Oil prices have risen to record levels in recent weeks, with traders in London and New York paying more than $147 a barrel for crude oil at its peak on 11 July.
But since then, prices have fallen on both sides of the Atlantic, dipping almost 13% to a low of $128.23 for a barrel for US light sweet crude on 18 July, and down 10% to $129.66 for Brent crude.
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Why have oil prices been falling?
Oil prices have risen to record levels in recent weeks, with traders in London and New York paying more than $147 a barrel for crude oil at its peak on 11 July.
But since then, prices have fallen on both sides of the Atlantic, dipping almost 13% to a low of $128.23 for a barrel for US light sweet crude on 18 July, and down 10% to $129.66 for Brent crude.
Crude oil prices affect the wholesale cost of the petrol and diesel paid for by the major retailers. A number of those firms have passed on the lower prices to motorists at their forecourts.
Why did oil prices fall last week?
The perception last week that the slowing US economy could trigger a worldwide economic slowdown had clear implications on the expected demand for oil.
Countries such as India and China depend on the US, Europe and Japan as major markets for their manufactured goods and services.
If demand for their goods declines, as is expected, so too will their thirst for the oil and fuel needed to produce the products.
Another factor helping to cut oil prices was on the supply side, where there were indications that tensions were easing between oil-producer Iran and the US over its nuclear programme.
This reduced fears that the supply of crude oil from Iran could be interrupted.
Traders also pointed to news that a Chevron oil pipeline in Nigeria had reopened following an attack on it in June.
Are these the only factors that determine oil prices?
No. The price of oil on the international markets is determined by a combination of forces.
There are the so-called fundamental factors of supply and demand which are expected to keep prices high in the longer term.
On the demand side there is the rising need for oil from the ever-expanding economies of India and China, which need more fuel oil to run their factories and more petrol for a growing number of motor vehicles.
On the supply side, there are concerns that it is taking longer than before to develop new oil fields, an average of at least 10 years, so it is difficult to increase output quickly to meet increasing demand.
This is exacerbated by critical shortages of skilled oil engineers, and the limited investments made by many state-owned oil companies who control the vast majority of the world’s oil production.
In the even longer term, there are worries that we may be reaching the limits of the world’s finite oil resources and that production could begin to fall in the decades to come.
Can these explain the sudden changes in oil prices?
Not really, and crude oil is something of a special case.
Oil is traded on futures markets, making it more vulnerable to the kind of speculation that can move prices by as much as $5 a barrel in a single day.
According to Dr Manouchehr Takin of the Centre for Global Energy Studies this volatility is caused by oil traders.
He says that oil traders are making decisions to buy or sell oil on a minute-by-minute basis, and are much more influenced by rumours and stories than their counterparts trading shares on stock markets.
“Perception is the key word here,” he said. “Because the fundamentals of the oil market don’t change every minute”.
It is the perception of changes in either the demand or supply of oil that drives and fans market rumours.
What’s the link between crude costs and pump prices?
The price of crude oil is a significant factor determining the price that retailers pay for their fuel.
As well as the cost of the raw material, the cost of refining the oil also needs to be factored in, as well as the level of demand for the refined product.
According to industry experts Platt’s, the wholesale price of fuel also fell substantially last week.
The price of refined diesel, for example, has fallen by 8.3% since it reached an all-time high on 11 July of $1,241 per metric tonne, according to Platt’s data .
Is the sudden drop in prices going to keep going?
Well, crude oil prices have been on the way up again this week after traders suggested that Tropical Storm Dolly could affect oil production in the Gulf of Mexico.
Dolly was cited as the primary reason for a $1 rise in the price of a barrel of oil on Tuesday, as oil producers began evacuating some of their staff from facilities that could be in the storm’s path.
Tensions between Iran and the international community were also deemed to be rising, dispelling last week’s optimism.
And as for one of the key fundamentals of the oil market - demand from China - government figures showed that its imports of crude oil were 3.2% higher in June than a year earlier.
This combination of factors led some to suggest last week’s fall in oil prices was only a temporary situation.
“There’s been no slowdown in Chinese demand growth, and the Iran situation remains fluid,” said energy analyst Victor Shum from Purvin & Gertz.
“We’ve had a correction, but I expect a resurgence in prices in the near-term.”
Paulson Says Fannie, Freddie Stability Is 'Critical' to Aiding Financial Markets
By MAYA JACKSON RANDALL
July 22, 2008
WASHINGTON -- The stability of Fannie Mae and Freddie Mac is key to erasing underlying uncertainty in U.S. financial markets and making way for an economic recovery, Treasury Secretary Henry Paulson said Tuesday, while voicing confidence that Congress will approve a rescue plan for the mortgage giants this week.
