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Oil's plunge continues

Oil's plunge continues

GEORGE JAHN
Thursday, January 08, 2009
VIENNA — Crude prices fell again Thursday on more evidence that the global economy is under strain and that demand for energy will fall further.

Light, sweet crude for February delivery fell $1.11 cents to $41.52 (U.S.)a barrel on the New York Mercantile Exchange.

On Wednesday, the contract tumbled 12 per cent, or $5.95, to settle at $42.63 after the U.S. Department of Energy's Energy Information Administration said that inventories of commercial crude oil inventories rose 6.7 million barrels. That was well above the 1.5 million-barrel build expected by analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., suggesting demand continues to erode.

Later Thursday, the U.S. government will report natural gas reserves.

The “huge builds in both the crude and products markets for last week” was the main downward price driver, said trader and analyst Stephen Schork, in his Schork Report. And Toby Hassall, an analyst with investment firm Commodity Warrants Australia in Sydney, said the stock build reminded the market that demand remains weak.

The global economy continues to weaken and on Thursday, U.S. president-elect Barack Obama said the recession could “linger for years” unless Congress pumps unprecedented sums from Washington into the economy.

“I don't believe it's too late to change course, but it will be if we don't take dramatic action as soon as possible,” Mr. Obama said in a speech set to be delivered at George Mason University in Fairfax, Va., outside Washington. Excerpts from his prepared text were released in advance by his transition team.

It was the fourth day in a row that Mr. Obama has addressed this front-burner issue and it was the highest-profile appearance yet on an issue that can define his early months in office.

The economic crisis has hit retailers hard as consumers steer clear of buying even heavily discounted merchandise.

Department-store operator Macy's Inc. said Thursday it will close 11 stores in nine states — affecting 960 employees — and lowered its forecast for the fourth quarter after one of the weakest holiday seasons in years.

Wal-Mart, the largest retailer in the U.S., slashed its forecast for fourth-quarter earnings, and its shares fell more than eight per cent in pre-market trading.

Equities markets fell from Asia to Europe.

The FTSE 100 index of leading British shares slipped 78.94 points, or 1.8 per cent, at 4,428.57, despite another half percentage point interest rate reduction from the Bank of England, which took the benchmark rate to an all-time low of 1.5 per cent.

Meanwhile Germany's DAX fell 82.86 points, or 1.7 per cent, to 4,854.61, while France's CAC-40 was down 71.64 points, or 2.1 per cent, to 3,274.45.

Tokyo's Nikkei 225 stock average lost 362.82, or 3.9 per cent, to 8,876.42, snapping a seven-day winning streak as the yen traded higher, and Hong Kong's Hang Seng Index fell 571.55 points, or 3.8 per cent, to 14,415.91.

Oil prices had risen earlier this week to above $48 from a five-year low of $33.87 a barrel on Dec. 19 on investor concern that the conflict between Israel and Hamas in Gaza could spread to the rest of oil-rich Middle East and affect supplies.

Lebanese militants fired at least three rockets into Israel early Thursday, threatening to open a new front for the Jewish state as it pushed forward with a bloody offensive in the Gaza Strip that has killed nearly 700 people. Israel responded with mortar shells.

“There was a shift of focus to geopolitical issues last week,” Mr. Hassall said. “If the situation calms down a little over there, the market's focus will come back to the weak global demand outlook, and that should keep prices pretty suppressed.”

Also adding to tensions in markets recently was the gas dispute between Ukraine and Russia, with all gas deliveries to Europe through Ukraine frozen for a second day. Both sides met earlier Thursday and were in Brussels to speak to the EU about how to resolve the impasse.

In other Nymex trading, gasoline futures rose less than a penny to $1.08 a gallon. Heating oil gained 2.6 cents to $1.57 a gallon, while natural gas for February delivery added 9.4 cents to $5.966 per 1,000 cubic feet.

In London, February Brent crude fell 46 cents to $45.40 a barrel on the ICE Futures exchange.

© Copyright The Globe and Mail

Merckles to sell Ratiopharm as credit approved

TheStar.com - Business - Merckles to sell Ratiopharm as credit approved
January 08, 2009

FRANKFURT–The family holding company of dead German tycoon Adolf Merckle got a long-awaited bridge loan from banks yesterday, in a deal that will force it to sell Ratiopharm, the world's fourth-largest generic drugs maker.

