Source: Associated Press, 02 January 2010

Oil’s surge in 2010 paves the way for $4 gasoline

Price of oil rises 30 percent in 2010; gasoline prices could hit $4 a gallon in 2011

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·         Companies:

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  • BP p.l.c. Common Stock
  • Chevron Corporation Common Stoc
  • Total S.A.

·         Topics:

•  
  • Commodities

FILE – In this Aug. 4, 2010 file photo, a gas pump nozzle is shown, in Portland, Ore. Oil prices slipped further below $90 a barrel Friday. Dec. 31, 2010, as investors took profits amid light year-end trading volume. Despite the fall, oil prices are set to end the year around 12 percent higher than where they started _ a clear signal that the global economy has returned to growth following the worst recession since World War II .(AP Photo/Rick Bowmer, file)

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Chris Kahn, AP Energy Writer, On Friday December 31, 2010, 10:03 pm EST

NEW YORK (AP) — The price of oil is poised for another run at $100 a barrel after a global economic rebound sent it surging 34 percent since May. That could push gasoline prices to $4 a gallon by summer in some parts of the country, experts say.

Flying, shipping a package and ordering a pizza all likely would get more expensive in the new year if that happens and companies pass along higher energy costs. Some economists say rising energy prices will slow economic growth.

The U.S. is the world’s largest oil consumer, but prices since spring have been on a roll primarily because of rising demand in developing countries, especially China. China’s oil consumption is expected to rise 5 percent next year; that compares with less than 1 percent growth forecast for the U.S.

Benchmark oil for February delivery rose $1.54 on Friday to end the year at $91.38 per barrel on the New York Mercantile Exchange. It reached $92.06 earlier in the day, the highest since Oct. 6, 2008. Nationwide gasoline pump prices now average $3.072 per gallon.

Gasoline expert Fred Rozell predicts that 15 states — including Alaska, Hawaii, Connecticut and Rhode Island — will see gasoline prices top $4 a gallon by Memorial Day. “A dollar more per gallon isn’t that much — probably about $750 more per year for each motorist, but there’s a psychological aspect to gas prices,” he said. “People are going to be up in arms about this.”

Higher oil prices have fattened oil company profits. Excluding BP PLC, the four other major investor-owned oil companies posted combined profits of $59.7 billion in the first nine months of the year, a 49 percent increase from the year before. Exxon Mobil Corp., Royal Dutch Shell, Chevron Corp. and Total SA are expected to earn $81 billion for the full year.

The fifth oil giant, BP, was held responsible for the largest offshore oil spill in U.S. history and booked $39.9 billion in charges related to the disaster. Excluding special expenses like the Gulf of Mexico spill, analysts say the company will still earn $20.2 billion in 2010.

“There’s nothing this industry can’t survive,” Oppenheimer & Co. analyst Fadel Gheit said.

The price of energy and other commodities shifted into high gear in late August when Federal Reserve Chairman Ben Bernanke signaled that the central bank was prepared to

stimulate the economy by buying government bonds. The $600 billion program didn’t start until November, but speculators had already starting bidding up the value of asset classes like oil.

A further oil price spurt came in late November as it became clear that Congress was likely to extend for two more years tax cuts set to expire at the end of the year.

The Organization of Petroleum Exporting Countries is capable of raising output, if it needs to, by more than five million barrels per day. Still, Morgan Stanley estimates that the rising energy needs of China and other emerging economies will consume about half of that amount over the next two years. That could create supply pressures similar to those that preceded the price spike of 2008, when oil soared to $147 a barrel.

John Hofmeister, former president of Shell Oil and author of “Why We Hate The Oil Companies,” predicts Americans will pay $5 per gallon for gasoline by 2012. Other experts say that’s a long shot.

“That means oil close to $200” per barrel, analyst and trader Stephen Schork said. “We can see it, but we could also see a global depression, too.”

In other Nymex trading Friday, natural gas for February delivery rose 6.7 cents to settle at $4.405 per 1,000 cubic feet. Unlike oil, natural gas prices are less than half where they were in 2008. That’s due largely to the technological advances that allowed energy companies to unlock huge deposits in underground shale formations in the U.S.

Heating oil for January delivery rose 5.83 cents to settle at $2.5437 per gallon and gasoline for January delivery added 6.14 cents to settle at $2.4532 per gallon. In London, Brent crude increased $1.66 to settle at $94.75 per barrel.