"Because of their size and scope, Fannie and Freddie's stability is critical to financial market stability," he said in a speech at the New York Public Library. "Their continued activity is central to the speed with which we emerge from this housing correction and remove the underlying uncertainty in our financial markets and financial institutions."
Mr. Paulson's speech comes a little more than a week after the Treasury Department unveiled a plan that would increase the government's $2.25 billion credit lines to Fannie and Freddie and allow the government to buy an equity stake in either company. Lawmakers on Capitol Hill are expected to wrap the proposals into broader housing legislation.
"We need to act in the short term because the [government-sponsored enterprises] are vital institutions in our capital markets today and are vital to emerging from the housing correction."
Mr. Paulson said his "highest priority" is to stabilize the financial markets and financial institutions, which have been suffering this year in wake of the subprime mortgage crisis and related credit crunch.
"Today our No. 1 priority is market stability as we work through the current market stress," he said.
As part of his efforts to stabilize the financial system, he said he had no choice but to ask Congress for new authorities to prop up battered mortgage finance giants Fannie Mae and Freddie Mac.
"I would rather not be in the position of asking for extraordinary authorities to support the GSEs," he said. "But I am playing the hand that I have been dealt."
Mr. Paulson said he has no plans to access either of the GSE backstops he proposed. If it were to become necessary to use the new authorities, "we would do so only under terms and conditions that protect the U.S. taxpayer and are agreed to by both Treasury and the GSE," he said.
Meanwhile, Mr. Paulson said continued stresses in the financial markets should be expected until the housing market fully stabilizes. Still, he said the failure of IndyMac Bank shouldn't lead people to believe the U.S. banking system is at risk. "The American people have every reason to remain confident that the U.S. banking system is sound," he said, adding that 99% of the country's banks are well-capitalized.
He added that periods of economic difficulty aren't new. "We will work through this period, as we always do," he said.
At the same time, he urged banks to continue to raise capital, noting that U.S. financial institutions have already raised more than $150 billion. Mr. Paulson said it will take "additional time" to work through the current market turmoil as the markets and banks reassess risk and re-price securities across a number of asset classes and sectors. Meanwhile, "additional bumps in the road" can be expected," he added.
Mr. Paulson highlighted the need for improved market infrastructure and increased transparency, especially in the over-the-counter derivatives market and the tri-party securities repurchase system.
He also said "we need to get to the point where large, complex financial institutions are not perceived to be too big or too interconnected to fail."
The Treasury secretary also called for new powers to manage the impact of the failures of large non-depository financial institutions, such as large hedge funds.
"Over the last few weeks, the need to move more quickly toward an optimal regulatory structure that establishes a prudential financial regulatory system, focused on promoting long-term market stability, has become all the more apparent," he said.
Huge oil trading loss sinks energy trader SemGroup
By Robert Campbell
Jul 22, 2008
NEW YORK (Reuters) - SemGroup LP declared bankruptcy on Tuesday after $3.2 billion in oil trading losses torpedoed the formerly 12th-largest private U.S. company.
The Tulsa-based company racked up the massive losses as oil prices ran up record gains, undercutting short crude futures positions SemGroup bought to hedge against its 500,000 barrel-per-day trading business.
To meet obligations, SemGroup plans to sell off oil and natural gas gathering, transportation, and storage assets worth an estimated $6.14 billion that were purchased in a whirlwind of acquisitions since it was founded in 2000.
"We have determined that the best way to maximize value for our creditors is to undertake a sales process that will transition our valuable businesses to well-established companies," Terry Ronan, SemGroup's acting chief executive, said in a statement.
SemGroup took a $2.4 billion loss on July 16 after it transferred its New York Mercantile Exchange oil futures trading account to Barclays Plc, converting what they called "loss contingencies" into an actual loss.
Included in the NYMEX loss was $290 million owed to SemGroup by a trading company owned by co-founder and former chief executive Thomas Kivisto, who was placed on administrative leave on July 17.
Securities legislation limits publicly traded company executives from extensive dealings with their firms, but experts said privately held companies have more flexibility.
"They can't do anything illegal. But there is no particular disclosure to anyone apart from any contractual agreements that they may have with investors," said Kenneth Froewiss, a professor of finance at New York University.
SemGroup had engaged in regular hedging transactions with BOK Financial Corp, where Kivisto had been a board member since 2006 before resigning on July 16. As of the end of 2007, SemGroup had hedged 21 million barrels of crude oil with BOK, which had a fair value of negative $130 million.
As of the end of March, this position was worth negative $88 million, said BOK spokesman Jesse Boudiette, who declined to comment on BOK's current exposure to SemGroup saying the bank would not speak publicly about individual clients.
