Beyond the crisis in Libya, what's driving up oil prices is concern about Saudi Arabia.
The world's largest oil exporter is dipping into its excess reserves to make up for lost exports from Libya, where a rebel uprising has largely shut down production. And the Saudis are clamping down on similar, yet smaller, protests at home.
That unnerves energy markets because Saudi Arabia's ability to ramp up production, known as spare capacity, serves a cushion, both real and psychological, when world supplies tighten. And if civil unrest -- or an act of terrorism -- were to disrupt the kingdom's oil output, the price of crude would likely surge well above today's prices.
Oil futures fell Tuesday as OPEC ministers, including Saudi Arabia's Ali Naimi, discussed an increase in production. The benchmark in the U.S., West Texas Intermediate crude for April delivery, fell 42 cents to settle at $105.02 per barrel. Brent crude dropped $1.98 to settle at $113.06 per barrel on the ICE Futures exchange in London.
Goldman Sachs estimated that OPEC's spare production has dropped by about 1 million barrels per day in the past three months. Part of that is Libya and part is increased world demand. The concern is the cartel won't be able to keep prices in check if another conflict disrupts world supplies, analyst David Greely said.
Greely expects WTI and Brent to both hold above $100 per barrel during the next 12 months. Oil prices have jumped about $20 per barrel since mid-February when the Libyan uprising escalated.
With the entire region in upheaval, it would be a mistake to think the Saudis have shielded themselves from the anger that ousted leaders in Egypt and Tunisia, said Barclays analyst Helima Croft. Demonstrations in neighboring Bahrain have oil traders fearing the unrest could spill across the border. The rebellions in North Africa and the Middle East have taken the world by surprise, forcing a fundamental realignment of the region's political power.
More than 17,000 Saudis have signed up on a Facebook page calling for a "Day of Rage" on Friday, according to Barclays Capital. That's despite King Abdulla's recent announcement of a $36 billion program for employment, housing and education.
"You could say, they're rich, Abdulla's popular, no problem," Croft said. But anything is possible. "If anyone had asked us in January whether (Egypt's) Hosni Mubarak would be gone, most of us would have said 'absolutely not.'"
Analyst and oil trader Stephen Schork said the market is waiting for a sign that the entire region is headed toward a peaceful outcome that will keep crude exports flowing. "That's months away," he said.
Libya produced 1.6 million oil barrels per day before fighting forced companies to evacuate workers. Most of that production is shut down.
Ali Naimi, the Saudi oil minister, said the kingdom has about 3.5 million barrels per day of spare capacity that could be brought online.
"Saudi Arabia will continue to reliably meet the world's petroleum needs," minister Ali Naimi said.
Nigeria also offered help if OPEC asks, said Levi Ajuonoma, a spokesman for the state-run Nigerian National Petroleum Corp.
Boosting production now might cool off overheated energy prices, but experts warn OPEC could weaken its ability to manage global supplies later this year.
Michael Lynch, president of Strategic Energy & Economic Research, said the main concern in the oil market is whether the governments of Saudi Arabia and Iran -- OPEC's No. 2 producer -- will be dramatically affected by the wave of pro-reform uprisings.
Raising production now "would have a minor calming effect on the market," Lynch said. "Other than that, it's not going to take us back below $100" per barrel.
None of this is good news for drivers in the U.S., where gasoline pump prices climbed for the 21st straight day, adding nearly a penny on Tuesday to $3.517 per gallon. A gallon of regular is 39.7 cents more expensive than a month ago and 76.4 cents higher than a year ago.
In other Nymex trading for April contracts, heating oil lost 5.5 cents to settle at $3.011 per gallon and gasoline futures gave up 5.7 cents to settle at $2.947 per gallon. Natural gas lost 6.3 cents to settle at $3.864 per 1,000 cubic feet.
investors
Financial companies pushed stock indexes higher Tuesday on signs that banks may soon raise their dividends.
Bank of America Corp. gained 4.7 percent, the most of the 30 stocks that make up the Dow Jones industrial average, after chief executive Brian Moynihan told an investor's meeting that the bank could earn more money over the next two years as its business stabilizes. That led analysts to note that large consumer banks may raise their dividends. Banks slashed dividends during the 2008 financial crisis to cut costs.
Financial stocks in the S&P 500 index rose 2.2 percent, the most of any of the index's 10 company groups. American Express Co. gained 3.5 percent, and JPMorgan Chase & Co. gained 2.6 percent.
Falling oil prices also helped stocks move higher. Oil prices dipped 0.5 percent to $105 a barrel after Kuwait's oil minister said that OPEC members are in informal talks about raising oil output as the conflict in Libya continues.