The family's VEM Asset Management investment vehicle said its creditor banks had transferred the bridge loan after weeks of tough talks. Financial sources had earlier told Reuters the loan was for 400 million euros ($545 million U.S.).

"We are very happy to have found a solution," VEM head Ludwig Merckle, one of Adolf's four children, said in a statement.

The loan, which buys the family time to work out a broader restructuring of the business empire that Merckle built up over the past 40 years, comes less than two days after he threw himself in front of a train.

In addition to Ratiopharm, the Merckle family controls HeidelbergCement and drug wholesaler Phoenix Group as well as a diverse portfolio of other business investments that helped put Merckle in the ranks of the world's wealthiest people.

Under the deal, a trustee named by VEM and its banks will guide the sale process for Ratiopharm and Ludwig Merckle will also have to step down as VEM chief, the statement said.

Reuters News Agency

Oil Ready For Another Big Bull Run?

Bolling: Oil Should Be in the $70-$85 Range, Buy the Dips
Posted Jan 07, 2009 11:53am EST by Aaron Task in Investing, Commodities
Related: USO, DUG, DXO, OIH, XLE
After rallying 40% from the December lows, oil prices were recently down more than 3% to $46.95 per barrel Wednesday, falling in concert with stocks and as the DOE reported a sharp build in inventories.
Declines like these are opportunities to add to oil positions, says Eric Bolling, a former NYMEX commodity trader and host on Fox Business News. While oil's midsummer rally overshot reality, its subsequent decline was similarly overdone, says Bolling, who believes oil should be in the $70-$85 per barrel range.

The trader and television commentator is currently long oil via the United States Oil ETF, which he says is the best ETF at handling the "roll" that occurs when crude futures contracts expire each month.

Bolling said he will add to the USO position if/when spot crude falls below $45 per barrel - which it approached earlier today - and is a long-term bull on the commodity because of geopolitical risks and the U.S. government's efforts to "reflate" the economy.

And David Pescod Says...

CRUDE OIL
$42.82 -5.76
NATURAL GAS
$5.86 -0.13
It’s an ugly day on the markets. In the U.S.A. they report
almost 700,000 job losses, which shows things aren’t going
that well.

Meanwhile, in the energy market it’s also an ugly day as
the U.S. Department of Energy reported its latest petroleum
inventories for the week and crude inventories rose last
week by 6.7 million barrels and is currently much higher
than the same time last year.

Gasoline inventories rose last
week by 3.3 million barrels to 211.4 million barrels and are
slightly lower than last year. The net result was a significant
swack to the oil index and oil dropped over $5.00 a barrel.
In the meantime, it’s the time of year that oil analysts tend
to make the projections for the coming year and needless to
say, the projections from the different brokerage houses are
all over the place.

The parameters they are looking at are
much the same, but what their crystal ball delivers can be
quite different. The one big negative is that suddenly the
world has a lot bigger supply than it needs, courtesy of addi-
tional Saudi production that could come on stream. That’s
the only big negative, but it’s the only one that matters.
If you are trying to find positives, it’s that it looks like
OPEC might be actually cutting back as it said it might, par-
ticularly some of the countries that never seem to do what
they say they will do such as Venezuela, Iran, Ecuador and
the like. Also the Americans are looking up to 20 million
barrels of oil for their strategic reserves and the Chinese
also suggesting they might need multiples of that, is a posi-
tive. But quickly becoming the big factor is the enormous
cutbacks by companies around the world from Enerplus
Income Fund in Canada (cutting exploration from $500 mil-
lion to $300 million) to Gazprom (the Russian giant cutting
exploration by 25%).
With oil companies around the world, whether it’s Pemex
or Petrobras, if these people aren’t looking for oil...they are
not finding it and meanwhile, the natural decline rates in
different areas of the world can be anywhere from 5% to
30%, so a year from now, there is going to be less oil coming
on stream.
It’s the time of year that analysts get around to making
predictions about what next for oil prices for the different
brokerage houses and of the reports we find of interest is
the one put out on December 31st by Barclays Capital and
they write, “At the moment there is an inbuilt instability in-
volved in the realities of supply and demand. The price that
generates enough long term energy supply is a high one,
and the current freezing up of investment activity across
energy and alternatives is likely to make it even higher in
the medium and long term.