Since going public just over a year ago, SemGroup Energy's stock has lost 72 percent of its value, most of that in the past five trading days. The stock closed at $22.69 on July 16, the day before Semgroup Energy disclosed SemGroup LP was having liquidity issues, and ended Tuesday at $8.28.
BIG LOSSES
SemGroup, ranked the No. 12 private U.S. company by Forbes.com in a 2007 article, also took $850 million in losses on July 17 when its over-the-counter hedging program was marked to market. It listed liabilities of $7.53 billion in its bankruptcy filing, including $3.1 billion of total debt $2 billion of secured debt and $594 million in unsecured notes.
SemGroup's financial difficulties were disclosed by its publicly traded affiliate SemGroup Energy Partners LP last week, when it warned that a liquidity crisis at its parent could lead to bankruptcy.
SemGroup Energy Partners management said it was confident the partnership could survive despite SemGroup's bankruptcy and would seek new business from third parties. The company's board has also authorized management to consider a sale or merger.
SemGroup Energy Partners also warned it was not ready to say if it would make a cash distribution to unitholders in the second quarter, though its management believes parent SemGroup will continue to use its fee-based assets to maintain operations while in bankruptcy.
Assured Guaranty Plunges, Bond Risk Soars on Review
By Christine Richard and Shannon D. Harrington
July 22 (Bloomberg) -- Assured Guaranty Ltd., one of two bond insurers with a AAA ranking from the three major ratings companies, fell 40 percent in New York trading after Moody's Investors Service said it may downgrade the firm.
The cost to protect against a default by Assured Guaranty soared to a record. Credit-default swaps on Financial Security Assurance Holdings Ltd., the unit of Europe's Dexia SA that was also placed under scrutiny by Moody's, also rose to a record.
Moody's review is a blow to Hamilton, Bermuda-based Assured Guaranty and Financial Security of New York, the only two bond insurers to maintain their top ratings as losses in the industry crippled competitors. The companies are dominating new municipal bond insurance and seeking to fend off Warren Buffett, whose new bond insurer was awarded a Aaa rating. Former market leaders MBIA Inc. and Ambac Financial Group Inc. have seen new business plunge after losing their top ratings.
``Potentially all the legacy companies are gone now,'' said Rob Haines, an analyst with CreditSights in New York. ``It has huge implications for the municipal bond market and for banks that may have to take another round of writedowns. It's just a mess.''
Shares Fall
Assured Guaranty fell $7.43 to $11.32 in New York Stock Exchange composite trading after Moody's said late yesterday it's reviewing the financial strength ratings of the companies, which had avoided ratings reviews while five competitors lost their top rankings this year because of escalating losses on securities linked to U.S. home loans. Earlier in the day, shares fell as much as 58 percent.
Moody's said it's reviewing the financial strength ratings of Assured and Financial Security because guarantees on certain structured finance securities ``may be inconsistent with the very low risk tolerance implied by a Aaa rating.''
Billionaire investor Wilbur Ross, who committed to invest as much as $1 billion in Assured Guaranty in February and took a seat on the board, said the insurer doesn't need to raise additional capital.
``There is no real justification for this review process, let alone for an actual downgrade,'' Ross said in an interview with Bloomberg Television. ``I believe the outlook for the company is extraordinarily good.''
Investor Demand
Assured Guaranty Chief Executive Officer Dominic Frederico said the company was ``concerned by Moody's announcement'' at a time when it ``is experiencing broad market acceptance and investor demand for our insured paper,'' according to a statement today. ``We believe it is important for investors to know that Moody's action is not at all reflective of a deterioration in Assured's capital base, credit exposure or earnings outlook.''
Credit-default swaps that protect holders of securities guaranteed by its main bond insurance unit, Assured Guaranty Corp., jumped to 20.5 percent upfront and 5 percent a year, from 16.5 percent initially and 5 percent a year yesterday, according to CMA Datavision. Contracts on Financial Security climbed 193 basis points to 840 basis points, CMA prices show.
The price on Assured Guaranty's credit-default swaps means it would cost $2.05 million upfront and $500,000 a year to protect $10 million in securities for five years.
Ratings Stripped
A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
Credit-default swaps on the insurers pay the buyer face value in exchange for the underlying securities or the cash equivalent in the event they can't make good on their guarantees or debt payments.
Bond insurers owned by MBIA, Ambac, Security Capital Assurance, FGIC Corp. and CIFG Holdings were stripped of their top ratings over the past six months as losses grew from securities backed by subprime mortgages.