"Rapidly higher moving oil prices can substantially impact demand," said Oliver Pursche, president of Gary Goldberg Financial Services. It's something OPEC members are "very, very much aware of and want to avoid."
Oil prices have risen 9 percent so far this month. That has pushed stocks lower as investors worry that higher gas prices will dampen the economic recovery.
The Dow Jones industrial average gained 124.35 points, or 1 percent, to 12,214.38. The S&P 500 rose 11.69, or 0.9 percent, to 1,321.82.
Energy companies were the only group in the S&P index to fall, losing 0.6 percent.
The Nasdaq composite rose 20.14, or 0.7 percent, to 2,765.77.
Bond prices fell, pushing yields higher. The yield on the 10-year Treasury note rose to 3.54 percent from 3.51 percent late Monday.
Brown-Forman Corp. rose 4.7 percent after the liquor company said its net income rose 30 percent in the latest quarter thanks to growing international sales and a strong performance by its flagship Jack Daniel's brand.
Urban Outfitters Inc. fell 16.7 percent after the retailer's earnings missed Wall Street's expectations due to higher expenses.
Netflix fell 5.8 percent after Facebook announced that it will allow members to stream movies through its pages, a direct competition to Netflix's popular on-demand offering.
Three stocks rose for every one that fell on the New York Stock Exchange. Consolidated volume came to 4.3 billion shares.
Bank of America Corp. gained 4.7 percent, the most of the 30 stocks that make up the Dow Jones industrial average, after chief executive Brian Moynihan told an investor's meeting that the bank could earn more money over the next two years as its business stabilizes. That led analysts to note that large consumer banks may raise their dividends. Banks slashed dividends during the 2008 financial crisis to cut costs.
Financial stocks in the S&P 500 index rose 2.2 percent, the most of any of the index's 10 company groups. American Express Co. gained 3.5 percent, and JPMorgan Chase & Co. gained 2.6 percent.
Falling oil prices also helped stocks move higher. Oil prices dipped 0.5 percent to $105 a barrel after Kuwait's oil minister said that OPEC members are in informal talks about raising oil output as the conflict in Libya continues.
"Rapidly higher moving oil prices can substantially impact demand," said Oliver Pursche, president of Gary Goldberg Financial Services. It's something OPEC members are "very, very much aware of and want to avoid."
Oil prices have risen 9 percent so far this month. That has pushed stocks lower as investors worry that higher gas prices will dampen the economic recovery.
The Dow Jones industrial average gained 124.35 points, or 1 percent, to 12,214.38. The S&P 500 rose 11.69, or 0.9 percent, to 1,321.82.
Energy companies were the only group in the S&P index to fall, losing 0.6 percent.
The Nasdaq composite rose 20.14, or 0.7 percent, to 2,765.77.
Bond prices fell, pushing yields higher. The yield on the 10-year Treasury note rose to 3.54 percent from 3.51 percent late Monday.
Brown-Forman Corp. rose 4.7 percent after the liquor company said its net income rose 30 percent in the latest quarter thanks to growing international sales and a strong performance by its flagship Jack Daniel's brand.
Urban Outfitters Inc. fell 16.7 percent after the retailer's earnings missed Wall Street's expectations due to higher expenses.
Netflix fell 5.8 percent after Facebook announced that it will allow members to stream movies through its pages, a direct competition to Netflix's popular on-demand offering.
Three stocks rose for every one that fell on the New York Stock Exchange. Consolidated volume came to 4.3 billion shares.
Supply Management
WASHINGTON (AP) -- U.S. manufacturers expanded at the fastest pace in nearly seven years last month, but a sudden rise in the price of raw materials could threaten their profits.
The Institute for Supply Management said Tuesday that its index of manufacturing activity rose to 61.4 in February, up from 60.8 the previous month. That's the highest reading since it reached the same level in May 2004. The ISM's index bottomed out at 33.3 in December 2008, its lowest point in nearly 30 years.
Any reading above 50 indicates expansion. The manufacturing sector has now expanded for the past 19 months.
The rebound in manufacturing is gaining momentum, the report showed. The new orders index rose to a seven-year high. A measure of order backlogs rose to its highest level in a year. And inventories are shrinking, both at manufacturers and their customers. All are signs that factory output is likely to keep growing.
"The recovery in the sector is both robust and on track," said Ian Shepherdson, an economist at High Frequency Economics.
Solid growth overseas, particularly in developing countries such as China, Brazil and India, has also helped by boosting exports. A measure of export orders rose to its highest level in more than 22 years.
