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Oil prices are down for a sixth straight session today, the longest losing streak since mid-December, on the triple-whammy of economic fears, rising gasoline supplies and growing calls to rein in speculators in futures markets.
Near-term crude futures were down $1.77, or 2.8%, to $61.16 a barrel at about 11 a.m. PDT. The price now has tumbled 16% since reaching $72.68 on June 11, and is the lowest in seven weeks.
Gasoline futures also are plummeting, down 6.3 cents, or 3.6%, to $1.67 a gallon. The price peaked at $2.07 on June 16.
From Bloomberg News:
Gasoline stockpiles climbed 1.9 million barrels to 213.1 million in the week ended July 3, more than twice the increase forecast in a Bloomberg News survey, the Energy Department said. Inventories of distillate fuel, a category that includes heating oil and diesel, rose to the highest since 1985 as consumption dropped to a 10-year low.
"The market is starting to focus on the weak fundamentals," said Antoine Halff, head of energy research at Newedge USA in New York. "The deterioration of the fundamentals should continue in the weeks ahead. The drop in prices has yet to run its course."
Traders took no comfort in data showing that U.S. oil inventories fell last week. Supplies still are 7.4% higher than the five-year average for this point in the year.
Commodity prices have been slumping in tandem with the stock market over the last week as investors has lost faith in an economic rebound in the second half. That sentiment ballooned after the dismal June employment report last Thursday.
The U.S., British and French governments also may be spooking players in the oil market by threatening to limit what they view as excessive speculation.
The Commodity Futures Trading Commission on Tuesday said it would hold hearings on whether to impose limits on the dollar value of bets that a single speculator could make via commodity futures.
Separately, British Prime Minister Gordon Brown and French President Nicolas Sarkozy used the op-ed page of the Wall Street Journal today to call for steps to reduce "damaging speculation" in the oil market.
"Governments can no longer stand idle," they wrote. "Volatility damages both consumers and producers."
They weren’t specific about what to do -- other than calling for greater "transparency and supervision" of futures trading -- but in a falling market they’re giving oil speculators another excuse to exit.
-- Tom Petruno
One less thing for consumers to worry about: Despite the jump in oil and prices of some other industrial commodities in recent months, there has been no repeat of the spring 2008 surge in grain prices to record highs.
In fact, just the opposite: Prices of wheat, corn and soybeans -- the world’s basic foodstuffs -- all have tumbled in recent weeks on expectations of rising supplies.
Today, corn prices are diving further after government data showed U.S. farmers have planted more than expected.
 From Bloomberg News:
"About 87.035 million acres were planted with corn, the U.S. Department of Agriculture said today in a report following a survey of farmers. That was up 2.4% from the March forecast on growers’ intentions and 1.2% higher than the 85.98 million last year. The average estimate of 24 analysts in a Bloomberg News survey was for 85.16 million acres.
"The U.S. corn report showed 'an awfully big acreage number and suggests inventories will be more comfortable,' said Tim Emslie, a research manager at Country Hedging Inc. in Inner Grove Heights, Minnesota."
Near-term corn futures in Chicago today have plunged the maximum daily limit of 30 cents, to $3.47 a bushel. The price has tumbled 23% from $4.49 a bushel June 2.
Wheat futures are down 17.25 cents to $5.11 a bushel today and have plummeted 24% from $6.74 a bushel June 2.
From Bloomberg:
"About 13.77 million acres were seeded with spring wheat, the USDA said. That topped the 13 million projected by analysts surveyed by Bloomberg News last week. Total inventories on June 1 were 667 million bushels, doubling from a year earlier.
" 'When given the opportunity and profit incentive, farmers will plant more acres,' said Dan Basse, the president of AgResource Co. in Chicago. 'Farmers changed their plans and seeded more acres in the western Midwest because of favorable weather.' "
A year ago grain and bean prices were rocketing amid a general speculative frenzy for commodities. Corn sold as high as $7.88 a bushel last June. Wheat reached $12.82 a bushel in March 2008.
-- Tom Petruno
Photo: Corn growing near Towanda, Ill. Credit: David Proeber / Associated Press
Matt Taibbi, the Rolling Stone magazine contributing editor who in March wrote a brilliant and searing piece on the collapse of insurance giant AIG ("The Big Takeover'), now turns his attention to Goldman Sachs Group.