Assured Guaranty and Financial Security escaped downgrades this year because the two insurers shunned guarantees on collateralized debt obligations backed by subprime mortgages. CDOs repackage assets such as mortgage bonds, loans and derivatives into new securities and have accounted for the biggest slice of the $467 billion of asset writedowns and credit losses since the start of 2007 at the world's biggest banks.
Financial Security and Assured Guaranty attracted more business during the first half as investors devalued guarantees from other companies, and state and local government borrowers chose to insure just 24 percent of the bonds sold through June, down from 49 percent a year earlier, according to data compiled by Thomson Reuters.
Ross's Commitment
Financial Security insured $33.1 billion of new U.S. municipal bonds in the first half while Assured Guaranty backed $17.6 billion. MBIA, the former market leader, guaranteed just $1.5 billion of bonds, according to the data.
Financial Security's parent Dexia contributed $500 million in capital to the insurer and extended a $5 billion line of credit after hedge fund manager Bill Ackman said he was betting against the company. Ackman, 42, who oversees hedge fund Pershing Square Capital Management, bet against MBIA and Ambac before their shares tumbled more than 90 percent during the past year.
Ross, 70, wouldn't be required to contribute $750 million of the $1 billion he'd committed to the company if Assured Guaranty were to lose its top credit rating, Frederico, 55, said during a conference call with investors. The $250 million already contributed would stay with Assured Guaranty, he said.
Moody's said Dexia's support ``may not be unconditional or sufficient to entirely mitigate potential risks.''
Credit-default swaps on Dexia today rose 10 basis points to 205 basis points, CMA data show. Dexia fell 12 percent to 8.45 euros in Brussels.
WaMu reports quarterly net loss of $3.33 billion
By Alistair Barr
July 22, 2008
SAN FRANCISCO (MarketWatch) -- Washington Mutual reported a net loss of $3.33 billion, or $6.58 a share, late Tuesday. That compares to net income of $830 million, or 92 cents a share, a year earlier. The nation's largest thrift said it boosted loan loss reserves by $3.74 billion to $8.46 billion during the latest quarter. The company also said that the remaining cumulative losses in its residential mortgage portfolios will be towards the upper end of the range it disclosed in April. Excluding one-time items, the lender said earnings per share would have been $3.34 in the second quarter. WaMu was expected to lose $1.05 a share, according to the average estimate of 12 analysts in a Thomson Reuters survey.
China to enhance foreign investments management, regulate forex inflow
BEIJING, July 19 (Xinhua) -- China will further strengthen management of foreign investment projects and check foreign exchange inflow in a bid to better control it, according to the country's top economic regulator.
The move will also safeguard the country's economic safety, protect ecological environment, optimize develop and reform mechanism, and prevent industrial monopolization, said the National Development and Reform Commission (NDRC) in a circular on Friday.
Projects that are not approved by the government, provide fake application materials, or use foreign exchanges improperly, will be punished.
Local governments will also investigate and supervise foreign enterprise-involved programs, including joint ventures, exclusively foreign-owned firms, bilateral cooperation projects, mergers and acquisition programs.
Meanwhile, regional economic regulators should look at the projects, monitor foreign exchange inflow channels, and enhance finance management of foreign enterprises.
Projects with severe environment contamination, high energy consuming, high resources consuming need stricter inspection and supervision.
China's cumulative foreign exchange reserve stood at 1.809 trillion U.S. dollars by the end of June, up 35.73 percent year on year, while foreign direct investment (FDI) rose 45.6 percent to 52.4 billion U.S. dollars in the first half from a year earlier.
China's economy slows but still expands at double-digit pace
17 July 2008
BEIJING: China's economic juggernaut slowed but still maintained double-digit growth in the first half of the year as it sought to tame inflation and absorb global setbacks, official data showed Thursday.
China's economy expanded by 10.4 per cent in the first half and 10.1 per cent in the second quarter, the National Bureau of Statistics said, down from growth of 11.9 per cent recorded for all of 2007.
Bureau spokesman Li Xiaochao said domestic inflation, problems with food supplies and global economic woes were among the chief concerns for China.
"Pressure for rapid price increases remains high, there are factors constraining steady agricultural production," Li said.
"The international financial situation is severe and there are uncertainties in world economic development."
Nevertheless, he said China's economy remained strong.
"The national economy maintains the momentum of steady and fast growth," he said.
China's consumer price index - the main gauge of inflation - rose 7.9 per cent in the first half of 2008, with food prices soaring 20.4 per cent, according to the bureau.
However, inflation has come off its 12-year highs seen earlier in the year, when it peaked at 8.7 per cent in February, which economists said was due to a raft of economic tightening measures that included interest rate hikes.
For June alone, inflation was 7.1 per cent, the bureau said.