And an employment index in the ISM's report topped 60 for only the third time in a decade, evidence that manufacturers are adding employees at a rapid clip.
But prices paid for steel, plastics, rubber and other raw materials rose for a third straight month, a sign that increasing production costs could spark higher inflation.
"Growth may not be as robust as we would like because of these rising commodity prices," said Brian Levitt, an economist at OppenheimerFunds.
Pricier gas and food reduce the amount of money consumers can spend on discretionary items such as computers and other electronics. Manufacturers may also eat some of the higher costs, which would cut into profit margins, Levitt said.
"While there are many positive indicators, there is also concern as industries related to housing continue to struggle and the prices index indicates significant inflation of raw material costs across many commodities," said Norbert Ore, chair of the ISM's survey committee.
On Capitol Hill, Federal Reserve Chairman Ben Bernanke said Tuesday that rising energy prices "don't pose a significant risk to the recovery or to overall inflation."
But a prolonged rise in the price of oil or other commodities would represent a "threat" to economic growth, Bernanke acknowledged.
The price of materials is another challenge for the struggling construction industry. The Commerce Department said Tuesday that spending by builders fell in January to a seasonally adjusted annual rate of $791.8 billion.
That's slightly above the decade low of $791.5 billion hit in August, and about half of the $1.5 trillion level that economists believe would signal a healthy construction sector. It could be another four years before construction recovers to that level, economists say.
Factories have rebounded at a healthy clip since the recession ended in June 2009. Americans have resumed spending on cars, appliances and other big-ticket items and businesses are investing in more industrial machinery and other heavy equipment.
U.S. automakers are reporting healthy sales increases, after stumbling badly in the recession. General Motors Co. said Tuesday that its February sales soared 49 percent.
Deere & Co., the world's largest manufacturer of agriculture equipment, said last month that its quarterly net income more than doubled as rising prices for corn, wheat and other crops encouraged U.S. farmers to buy new machinery.
The Institute for Supply Management, based in Tempe, Ariz., compiles its manufacturing index by surveying about 300 purchasing executives across the country.
AP Economics Writers Jeannine Aversa and Martin Crutsinger contributed to this report.
The Institute for Supply Management said Tuesday that its index of manufacturing activity rose to 61.4 in February, up from 60.8 the previous month. That's the highest reading since it reached the same level in May 2004. The ISM's index bottomed out at 33.3 in December 2008, its lowest point in nearly 30 years.
Any reading above 50 indicates expansion. The manufacturing sector has now expanded for the past 19 months.
The rebound in manufacturing is gaining momentum, the report showed. The new orders index rose to a seven-year high. A measure of order backlogs rose to its highest level in a year. And inventories are shrinking, both at manufacturers and their customers. All are signs that factory output is likely to keep growing.
"The recovery in the sector is both robust and on track," said Ian Shepherdson, an economist at High Frequency Economics.
Solid growth overseas, particularly in developing countries such as China, Brazil and India, has also helped by boosting exports. A measure of export orders rose to its highest level in more than 22 years.
And an employment index in the ISM's report topped 60 for only the third time in a decade, evidence that manufacturers are adding employees at a rapid clip.
But prices paid for steel, plastics, rubber and other raw materials rose for a third straight month, a sign that increasing production costs could spark higher inflation.
"Growth may not be as robust as we would like because of these rising commodity prices," said Brian Levitt, an economist at OppenheimerFunds.
Pricier gas and food reduce the amount of money consumers can spend on discretionary items such as computers and other electronics. Manufacturers may also eat some of the higher costs, which would cut into profit margins, Levitt said.
"While there are many positive indicators, there is also concern as industries related to housing continue to struggle and the prices index indicates significant inflation of raw material costs across many commodities," said Norbert Ore, chair of the ISM's survey committee.
On Capitol Hill, Federal Reserve Chairman Ben Bernanke said Tuesday that rising energy prices "don't pose a significant risk to the recovery or to overall inflation."
But a prolonged rise in the price of oil or other commodities would represent a "threat" to economic growth, Bernanke acknowledged.
The price of materials is another challenge for the struggling construction industry. The Commerce Department said Tuesday that spending by builders fell in January to a seasonally adjusted annual rate of $791.8 billion.
That's slightly above the decade low of $791.5 billion hit in August, and about half of the $1.5 trillion level that economists believe would signal a healthy construction sector. It could be another four years before construction recovers to that level, economists say.
Factories have rebounded at a healthy clip since the recession ended in June 2009. Americans have resumed spending on cars, appliances and other big-ticket items and businesses are investing in more industrial machinery and other heavy equipment.