If you've read or heard Taibbi before, you know he's not writing a profile that is likely to be excerpted in the next Goldman annual report to shareholders.
Here's how his story in the latest issue of RS begins:
"The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."
The theme of Taibbi's takeout on Goldman is that the firm has, by design, been at the center of the biggest investment bubbles since the Depression. He includes the tech-stock bubble of the late-1990s, the housing bubble of this decade, and the oil bubble of the first half of 2008.
He writes:
"The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased."
Of course, he's describing the modus operandi of Wall Street in general. His assertion is that no one does it better than Goldman, and that no firm has enjoyed the political clout of Goldman, given how many of its alumni have landed in positions of power in government -- from Robert Rubin, who was Bill Clinton's Treasury secretary, to Henry M. Paulson, who held the same post under George W. Bush, to William Dudley, now president of the Federal Reserve Bank of New York.
 Taibbi isn't trying to be even-handed in his analysis, beyond acknowledging that there were "other players" besides Goldman involved in the run-up in oil prices a year ago, for example.
Conveniently for Taibbi's purposes, Goldman doesn't try to fight back. He says in the piece that the firm "refused to respond to questions for this story."
Goldman does have an official response to the story, however: "The article is a compilation of just about every conspiracy theory ever dreamed up about the firm," spokesman Lucas VanPraag said in an email. "It's a grotesque distortion of facts, commingled with fiction and spiced up with hyperbole. The only things missing seem to be allegations that we were responsible for assassinating President Kennedy and faking the first lunar landing."
Taibbi's style of writing will be too over-the-top for some readers, but he does a masterful job connecting the dots for anyone who has had trouble understanding how the Internet, housing and commodity bubbles developed one after another -- whether or not you believe Goldman really was the prime conspirator.
As Taibbi notes:
"Instead of teaching Wall Street a lesson that bubbles always deflate, the Internet years demonstrated to bankers that in the age of freely flowing capital . . . bubbles are incredibly easy to inflate, and individual bonuses are actually bigger when the mania and irrationality are greater."
Rolling Stone isn't making Taibbi's full story available online, but Tyler Durden at the Zero Hedge blog has put up screen grabs of the complete story, here.
-- Tom Petruno
Photo: Matt Taibbi. Credit: Trueslant.com
This was one of those days on Wall Street when nearly everything worked -- if you're a bull, anyway. Stocks rallied, so did most commodities, and Treasury bond yields tumbled.
So betting on a stronger economy via equities and raw materials paid off -- and so did betting on a weaker economy by locking in Treasury rates.
Longer-term, one of those bets has to be wrong. But in the short run, with the end of the second quarter approaching, markets are vulnerable to odd crosscurrents as money managers position their books for clients’ viewing as of June 30.
The Dow Jones industrial average jumped 172.54 points, or 2.1%, to 8,472.40, its biggest one-day gain since June 1, boosted in part by some fresh optimism about corporate earnings.
 Crude oil futures finished back above $70 a barrel, rising $1.56 to $70.23.
The biggest surprise was the Treasury market, where buyers poured in one day after the Federal Reserve disappointed investors by deciding against expanding its purchases of government securities and mortgage-backed bonds.
The Fed’s lack of action didn’t damp demand today at the Treasury’s auction of $27 billion in seven-year notes, which normally are a relatively tough sell with investors. The notes, the final part of a $104-billion T-note sale this week, sold at an annualized yield of 3.33%, which was below expectations. Bidding was heavy.
"I’m shocked at the reception" for the seven-year notes, said Tom Tucci, head of Treasury trading at RBC Capital Markets in New York. All three T-note auctions this week -- two-year, five-year and seven-year -- "were complete blowouts" as investors stepped up, he said.
Are bond buyers figuring that the economy will take a turn for the worse in the second half? Are they trusting that inflation won’t rise, even if the economy rebounds?
Whatever the motivation, investors are giving the Treasury every reason to be confident about its ability to proceed with its record borrowing binge.
Treasury yields plunged across the board today after the seven-year note auction. The 10-year T-note yield, a benchmark for mortgage rates, sank to 3.54%, down from 3.63% on Wednesday and the lowest since June 3. Buyers who jumped in when the 10-year T-note hit 4% two weeks ago are looking golden now.
Even if Treasury yields just hang around at current levels there should be some relief ahead for mortgage rates. The average 30-year loan rate was 5.42% this week, up from 5.38% last week, according to Freddie Mac.
