Monday, Treasury Secretary Henry Paulson will give a speech on the markets and economy at the Fortune 500 forum in Washington.

Federal Reserve Chairman Ben Bernanke is also speaking Monday. He will be in Texas, talking about the Fed's policies in the financial crisis at the meeting of the Greater Austin Chamber of Commerce.

Tuesday: The automakers have until Tuesday to submit proposals for how they would use $25 billion in taxpayer money to make their companies "viable."

The House Financial Services Committee holds a hearing next Friday on the proposals and the Senate Banking Committee is expected to hold a hearing sometime during the week too.

Separately Tuesday, monthly auto and truck sales figures for November will be released during the normal trading session. October auto sales were the weakest in 25 years. (Full story)

Wednesday: The ISM releases its report on the services sector of the economy. The November services sector index is expected to fall to 42.6 from 44.4 in October.

Payroll services firm ADP releases its report on private sector employment in November, ahead of the big national report Friday. Employers are expected to have cut 173,000 jobs from their payrolls after cutting 157,000 jobs in October.

Also, the revised reading on third-quarter productivity is due in the morning, while the Fed's "Beige Book" reading on the economy is due in the afternoon.

Thursday: Factory orders are expected to have fallen 2.7% in October, when the government releases its report in the morning. Orders fell 2.5% in September.

The weekly jobless claims report is due in the morning, as well as November sales from the nation's retailers. October sales were disastrous as retailers continue to struggle with attracting consumers in an economic downturn. (Full story)

Also, before the market opens, luxury homebuilder Toll Brothers Inc. (TOL, Fortune 500) is slated to release its quarterly financial report. Toll gave a glimpse into its state of affairs in early November, when it said revenue dropped 41% but also noted it had enough cash on hand to weather the turmoil.

Bernanke is scheduled to speak about housing and housing finance in Washington, D.C., at the President's Conference on Homeownership and Mortgage Initiative.

Friday: The November jobs report is released in the morning. Employers are expected to have cut 300,000 jobs from their payrolls after cutting 240,000 in the previous month. The unemployment rate, generated by a separate survey, is expected to have risen to 6.8% from 6.5% in the previous month.

Source

Why Such Wild Market Swings In Last Hour?

For years, the rap on professional basketball games has been that nothing exciting happens until the last two minutes.

Now the same might be said of the U.S. stock markets.

In the last year or so, investors have started to see sessions with massive moves in the waning minutes. Since Sept. 15, a day after Lehman Brothers collapsed in bankruptcy and Merrill Lynch (MER) sold itself in desperation to Bank of America (BAC), the trend has been amplified -- there have been dozens of last-minute selloffs and buying sprees.

Last Friday was a prime example. After wavering in and out of positive territory all day, the markets took off with about an hour left in the session after news broke that New York Federal Reserve Chairman Timothy Geithner was going to be nominated as the next Treasury Secretary.

The Dow Jones Industrial Average surged nearly 500 points in about an hour.

At least, that move was ostensibly prompted by news.

Consider Oct. 16, when the Dow jumped 401 points -- nearly all of it in the last few minutes -- after being down more than 400 points earlier in the session.

Here’s what Michael James, senior equity trader at Wedbush Securities, told FOXBusiness.com that day: “There’s very little rhyme or reason to these moves. Emotion and sentiment are driving the markets in both directions.”

On Oct. 28, the Dow rose 889 points, most of it in the last hour. Here’s James again: “It was pretty hard to figure out why we were up 400 points … let alone 900 points. Sellers completely walked away and there was a massive scramble to buy stocks … It was feeding on itself in the last half hour.”

November has been a lot of the same: On Nov. 13th the Dow rose 400 points in the last hour. The next day it fell 350 points in the last half hour.

The reasons for the late day madness are both technical and emotional.

Art Hogan, chief market analyst at Jeffries & Co., said the shift away from human oversight to electronic trading systems has contributed significantly to the wild late-day swings.

Computers are programmed to respond to certain triggers, such as selling or buying a stock when it hits a certain price, and they will respond no matter what. Humans are obviously more capable of discerning between panic and euphoric buying and selling.

The phasing out of specialists -- essentially market traffic cops who for decades patrolled the floor of the New York Stock Exchange -- has made it “hard to keep a fair and orderly market. It’s an unintended consequence of electronic trading,” said Hogan.

Another important dynamic has been fund managers under order to “raise cash.”

Aware that many of their investors are looking to get out of equity markets, fund managers have found themselves in need a certain amount of cash at the end of the day in order to fill redemption orders.

If by 3 p.m. the fund manager hasn’t raised enough money to cover his redemptions, it’s time for a reassessment in strategy, one that usually includes a far more aggressive approach.

“At that point you take the gloves off,” said Hogan. “You tend to sell stock indiscriminately and sell what you can, not what you want. There is no thought of fundamentals, you’re simply raising cash.”

Richard Peterson, an author and expert on investor psychology who recently opened a $10 million hedge fund with his firm MarketPsy Capital, explained how the technical can quickly turn emotional.

“Friday was really stunning,” he said, referring to the powerful and unexpected buying spree in the last hour of trading on Nov. 21.

It’s a situation that has played out over and over again in recent months as the financial crisis has left investors nervous and fearful of being caught on the wrong end of a trend.

“It’s forced buying and selling that cascades on itself,” said Peterson.

On Nov. 21 two pieces of information were in play -- Geithner’s pending nomination and optimism that a government rescue was in the works for Citigroup (C). In any case, investors began buying and others quickly got on board.

Peterson said the sudden swings tend to occur when “there is anticipation for the resolution of some set of uncertainties,” in Friday’s case who will replace Treasury Secretary Henry Paulson and what will stop the bleeding at Citigroup.

“People start betting one way or the other toward the end of the day, then others feel there must be an answer, that somebody knows something they don’t,” said Peterson. “In a really chaotic market, people take information from price -- they get their sense of where things are going from the price of the stock, not from any news.”

In other words, investors are getting “their cues from what other people are doing. They don’t have a clue so they watch what others are doing,” he said.

Market watchers say what’s really needed is consistency, a string of measured gains -- 75 points, 80 points, 90 points -- to start laying the groundwork for a genuine sense of stability and confidence.

It would be a welcome replacement for the fear-triggered volatility that has been giving investors whiplash for months.