"Consumer inflation pressure is easing as government measures such as price controls and increasing supplies start to take effect," said Qi Jingmei, an economist with the government's State Information Centre.
"There have been some worries that the economy is slowing down too fast, but the current growth rate is still within a normal range."
China had already released data last week showing the nation's trade surplus had fallen nearly 12 per cent in the first half, as exporters struggled with the global economic slowdown, particularly problems in the United States.
The appreciation of the yuan against the dollar, as well as curbs such as tariffs on exports imposed by the government to rein in the surplus, also contributed to the decline.
Jing Ulrich, chairman of China Equities for JPMorgan Securities, said that although the economy was slowing down, the government had the tools to maintain control.
"More moderate GDP growth and a narrowing trade surplus in June point to an export engine that is running more slowly, amid difficult conditions both at home and abroad," Ulrich said.
"Despite the multiple challenges of a global slowdown, high inflation and natural disasters, the Chinese authorities have a range of options for addressing the key domestic policy challenges."
China's fixed asset investments, the main indicator of state-funded spending on new productive capacity, rose 26.3 per cent in the first half of 2008 from a year earlier, the bureau said.
Industrial output, a key measure of activities in the nation's factories, expanded by 16.3 per cent in the first half and 16.0 per cent for June alone, according to the bureau.
Retails sales were up 21.4 per cent in the first six months, and 23.0 per cent in June.
- AFP
Hong Kong inflation soars 6.1% in June
By V. Phani Kumar
July 21, 2008
HONG KONG (MarketWatch) -- Hong Kong's consumer-price index-based inflation accelerated at a faster-than-expected 6.1% in June from the same month a year-earlier on higher food and energy costs, government data showed Monday. The increase compared with a CPI measure of 5.7% in May. A Reuters poll of analysts estimated June CPI increase at 5.8%.
Singapore June CPI estimated at a new 26-year high due to strong oil prices
July 21, 2008
SINGAPORE (Thomson Financial) - Soaring oil prices likely pushed Singapore's inflation to a fresh 26-year high in June, when the rise in consumer prices may have hit its peak, before it decelerates in the second half of the year as the effect of the goods and services tax hike wears off, economists said on Monday.
Consumer prices rose an average 8.0 percent last month from a year ago, based on Thomson IFR's poll of economists. The estimated June figure is faster than the 7.5 percent rise recorded in May.
Seasonally-adjusted, inflation may have slowed to 0.1 percent from May, compared with the 0.3-percent increase in May from April, economists said.
The Department of Statistics will release the data on Wednesday, July 23.
Oil prices continued to shoot up, crossing $140 a barrel during the month. The decision of neighbouring Malaysia to hike fuel prices by 40 percent in early June may have further pushed the cost of imported food for the city-state, said Selena Ling, economist at Oversea-Chinese Banking Corp.
The pass-through effect may be strong given that Singapore imports about 70 percent of its food requirements from Malaysia, and that food has a 23 percent weighting in the city-state's consumer price index basket, said United Overseas Bank (other-otc: UOVEY.PK - news - people ) economist Ng Shing Yi.
'Prices in the transport segment should edge up as private bus operators hiked their transport fares due to fuel costs. However, rebates in service and conservancy charges delivered in June should help to curb prices in the housing segment,' said Ng in a note.
Economists expect the inflation numbers to ease from July onwards after taking out the impact of the two-percentage-point GST hike, which caused the spike in consumer prices in the second half of 2007.
'We do not expect inflation to fall sharply,' said DBS Bank economist Irvin Seah. 'It is more likely to exhibit a downward crawl, especially with new sources of inflationary pressure, mainly policy-induced, coming into the picture.'
Seah said the setting up of new electronic road pricing (ERP), the hike in ERP charges and a new taxi fuel surcharge starting July will likely keep inflation high in the coming months, with the full-year average exceeding the government's 5.0 percent to 6.0 percent forecast range.
Asian Stocks Rise to 3-Week High as Credit, Oil Concerns Ease
By Chua Kong Ho and Chen Shiyin
July 23 (Bloomberg) -- Asian stocks rose, sending the regional benchmark to a three-week high, after Macquarie Group Ltd. said it made a ``solid'' start to the year, boosting speculation bank earnings will withstand tighter credit markets.
Macquarie, Australia's biggest securities firm, climbed the most in almost four months. Toyota Motor Corp. and Korean Air Lines Co. advanced after oil dropped to a six-week low yesterday. Komatsu Ltd., the world's No. 2 maker of earthmovers, rose after rival Caterpillar Inc. raised its sales forecast. Indian stock index futures surged after Prime Minister Manmohan Singh's government survived a confidence vote in parliament.