-- Tom Petruno
Investors who've been hoping to buy stocks or commodities at lower prices are getting their wish.
Now, will they step up -- or keep waiting for better bargains?
The pullback in equity markets this month has been worldwide, with few exceptions, amid new jitters over the global economy's turnaround prospects.
At Monday's close, the U.S. Standard & Poor's 500 index was down 5.6% from its spring high reached June 12. That isn't much, but it's the biggest decline since the rally began on March 10.
U.S. indexes of smaller stocks have lost between 7% and 8% from their recent highs, but they had posted bigger gains in the rally than the S&P 500.
 The declines in many foreign markets have gotten closer to double-digit percentages, after the steep run-up of the last three months. The German market was off 8.8% through Monday from its spring high reached June 2. The Mexican market has lost 8.4% from its high.
The biggest loser so far has been the commodity-dependent Russian stock market, which dove 7.8% in Monday's global sell-off, leaving it down 22% from its spring peak on June 1.
As for commodity prices, oil fell $2.62 to $66.93 a barrel on Monday. It's down 7.9% from its eight-month high of $72.68 reached June 11. Wheat futures have tumbled 19% since June 1. The popular Pimco Commodity Real Return mutual fund is down 9.1% in the last seven sessions.
To hear the bulls tell it, there have been huge numbers of investors on the sidelines for the last three months, all eager to put money to work in stocks and commodities in anticipation of an economic upturn later in 2009. They've just been waiting for the first significant pullback in those markets to get a better deal, or so the thinking goes. . . .
Read on »
The "green shoots" idea of a budding economic turnaround has resonated with Americans of mid- and upper-income levels in recent months, a Pew Research Center survey found.
But the lowest-income folks don’t buy it. Their perception of the economy has worsened since winter, despite some better data on consumer and business activity.
The survey doesn’t say so directly, but the gulf between the two views may be tied more to what has gone on in financial and commodity markets than to any detectable changes in the economy: For the better-off, the stock market’s rebound probably has trumped the renewed pain at the gas pump.
The survey of 1,502 adults, conducted June 10-14, found that 52% of those earning $75,000 or more believe the economy will improve over the next year, up from 36% who answered that way in a Pew poll in February -- when global stock markets were crumbling and the economic data were almost uniformly awful.
 Of those earning $30,000 to $74,999, 51% now expect a better economy over the next year, also up from 36% in February.
But just 42% of Americans earning less than $30,000 now expect the economy to improve. More striking, that’s down from 52% in February, the Pew survey found.
People with money in the stock market saw share prices rebound sharply from March 10 to mid-June. The Standard & Poor’s 500 index was up nearly 40% in the three months.
In the same period, oil jumped nearly 50%, pushing gas back above $3 a gallon in California (a level that may mark the near-term peak, my colleague Ron White writes today).
The rising cost of filling up also seemed to be reflected in lower-income respondents’ ranking of top personal economic issues. Of those earning less than $30,000, 33% cited "rising prices" as the top worry in the latest survey, up from 27% in the February survey.
By contrast, the percentage of people in that income group citing "the job situation" as the top economic worry actually fell to 47% from 53%.
Of people earning more than $75,000, the job situation was cited by 40% as the top economic worry in the new survey, up from 35% in February.
The upper-income respondents also were more worried about rising prices (22% said so in the latest survey, up from 12% in February). But they were far less worried about the health of financial markets, thanks to Wall Street's comeback: "Problems in financial markets" were listed by 23% of the upper-income respondents as their top economic worry in the lastest survey, a big drop from 35% in February.
-- Tom Petruno
Photo credit: Justin Sullivan / Getty Images
Risk takers are having a bad case of second thoughts today, egged on by the World Bank.
Fresh doubts about the global economy are hammering stocks and commodity prices worldwide, after the World Bank said it expected the global economy to shrink 2.9% this year -- a much worse performance than the 1.7% decline the bank previously forecast.
Russia’s stock market appears to have the dubious distinction of being first to fall into a new bear market since the winter dive gave way to a spring surge.
The World Bank’s downbeat tone may just be the excuse many traders and investors needed to pull back from bullish bets that had pushed share prices and commodities higher worldwide since early March. Stocks in many markets were sharply lower last week, suggesting that the spring rally had run out of gas.
 On Wall Street, the Dow Jones industrial average was off 161 points, or 1.9%, to 8,378 at about 11:30 a.m. PDT, after sliding 3% last week.
