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Crude Oil Spikes to New High

Wednesday, 10 August 2005 12:00 AM

1. Crude Oil Spikes to New High

Crude oil futures are poised to spring higher during what is expected to be active trading this week.

At the New York Mercantile Exchange, oil for delivery in September traded at a record high $ 63.25 as fresh terrorism fears hit the market.

Apart from surging demand for oil, a terrorist threat against the U.S. embassy in Riyadh fanned bullish flames underlying the price of oil. The threat underscores the concern over disruptions to supplies from the Middle East.

Saudi Arabia provides 10% of global crude oil supplies, which are used primarily by the United States, Japan and China.

Exxon Mobil Corp., BP Plc and Valero Energy Corp. have all shut refinery units recently, causing reduced output of fuels such as gasoline.

U.S. refineries have been running at 90% capacity since March in a bid to keep up with surging demand for transport in the world's largest-consuming nation.

It's a tough job, given the fact that no new refineries have been built in the United States within the past 30 years.

About 10% of crude in America is used for gasoline production. Gas prices on NYMEX are pushing record highs at $1.86 per gallon. The American Automobile Association reported that the average price of a gallon across the country was now $2.34 per gallon.

According to the Energy Department, the demand for gasoline rose to 9.5 million barrels per day -- or 1.1% higher than a year ago.

The surge in demand for new cars comes thanks to added "employee pricing" incentives started by General Motors, which were quickly copied by the rest of the auto industry.

The American economy is showing continued signs of health in contrast to expectations that the economy would grind to a halt in light of surging fuel prices.

Last week the Labor Department announced that the economy had added 208,000 new jobs during the month of July.

2. Google Shares Running Out of Oxygen?

In our July 8 commentary, we noted that shares in Google might trade higher due to incessant analyst upgrades and a strategic investment in Current Communications Group. Read that article here.

Within two weeks shares had leapt 8.5% to a record high at $317.80. Let's just say that investors caught up with the leader pack.

The peak coincided with earnings results, which impressed just about everyone.

The 110% revenue increase in part pushed more analysts to raise their share price forecasts for the search engine.

However, shares slid when the company invited analysts to think about the tradition of the third quarter and what that might imply for the next slew of earnings. Both advertising and Internet usage are traditionally weak this current quarter and no matter how hard you try, it's hard to imagine Google besting the third quarter of 2004.

Back then, the streamlining of its advertising product made for great results for Google at the time of its IPO, and it would seem that the company, which has vowed never to make any financial forecasts, is trying to at least deflect over optimism surrounding its share price.

CFO George Reyes compounded the situation by warning that revenue seasonality might hurt results, but that Google had no intention to slow expense growth, which will undoubtedly suppress margins.

As Barron's points out, "for a company with basically one revenue stream - selling online ads - and serious competition from Microsoft, Yahoo! and others, Google is in danger of running out of oxygen."

Will we see Google trade at $317.80 again?

We don't know ... but $250 looks awfully inviting if we don't.

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1. Crude Oil Spikes to New HighCrude oil futures are poised to spring higher during what is expected to be active trading this week. At the New York Mercantile Exchange, oil for delivery in September traded at a record high $ 63.25 as fresh terrorism fears hit the...
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Wednesday, 10 August 2005 12:00 AM
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