Source: Associated press

02 January 20100

US dollar seen rising in 2011 after rough 2010

Weaker economies elsewhere will make the US dollar a safer currency bet, economists predict

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FILE – In this April 15, 2010 file photo, a man walks past a collage of copies of Chinese RMB, U.S. dollar and other foreign bills at a money exchange store in Hong Kong. Never mind the lackluster economy, the huge trade deficit or the government’s piles of debt: The dollar is still expected to outperform the rest of the world’s major currencies next year. (AP Photo/Kin Cheung, file)

Paul Wiseman and Christopher S. Rugaber, AP Economics Writers, On Friday December 31, 2010, 5:42 pm EST

WASHINGTON (AP) — Never mind the lackluster economy, the huge trade deficit or the government’s piles of debt: The U.S. dollar is still expected to outperform most of the world’s major currencies next year.

“By all rights, the dollar should be declining in value, but it’s not,” says Eswar Prasad, economics professor at Cornell University. “For the dollar to decline in value, you must have currencies on the other side that will” rise.

Bad as things are in the United States, they look worse in Europe and Japan, making the yen, the euro and the British pound riskier bets in 2011. A notable exception is the Chinese yuan, which is likely to rise next year as Beijing fights inflation.

“The dollar remains the ultimate safe haven,” Prasad said.

A stronger dollar would make vacations to Europe a better bargain for U.S. tourists and reduce the cost of imports. But it would also make U.S. products more expensive in foreign markets, dulling businesses’ competitive edge.

The U.S. dollar fell against the euro, pound and yen on Friday during thin year-end trading. The euro rose to $1.3367 late Friday in New York, from $1.3286 Thursday. The British pound rose to $1.5590 from $1.5415 while the dollar fell to 81.21 Japanese yen from 81.52 yen.

For the year, the euro fell 8.3 percent against the dollar and the pound fell 2.5 percent against the dollar. But the dollar was down 12.2 percent against the yen.

Currency analysts at Wells Fargo Bank predict that over the next 12 months, the dollar will rise 7 percent against the yen, more than 4 percent against the euro and 1 percent against the pound.

The thinking: The U.S. economy will gain strength throughout 2011, outpacing Europe and Japan and encouraging U.S. businesses and consumers to borrow more. The demand for loans will push up U.S. interest rates, luring investors to the dollar in search of higher returns.

Europe looks perilous by contrast. In 2010, Greece and Ireland required emergency bailouts from other European countries and the International Monetary Fund. The terms of the bailouts forced them to slash government spending, triggering street protests. Now analysts fear that debt-ridden Spain and Portugal will be next.

“The major issues in Europe haven’t gone away,” says Mark McCormick, currency strategist at Brown Brothers Harriman. “Certain countries are insolvent. Others have fiscal issues they have to deal with.” Spain’s troubles, in particular, could strain Europe’s bailout fund and might even threaten the future of the euro as the continent’s common currency if European countries refused to put up more cash.

The Japanese yen rose sharply in 2010, partly because investors saw it as a safe haven from the troubles in Europe. But analysts suspect the yen’s strength against the dollar will be sapped in 2011 by a weak Japanese economy and huge government debts. Japanese policymakers may also seek to push down the yen to give their exporters a price advantage.

China is facing different pressures. The Chinese economy has roared back from the Great Recession with such speed that it’s set off inflation. Now, China is raising interest rates to cool growth. Chinese officials will have an incentive to let the country’s currency, the yuan, rise against the dollar and other currencies to help tame inflation by pushing down the price of imports.

That could improve relations between Beijing and Washington, where politicians accuse China of keeping its currency artificially low. That has made Chinese exports cheaper in the U.S, and U.S. exports more expensive in China.

U.S. politicians were under pressure to ramp up the rhetoric against China in the election year 2010, especially with U.S. unemployment near 10 percent. In September, the House passed legislation that would allow the United States to impose tariffs on China if it didn’t allow its currency to appreciate. The Senate never acted on the legislation.

Mark Zandi, chief economist at Moody’s Analytics, says the tension should ease in 2011 as the U.S. economy improves, the yuan rises and politicians are no longer stumping for votes.

“Allowing a stronger currency would be consistent with the objective of cooling off inflationary pressure,” says Wells Fargo currency strategist Vassili Serebriakov. “China will not want to be seen as responding to political pressure.”