Crude oil futures were down $2.66, or 3.8%, to $66.89 a barrel in New York. Crude has fallen from $71.37 on Thursday, and was at nearly $73 a week earlier.
Copper, considered a bellwether of the global economy’s health, is down 5% to $2.15 a pound in futures trading today. The price now has tumbled 12% since June 11.
Russia, heavily dependent on sales of natural resources including oil, is the worst performer among equity markets today. The Micex stock index in Moscow plummeted 7.8%, pushing its decline since June 1 to 22.2%.
A drop of 20% or more is considered the threshold for a bear market, although wild volatility is nothing new in Russian stocks.
The Micex index had more than doubled between Jan. 23 and June 1, boosted in large part by the rebound in oil prices.
Among other recently hot emerging markets, Brazil’s IBOV stock index is down 3.1% so far today. It has fallen nearly 9% since June 1, but still is up 32% for the year.
The iShares MSCi Emerging Markets exchange-traded fund was down $1.03, or 3.2%, to $30.72 at about 11:30 a.m. PDT. It’s off 11% since June 1 but still up 23% this year.
-- Tom Petruno
Photo: Red Square in Moscow. Credit: Dmitry Kostyukov / AFP/Getty Images
The We-Still-Love-the-Dollar club picked up another member over the weekend, when Russia's finance minister said it was "too early to speak of an alternative" to the greenback as the world’s premier currency.
Today, the dollar is surging against the euro, the Canadian dollar, the Brazilian real and most other currencies. The buck’s rally also has knocked the wind out of commodities, including oil.
The euro has tumbled to $1.377 from $1.401 on Friday. Its recent peak was $1.43 on June 2.
What’s good for the dollar isn’t necessarily good for U.S. stocks, however: Wall Street is broadly lower, led by commodity-related issues and big industrial exporters. The Dow Jones industrial average was down 199.82 points, or 2.3%, to 8,599.44 at about 11 a.m. PDT. It’s on track for its biggest one-day slide since April 20.
Besides Russia's supportive words, investors suddenly aren't so sure about an economic turnaround, and that's reviving the dollar's status as a haven.
 The buck slumped 12% from March 5 to June 2, measured against a basket of other major currencies, as fears over the global economy retreated and as China and other U.S. creditors expressed concern about the Obama administration’s massive borrowing to fund the economic and financial-system bailouts.
A Treasury report today showed that foreign demand for dollar-denominated securities fell in April, though it's likely that many investors weren't so much fleeing U.S. assets as hunting for opportunities elsewhere: As optimism rose this spring about the global economy many investors were shifting money to riskier assets, including emerging-market stocks and commodities.
In any case, the dollar’s weakness this spring emboldened its critics. Early this month, Russian President Dmitry Medvedev repeated an idea he had raised in March about eventually moving away from the dollar as a reserve currency. Any nation with huge holdings of dollar-denominated securities fears what a meltdown of the greenback would mean for its own financial well-being.
Over the weekend, however, Russian Finance Minister Alexei Kudrin expressed unqualified support for the dollar, speaking after the meeting of Group of 8 industrial nations’ finance chiefs.
The dollar is in "good shape," Kudrin said, according to Bloomberg News. "It’s too early to speak of an alternative." Indeed, with no other currency capable of taking the dollar's place, the world can't quickly abandon the greenback even if Medvedev and others wanted to do so.
Japanese Finance Minister Kaoru Yosano helped lift the buck late last week after saying that his country’s confidence in U.S. Treasury securities was "unshakeable."
Treasury yields are easing for a third straight session today, benefiting from the sell-off in stocks and fresh doubts about the economy's health. The 10-year T-note yield is down to 3.72% from 3.78% on Friday and last week’s eight-month high of 3.99% reached on Wednesday.
-- Tom Petruno
Photo: Russian Finance Minister Alexei Kudrin. Credit: Chris Warde-Jones / Bloomberg News
There must be a ceiling out there for oil prices. But $70 a barrel evidently isn’t it.
Crude rallied again today, pushing near-term futures prices in New York up $1.27 to $71.28 a barrel, the highest since Oct. 20.
The government reported that U.S. oil inventories last week dropped by 4.38 million barrels, to 361.6 million, the fourth decline in five weeks. That is heartening oil bulls who were driving prices higher even as supplies rose in March and April, figuring it was only a matter of time before the inventory picture went their way.