``It's now primarily a question of confidence in the financial sector and once that confidence is restored, we'll see equities bounce back,'' said Beat Lenherr, who oversees more than $20 billion of assets as Singapore-based chief global strategist at LGT Capital Management. ``Concerns over commodity prices, oil in particular, have gone away to some extent.''
The MSCI Asia Pacific Index gained 1.8 percent to 135.39 as of 12:54 p.m. in Tokyo, taking a three-day rally to 4.8 percent and poised for the highest close since July 1. About six stocks gained for each that declined today.
Japan's Nikkei 225 Stock Average climbed 1.3 percent to 13,349.37. Asahi Breweries Ltd., Japan's biggest brewer by sales, advanced after saying first-half profit beat its own forecast.
Most benchmark indexes in Asia rose today. The MSCI index has lost 14 percent this year, part of a global slump in equities that erased almost $13 trillion from an October record, as oil prices soared and the world's largest banks and securities firms reported more than $467 billion of writedowns and credit losses.
Global Concerns Easing
U.S. stocks rallied yesterday, sending the Standard & Poor's 500 Index 1.4 percent higher. Wachovia Corp., Bank of America Corp. and SunTrust Banks Inc. helped lenders extend a rebound from last week's nine-year low after Deutsche Bank analyst Mike Mayo said bank losses haven't spread ``as much as feared.'' Futures on the S&P 500 were little changed today.
``Earnings at U.S. financial companies aren't good but they're not the worst,'' said Naoki Fujiwara, who oversees the equivalent of $720 million as chief fund manager at Tokyo-based Shinkin Asset Management Co. ``Concern the situation will worsen has eased and the global financial market seems to have got out of the critical situation.''
Macquarie, which posted its slowest profit growth in two years in May due to writedowns on its European assets, gained 13 percent to A$52.80, the most since March 19.
Banks Lead Advance
Chief Executive Officer Nicholas Moore said ``Macquarie's businesses are performing relatively well despite market conditions deteriorating since this time last year,'' according to a statement before an annual shareholder meeting in Melbourne.
Other financial companies gained, on speculation credit- market losses will ease as the risk of holding corporate bonds fell in Asia. A gauge of financial stocks led gains among the MSCI Asia Pacific Index's 10 groups, contributing to 53 percent of the broader measure's advance.
Mitsubishi UFJ Financial Group Inc., Japan's largest bank by market value, advanced 2.7 percent to 1,013 yen. Mizuho Financial Group Inc., Japan's No. 2 bank by assets, climbed 3.8 percent to 580,000 yen. National Australia Bank Ltd., the nation's largest bank, climbed 5.6 percent to A$29.20.
Crude Oil, Yen
``There are a few detractors out there who think there's a lot more pain to be borne, but today they're losing,'' said Hans Kunnen, head of investment market research in Sydney at Colonial First State Global Management, which holds about $128 billion of assets. ``Oil price declines take the pressure off interest rate rises if they're sustained, and that's good for the banks.''
The cost of protecting Japanese and Australian corporate bonds from default declined, according to traders of credit- default swaps. The Markit iTraxx Japan index fell 9 basis points to 122, according to recent prices from Morgan Stanley.
Toyota gained 0.8 percent to 4,950 yen, while Honda Motor Co. climbed 3.6 percent to 3,730 yen, on speculation a decline in fuel costs will boost spending on automobiles.
Crude oil in New York dropped $3.09 a barrel to $127.95 a barrel yesterday, the lowest price since June 5. Oil was recently at $127.97 in after-hours trading.
The Nikkei newspaper reported today that Toyota's first-half sales fell 7 percent in North America and Europe due to soaring gasoline costs, citing an unidentified company official.
Airlines Climb
Japanese automakers also advanced on speculation a weaker yen will boost the value of their overseas sales when converted into local currency. The yen depreciated to as much as 107.45 in New York, the weakest since July 9, from 106.51 at the close of stock trading in Tokyo yesterday.
The 17-member Bloomberg Asia Pacific Airlines Index gained 3.4 percent today, the biggest gain since March 25, on the expectation jet-fuel costs will drop.
Korean Air Lines, South Korea's largest airline, gained 4.8 percent, the most since July 10, to 47,650 won. Air New Zealand Ltd. rose 4.4 percent to NZ$1.20 in Wellington. Qantas Airways Ltd., Australia's biggest carrier, climbed 8 percent to A$3.66 in Sydney, the biggest increase since Nov. 22, 2006.
The region's biggest oil companies declined. Inpex Holdings Inc., Japan's largest explorer, dropped 4 percent to 1.109 million yen. Woodside Petroleum Ltd., Australia's No. 2 oil and gas producer, slid 1.1 percent to A$56.49.
