Tags: Oil | Hits | $72 | $80 | the | Way?

Oil Hits $72 - $80 on the Way?

Thursday, 20 April 2006 12:00 AM

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On Monday it seemed that the stock market could be in for a rough week.

Among factors working against it: rising energy prices, an uncertain earnings picture and the possibility that the recently released minutes of late March's Federal Reserve meeting would indicate a continuation of interest rate hikes.

Well, energy prices have indeed risen - as crude prices soared north of $72 a barrel on Wednesday.

Hit Americans in the pocketbook, and they sit up and pay attention. Consequently, rising energy prices will continue to take center stage in the U.S. economy and in the financial markets.

However, this week, better-than-expected corporate earnings and the FOMC minutes led many to believe that the Fed might consider ending the rate hikes if inflation remains manageable.

In early Wednesday trading, stocks looked like they would trend downward after the U.S. Labor Department announced that consumer prices had risen at the fastest rate in a year. And news that oil prices were cresting to record highs didn't help matters.

But inflation anxiety dissipated, triggering the market's biggest gain since April 2005, as minutes from the Fed's latest policy meeting showed rate increases could end soon.

Meanwhile, U.S. stocks ended the day way up:

"Earnings have been very strong for companies across the board, so it's a nice environment for the market as long as the Fed is done with their tightening," Gus Sauter told Bloomberg News on Wednesday. He oversees $450 billion as chief investment officer at Pennsylvania-based Vanguard Group Inc.

According to Bloomberg, 24 S&P 500 companies have issued quarterly results over the past three days, and 14 of those firms have seen their stock prices go up in that time period.

During that time, 1.75 billion shares changed hands on the New York Stock Exchange - 6.2% more than the three-month daily average.

Here's a rundown of some of the companies that reported earnings this week:

According to Bloomberg and other news outlets, crude oil for May delivery rose to a record $72.40 a barrel in New York after the U.S. Energy Department said oil and gasoline inventories had declined.

The news boosted oil and energy stocks - Valero Energy Corp., the largest U.S. oil refiner, saw its stock price rise $1.54 to $68.99.

And according to experts, Americans shouldn't expect oil prices to come down anytime soon. The U.S. Energy Department this week said that gasoline could easily reach $3 per gallon this summer. Says Paul Lawrence Vann of Laurel Wreath Communications, and a former Capital Hill staffer, "The oil problem America is faced with today is directly related to the war in Iraq. The oil ministers who represent OPEC know they can't militarily defeat the U.S. and Great Britain, but they hold the cards and the key to oil, and lots of it. As a former financial analyst with Mobil Chemical Company, I know the oil companies are simply passing on the risk associated with protecting the reserves and the shipment of oil products to our shores. ExxonMobil made $10 billion during one quarter of 2005, which, by the way, was the height of oil prices just after the hurricane season. Legislation alone will not decrease oil prices - alternative fuel sources are the answer."

And other experts agree.

Energy economics expert Lester Lave, professor of economics at the Tepper School of Business at Carnegie Mellon University, says the only thing that will bring gas prices down over the long-term is further development and use of alternatives to petroleum (such as ethanol and plug hybrids).

"Unless Americans drive less and reduce demand," says Lave, "high gas prices will certainly continue. And while many petroleum companies have been reluctant to put billions of dollars toward alternative energy facilities, fearing that OPEC will slash prices, only a commitment to increased fuel efficiency holds the key to relief for the nation and consumers at the pump." 

In recent months, General Motors has taken quite a beating in the media. Here at MoneyNews, we have chronicled the auto giant's struggles with declining profits, loss of market share, rising health-care costs and job-cutting woes.

It is obvious that the once-mighty automotive manufacturer has been in the depths of a serious malaise so far in 2006.

But GM got some good news yesterday, as the firm posted an operating profit in the first quarter of 2006.

"The embattled automaker reported that it earned $152 million, or 26 cents a share, excluding all special items in the period, such as a $1 billion pre-tax charge related to an agreement to change health-care coverage for hourly retirees and their families," says CNNMoney.

General Motors stock price jumped after the news, gaining 73 cents - or 3.5% - in pre-market trading after the company announced its quarterly numbers.

Of course, not all the news was positive.

GM recorded an operating loss of $529 million, or 94 cents a share. But that's still better than 2005, when GM lost $988 million - $1.75 a share - excluding special items from a year earlier. The company also announced an adjusted loss of $721 million on the quarter from its auto operations, including $484 million from recent charges related to benefit settlements.

"North American auto operations lost $946 million in the first quarter of 2006, including the health care charge," adds CNN. "Still that was an improvement from the adjusted loss of $1.5 billion at that operation a year ago."

Meanwhile, the company's European operations returned to profitability, as did its enterprises in the Asian-Pacific region, Latin America, Africa and the Middle East.

"We're pleased to see the significant progress in our first-quarter results and in the implementation of all four elements of our North American turnaround plan," GM Chairman and CEO Rick Wagoner said in the company's statement.

"And we remain focused on accelerating our return to profitability and cash generation. There is clearly more work to be done," Wagoner added.

"Our next key priority is to reach a consensual agreement with Delphi and its unions that makes sense for all of the parties. The agreement we recently reached with the UAW on the attrition program is a significant step in achieving this objective, but there is more important work to do."

Warren Buffett-owned MidAmerican Energy Co., the largest utility in Iowa, has won approval to construct a cluster of wind turbines capable of producing up to 545 megawatts of energy - enough to power approximately 200,000 homes.

The green light from state regulators will allow Buffett's firm to double the current electricity production garnered from wind turbines.

Buffett's Berkshire Hathaway purchased MidAmerican in 1999 for $9.14 billion and has since injected $2.7 billion into the company's efforts to lay almost 18,00 miles of natural gas pipelines throughout the United States.

Now "MidAmerican is using wind turbines to comply with an Iowa requirement that utilities in the state have 1,000 megawatts of generating capacity from renewable sources by 2010," according to Bloomberg News.

"The Des Moines, Iowa-based utility operates more wind turbines than any other regulated utility, with 360.5 megawatts of capacity completed last year. Record oil prices are accelerating the push for new forms of energy."

In addition to wind-powered energy, "demand for fuels made from corn, sugar and soybeans will quadruple in the next three decades - a period when oil use will increase by less than 60%, the International Energy Agency estimates," Bloomberg reports.

Vinod Khosla is the founder of Sun Microsystems, the world's fourth-largest maker of computer servers for networks. He is now sinking his own money into ethanol fuel research.

"Ethanol is a huge market," Khosla told Bloomberg. "I think it can replace all of our petroleum needs, or at least a majority. That creates a very big opportunity that's very susceptible to technology."


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(Headlines - scroll down for full stories) On Monday it seemed that the stock market could be in for a rough week. Among factors working against it: rising energy prices, an uncertain earnings picture and the possibility that the recently released minutes of late March's...
Thursday, 20 April 2006 12:00 AM
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