U.S. automakers are reporting healthy sales increases, after stumbling badly in the recession. General Motors Co. said Tuesday that its February sales soared 49 percent.
Deere & Co., the world's largest manufacturer of agriculture equipment, said last month that its quarterly net income more than doubled as rising prices for corn, wheat and other crops encouraged U.S. farmers to buy new machinery.
The Institute for Supply Management, based in Tempe, Ariz., compiles its manufacturing index by surveying about 300 purchasing executives across the country.
AP Economics Writers Jeannine Aversa and Martin Crutsinger contributed to this report.
Stocks suffered steep losses as oil prices
NEW YORK (AP) -- Stocks suffered steep losses as oil prices surged on Tuesday, renewing worries that higher fuel prices could hobble the economic recovery.
Oil rose $2.66 to settle at $99.63 a barrel amid unrest in Iran and Libya. Iran clamped down on anti-government protesters and forces loyal to Libya's leader Moammar Gadhafi launched counter-attacks against rebels expanding control over the country.
Prices jumped 13 percent last week with a rise in turmoil across North Africa and the Middle East. That pushed gas prices up 20 cents per gallon. As a result, Americans are now paying roughly $75 million more per day to fill their gas tanks than a week ago.
Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee that a sustained increase in crude prices could pose a risk to the recovery. But he predicted only a temporary increase in inflation, not runaway prices. The Fed chief also said he expected the economy to grow this year, although not enough to lower the 9 percent unemployment rate.
The Commerce Department reported that builders began work on fewer homes, offices and commercial projects in January. The annual rate was near its decade low, set in August.
The Dow Jones industrial average lost 168.32 points, or 1.4 percent, to 12,058.02.
The Standard & Poor's 500 index fell 20.89, or 1.6 percent, to 1,306.33. The Nasdaq composite fell 44.86, or 1.6 percent, to 2,737.41.
Three stocks fell for every one that rose on the New York Stock Exchange. Consolidated trading volume came to 4.8 billion shares.
Fifth Third Bancorp dropped 4.5 percent after the regional bank said that the Securities and Exchange Commission was investigating its accounting and reporting of commercial loans.
Natural gas driller Range Resources Corp. lost 7 percent after the company's fourth-quarter revenue figures came in below analysts' expectations. Natural gas prices have been in a slump for the past year as a result of an oversupply in the market.
AutoZone Inc. rose 2 percent after the auto-parts retailer said its second-quarter income rose 20 percent as its revenue increased.
On Monday, stable oil prices and more signs of a stronger economy helped lift. All three major stock indexes ended February higher, marking their third straight month of gains. The S&P 500 index had its best start to any year since 1998.
Oil rose $2.66 to settle at $99.63 a barrel amid unrest in Iran and Libya. Iran clamped down on anti-government protesters and forces loyal to Libya's leader Moammar Gadhafi launched counter-attacks against rebels expanding control over the country.
Prices jumped 13 percent last week with a rise in turmoil across North Africa and the Middle East. That pushed gas prices up 20 cents per gallon. As a result, Americans are now paying roughly $75 million more per day to fill their gas tanks than a week ago.
Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee that a sustained increase in crude prices could pose a risk to the recovery. But he predicted only a temporary increase in inflation, not runaway prices. The Fed chief also said he expected the economy to grow this year, although not enough to lower the 9 percent unemployment rate.
The Commerce Department reported that builders began work on fewer homes, offices and commercial projects in January. The annual rate was near its decade low, set in August.
The Dow Jones industrial average lost 168.32 points, or 1.4 percent, to 12,058.02.
The Standard & Poor's 500 index fell 20.89, or 1.6 percent, to 1,306.33. The Nasdaq composite fell 44.86, or 1.6 percent, to 2,737.41.
Three stocks fell for every one that rose on the New York Stock Exchange. Consolidated trading volume came to 4.8 billion shares.
Fifth Third Bancorp dropped 4.5 percent after the regional bank said that the Securities and Exchange Commission was investigating its accounting and reporting of commercial loans.
Natural gas driller Range Resources Corp. lost 7 percent after the company's fourth-quarter revenue figures came in below analysts' expectations. Natural gas prices have been in a slump for the past year as a result of an oversupply in the market.
AutoZone Inc. rose 2 percent after the auto-parts retailer said its second-quarter income rose 20 percent as its revenue increased.
On Monday, stable oil prices and more signs of a stronger economy helped lift. All three major stock indexes ended February higher, marking their third straight month of gains. The S&P 500 index had its best start to any year since 1998.
Subscribe to:
Posts (Atom)