Komatsu climbed 2.8 percent to 2,965 yen, the highest since June 27. Hitachi Construction Machinery Co. rose 3.9 percent to 3,230 yen. Caterpillar, the world's largest maker of earthmoving equipment, raised its 2008 sales forecast after second-quarter profit climbed to a record, on Chinese and Middle Eastern demand.
Asahi Breweries gained 1.3 percent to 1,964 yen. First-half net profit of 18.9 billion yen ($176 million) beat the company's 11.5 billion yen forecast, according to a preliminary earnings statement yesterday. The company cited cuts in advertising and fixed costs for the result.
Coming up: Another round of price hikes in East Asia
ADB urges central banks to act, says hikes won't affect just food and fuel
By Fiona Chan
July 23, 2008
A SECOND round of inflation may be on the cards for Singapore and the rest of East Asia - and this time it won't be just food and fuel prices going through the roof.
These economies are already experiencing a 'nagging rise' in core inflation, which measures price rises beyond oil and food costs, said the Asian Development Bank (ADB) yesterday.
Part of this is due to higher food and energy prices flowing through to the rest of the economy, making other products and services more expensive. Another reason is the recent huge inflow of money from foreign investors coming to Asia and pushing up asset prices.
If governments do not act quickly to keep this second round of inflation in check, it could lead to a new set of broad-based price hikes, ADB warned an audience of 45 central bankers and academics as it launched its semi-annual Asia Economic Monitor report at the National University of Singapore's Lee Kuan Yew School of Public Policy.
This could in turn trigger a dangerous upward spiral of wages and prices, where employers raise wages to offset inflation but pass on the higher labour costs by upping prices, the report added.
So far, central banks have moved too slowly in tackling inflation - which has reached 30-year highs in some economies - and they need to take more 'decisive' action, said Mr Jong-Wha Lee, head of the ADB's Office of Regional Economic Integration.
In its report, the Manila-based bank cut its forecasts for economic growth across East Asia for this year and next, citing a global economic slowdown and record oil and food prices that show little sign of easing.
'The unyielding demand for fuel and consistent worries over its supply conditions are expected to continue this year and may worsen next year,' said Mr Lee. 'We think the United States economy is likely to avoid a recession this year, but the outlook for a quick recovery is thin.'
ADB expects Singapore's economy to grow 4.9 per cent this year, down from 7.7 per cent last year, with expansion tipped at 5.8 per cent next year.
It recommended some measures for East Asia's central banks to combat inflation: tighten monetary conditions, allow currencies to rise faster and use fiscal measures like tax breaks and handouts selectively to help the poor.
Dr Khor Hoe Ee, the Monetary Authority of Singapore's assistant managing director, responded to the ADB comments on Asia's central banks being slow to react to inflation by stating that any response to rising inflation depends on its cause.
'This sudden burst of inflation caught everyone by surprise,' he said at a panel discussion at the launch. 'At the moment, most of the inflation we have seen is confined to high oil prices and food.' If that continues, tightening monetary policy will only exacerbate a downturn, he said.
But if there are other underlying reasons for inflation that spark a second round of price rises, this would be 'more worrying' and might warrant more central bank action, he added.
Condo Sales In S'pore Hit By Bad News From US
July 22, 2008
SINGAPORE: THE bad news coming out of the United States last week took its toll on property sales in Singapore over the weekend.
Two newly released projects sold fewer than 20 units each, as homebuyers' caution deepened after the collapse of US bank IndyMac and the forced rescue of mortgage giants Freddie Mac and Fannie Mae.
CapitaLand's Wharf Residence in Tong Watt Road, which started taking bookings over the weekend, sold just over 10 units, sources said.
The 173-unit condominium off River Valley Road is priced between $1,500 per sq ft (psf) and $1,900 psf. Unit sizes start at about 1,000 sq ft, so a two-bedroom unit costs $1.6 million to $1.7 million.
Meanwhile, Frasers Centrepoint sold about 19 of the 48 units it released at Woodsville 28 near Potong Pasir MRT station.
But the developer, which priced the units at an average of $880 psf, said it was 'quite encouraged by the take-up rate'.
'It was above our expectations, given the general sentiment in the market,' said a spokesman.
Woodsville 28 has two- and three-bedroom units, starting from 829 sq ft, with an average two-bedder costing about $755,000.
Sales also continued at a snail's pace at other condos that have recently been launched, despite reports of large crowds at showflats.
OLA Residences in Mountbatten Road has sold only about 10 of its 50 units since sales began three weeks ago.
'There are a lot of walk-ins but offers from buyers are coming in too low,' said a property agent. The freehold project is priced at about $1,200 psf on average.