"This was an incredibly bullish report," Mike Zarembski, senior commodity analyst at OptionsXpress Holdings Inc. in Chicago, told Bloomberg News. "There were big drops in both crude oil and gasoline, falling imports and increased gasoline demand."
 It doesn’t matter that crude stockpiles remain 11% above their five-year average for this point in the year, according to Bloomberg’s calculations.
"You’re going to see a reduction in supplies in the U.S. all summer long because the refiners are going to import less and work off the huge inventories they have," James Cordier, portfolio manager at OptionSellers.com in Tampa, Fla., told Bloomberg.
Despite oil’s climb, some analysts are optimistic that gasoline prices may be nearing a peak, with average pump prices in California now at $2.89 a gallon.
But we’ve heard that one before.
Meanwhile, much of the blame for oil’s latest run-up continues to be pinned on rank speculators (a replay of the first half of 2008) and on investors who are looking for an inflation hedge in case a global economic recovery takes hold later this year.
From Bloomberg:
"The fundamentals certainly don’t support prices at these levels," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn. "The real story behind the strength in oil is the momentum trading that has seized the commodities markets, carrying oil and the other energy futures along with it."
"Investors are scared about inflation so they are buying things that offer protection," said Bill O’Grady, the chief markets strategist at St. Louis-based Confluence Investment Management, an investment advisory and management firm. "It’s hard to stand up against these investment flows even if they are not completely rational."
-- Tom Petruno
Photo: A trader signals in the oil options pit in New York today. Credit: Daniel Acker / Bloomberg News
Oil's surge to near $70 a barrel has stoked fresh debate about what's driving the market -- and where prices may be headed if the economy is turning up. Edward Silver, a former Times staff writer who keeps a close eye on the energy market, offers some context on the latest price action, and the global supply/demand equation:
The world consumes 30 billion barrels of oil a year. Without it, our food doesn’t make it to the supermarket and our flights to Hawaii are grounded. Too bad the price is set by such a moody bunch.
Crude gained 3.2% to $68.44 a barrel in futures trading last week, but prices seesawed along the way. Again, bulls won the tussle. An $85-a-barrel yearend forecast from Goldman Sachs and more hints of economic recovery -- including surprising strength in Chinese manufacturing -- overshadowed flush oil stockpiles and other dismal data indicating a weak appetite in the United States, which still devours almost a quarter of global output.
Even before the economic signs turned more encouraging, oil was sizzling. Prices have more than doubled since crude visited the low-$30s in February. The falling dollar has helped, as some investors have turned to raw materials as a hedge against the greenback's slide.
Clearly, instability is in the DNA of our primary energy source. Only a year ago, oil was on an epic ascent, driven by exuberant traders to a peak of $147 a barrel in July. The industry was vilified. Priuses were sold out. Some analysts set targets of $200 a barrel.
 Yet in short order, the recession and credit crunch rewrote the script for the rest of 2008. Those traders turned morose, vaporizing almost 80% of the commodity’s value in five chaotic months. In the aftermath, big oil companies and the petrostates of the world have been grappling with a surplus and paring production to shore up the market.
Demand for crude, however, is considerably less volatile than the price. Even as the rally unfolded this spring, commentators often repeated the view that the price strength made no sense because fuel use had collapsed. But "collapsed" doesn’t describe a world market that will shrink a measly 3% this year to 83.2 million barrels a day, according to the International Energy Agency.
Though fewer Americans took long car trips over Memorial Day weekend, China’s 8-million-barrel-a-day habit will see a dent of only 70,000 a day this year, the IEA says. In fact, the Asian giant burned more oil this April than last April. And all those tankers filled with surplus crude that bearish observers point out? Combined, these floating warehouses hold just over a single day’s worth of global use.
Wall Street, bullish oil traders and the Obama administration all are betting that the U.S. economy will look better in the second half than the first, of course. In its mid-May report, the Energy Department assumes the beginnings of a recovery in consumption. It forecasts only a slight pullback in U.S. oil use this year, to 18.9 million barrels a day from 19.4 million in 2008, and an uptick in 2010.
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Tom Petruno
Tom Petruno has been chronicling financial markets' highs and lows since 1979, and has been the Times' financial columnist since 1990. He writes on markets, corporate finance and the economy, and how it all ties in to individual investors' portfolios.
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