Two smaller projects, The Scenic@Braddell in Braddell Road and Jubilee Residence in Pasir Panjang, have sold about 10 units each in the last few weekends, putting them at the halfway mark in sales. The Scenic is priced at $820 psf to $850 psf, while Jubilee is going for $900 psf.
Cheaper projects are seeing better sales. Buyers have picked up more than 60 of the 212 units at Beacon Heights in St Michael's Road for an average price of $800 psf, agents said. The 999-year leasehold condo developed by Kim Eng Securities started sales two weekends ago.
'Buyers are still waiting to see if prices go down further, and this will continue until the US situation stabilises,' said Mr Ku Swee Yong, director of marketing and business development at property firm Savills Singapore.
'There are definitely buyers with enough money to buy new properties, but they are doing their homework these days.'
Some oil producers see now as time to sell
By Steve Hargreaves
July 17, 2008
In the last three days oil prices have fallen by roughly $10 a barrel. Many analysts say slackening demand, or the threat of it, is the main culprit.
But another force could be at work in the background. Last week various analysts said there was talk that Mexico, the world's fifth largest oil producer, was hedging its bets - the country was said to be signing contracts to deliver oil several years into the future at today's prices. Essentially, it was betting oil prices have peaked.
"This is a smart move," said Phil Flynn, senior market analyst at Alaron Trading in Chicago, who also thinks there's a good chance prices have peaked. "If I were an oil producer, I'd want to lock in these prices."
Analysts say if other oil producers follow suit and lock in future contracts, that could be one thing that would cause oil prices to fall, far and fast.
But it's hard to tell if that's happening because information about who is buying what is kept private for competitive reasons.
"I don't know who else is doing it," said Nauman Barakat, an energy trader at Macquarie Futures, and one of the traders who mentioned the Mexico news in a research note. "There's been a lot of talk, but it's kept very confidential."
One analyst, speaking on background only, said he had confirmed Mexico was locking in futures contracts. He said it was being done at the behest of the Mexican government, eager to balance a long-term budget, rather than a bet by state oil company PEMEX, that prices will fall.
But could Mexico's move inspire similar steps from other oil producers, and cause oil prices to fall further?
"Absolutely," said Neal Dingmann, senior energy analyst at Dahlman Rose & Co., a New York-based energy investment boutique. "It could create a top in [oil prices] in the near term."
Dingmann said about 50% of the production from the firms he covers - mostly small firms - has been sold for future delivery at today's prices.
Why isn't everyone doing it?
The selling from Mexico also raises another question: Oil companies and OPEC have long said oil prices are too high - driven by Wall Street speculators and a falling dollar rather than supply and demand.
So if they really think prices are too high, why aren't they all locking in contracts now?
For starters, it's believed some heavyweights, like Saudi Arabia and Exxon Mobil, don't play the futures market at all - they don't get into the complicated dance of buying and selling futures contracts on NYMEX or any other markets.
In vastly simplified terms, they take whatever price is being offered when their tankers pull into port.
Second, there aren't enough takers for these types of contracts. There simply aren't enough people who are willing to pay $135 dollar for a barrel of oil delivered in 2013, said Fadel Gheit, a senior energy analyst at Oppenheimer.
"Exxon produces 1.2 billion barrels of oil a year," said Gheit. If someone locked in all that production for five years out at today's prices, and crude fell 20%, "it would be a disaster," he said.
For Saudi Arabia and other OPEC counties, non-OPEC oil producers like PEMEX locking in future contracts is a problem.
When the price of oil falls OPEC likes to pump less oil to keep prices up. If producers sign long term contracts, they're obligated to pump that oil making it more difficult for OPEC to control prices.
"You get stuck with this extra production that's out there," said John Kilduff, an energy analyst at MF Global in New York. "Then OPEC has to reduce market share just to maintain price."
On the New York Mercantile Exchange, things are looking fairly balanced for the first time in a long time.
Big commercial users of oil, like refineries, trucking companies and airlines, are holding just slightly more "short" contracts - contracts where they are betting the price of oil will fall - than "long" contracts, according to Addison Armstrong, director of market research at Tradition Energy Futures, an energy brokerage based in Stamford, Conn.
Previously, commercial users had overwhelmingly been betting prices would fall, and much of the runup in oil prices over the last few months was a result of them selling or closing out those short contracts and buying long ones, said Armstrong.
Meanwhile, non-commercial users - like banks and pension funds - are holding just slightly more long positions. The market, said Addison, is pretty well balanced.
However, that doesn't mean we won't see more of the huge price swings of the last few days, swings that have come to characterize the oil market of late.
"I wouldn't bet on less volatility," said Armstrong.
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