U.S. crude for October fell 79 cents to $71.26 a barrel by 12:40 p.m. EDT (1640 GMT), after falling $2.32 on Tuesday. Brent crude fell 49 cents to $71.33 a barrel after losing $2.44 the previous day.

The U.S. Energy Information Administration (EIA), the statistical arm of the Department of Energy, reported on Wednesday that crude stocks in the world’s largest energy consumer rose by 200,000 barrels last week.

While the build in crude stocks was nowhere near as large as the 4.3 million rise reported by the American Petroleum Institute on Tuesday, it still confounded initial market predictions for a 1.1 million barrel drop.

“We remain in a situation of massive over-supply, which is off the charts, but it does appear to be peaking,” Summit Energy analyst Brad Samples said.

Gasoline stocks fell by 1.7 million barrels last week according to the EIA, against expectations for a smaller 1 million barrel drop, while distillates rose by 800,000 barrels compared with predictions for a 300,000 barrel build.

SELL-OFF?

Investors took the opportunity to lock-in profits on Tuesday after crude touched the key psychological $75 mark for the first time since last October, crowning a near 130 percent jump in prices from the lows at the turn of the year.

Some analysts said the failure to break through the key level may signal that prices have topped out, with demand for oil still depressed by the global economic slowdown and signs of a broad recovery still murky.

“The price action of the past 24 hours would appear to favor additional price declines,” said Jim Ritterbusch, president of Ritterbusch & Associates.

Prices took some support from U.S economic data released on Wednesday showing a mild recovery in the housing market, but earlier data on durable goods orders suggested lingering weakness in the manufacturing sector.

Equity markets were mixed with Wall Street edging higher while European bourses generally dipped, highlighting the uncertainty surrounding the economic outlook.

Venezuela’s oil minister Rafael Ramirez said OPEC is unlikely to raise output at its September meeting, despite concerns from some quarters that oil prices are too high for a still fragile global economy.

“Inventories have declined but they remain above average. We need for them to come down to the average levels,” Ramirez said.

Another member of the Organization of the Petroleum Exporting Countries, Iran, said oil demand was set to increase next year by up to 1 million barrels per day after this year’s sharp decline.

Aug 26 (Reuters)

The number was so big and the results beat Wall Street estimates by so much at a time when the credit crisis was wreaking havoc on so many other sectors that Oppenheimer & Sons (NYSE: OPY) oil analyst Fadel Gheit couldn’t help but quip that he didn’t think Exxon “will be lining up for any TARP money or government handout anytime soon.”

Exxon wasn’t the only heavyweight reaping the benefit of a zooming energy market that had seen crude oil climb to an all-time record of $147 a barrel in July. The combined revenue for Exxon and Chevron Corp. (NYSE: CVX) for all of last year actually exceeded the gross domestic product (GDP) of all but 16 of the world’s nations, Bloomberg News reported.

What a difference a few months can make.

If the name of the game is corporate profits, the global economic slowdown has transformed some of the world’s biggest oil companies from leaders to laggards.

Global-energy heavyweights Exxon and Royal Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B) yesterday (Thursday) became the latest players to feel the one-two punch of dwindling demand and rising supplies, reporting profit drops of 66% and 67%, respectively.

Exxon’s net income fell to $3.95 billion, or 81 cents a share, compared to $11.68 billion, or $2.22 a share, in the same quarter a year ago. The results were well below Wall Street estimates for earnings of $1.02 a share. Shell’s bottom line fell to $3.82 billion, or 62 cents a share for the second quarter, compared to $1.87 per share in the same period last year.

“Global economic conditions continue to impact the energy industry both in the volatility of commodity prices and reduced demand for products,” said Exxon Chairman and Chief Executive Officer Rex Tillerson.

With consumers and companies alike slashing costs in any way possible in an environment of spiraling unemployment and the looming possibility of inflation as a result of government stimulus efforts around the world, Exxon, Shell and other Big Oil companies are feeling the squeeze and are cutting back in almost every way possible.

“Our second quarter results were affected by the weak global economy,” Shell CEO Peter Voser when the results were released. “This weakness is creating a difficult environment both in upstream and downstream” oil production.

Shell, for instance, said it’s embarked on a cost-cutting program that will pare billions of dollars in operating expenses. In one bright spot, however, The Netherlands-based oil giant did say that it had increased its second-quarter dividend 5% to 42 cents a share, and Chief Financial Officer Simon Henry said Shell will be able to keep raising the dividend to keep pace with inflation.

Exxon’s shares fell about 1% yesterday to close at $70.72 each. They’re down about 14% from their 12-month high of $84.76. Royal Dutch Shell’s “A” shares edged up 0.13% to close at $52.53; they’re down 29% from their 52-week high of $73.97.

“There’s a lack of follow-through on production” at Exxon, Macquarie Research analyst Jason Gammel told Barron’s in an interview. “The Street rewards companies that grow production, not those who are flat.”

Exxon’s combined oil and gas production dropped 3% in the quarter, and the company blamed the year-over-year decline on restrictions imposed by the Organization of the Petroleum Exporting Countries (OPEC). Shell’s production suffered more, falling 5.3%, placing part of the blame on a politically unstable Nigeria.

The heft that gave Big Oil companies the huge advantage of global scale last year is now working against them; with their large size, and against the backdrop of a global economic downturn, finding new revenue to bump up profits – and, ultimately, their share prices – will be a major challenge, analysts say.

“I think it’s generally going to be difficult for the Big Oils to move the needle,” Howard Weil analyst Doug Leggate told Bloomberg News. “Those companies that can move the needle in terms of adding value through exploration or other methods of improving their portfolios, they’re the ones who are going to win out.”

Profit at Exxon’s production and exploration unit fell to $3.81 billion in the second quarter, down $6.2 billion compared with a year earlier. In its refining business, its profit fell to $512 million, down $1.05 billion from a year ago. Profit in the same category at Shell dropped 77%, to $1.33 billion, from $5.9 billion a year ago, mostly on lower oil prices.

The grim oil earnings news yesterday followed Wednesday’s report from the Energy Information Administration (EIA) that U.S. crude stocks rose by 5.1 million barrels to 347.8 million barrels for the week ended July 24. Estimates by market research firm Platts were calling for a gain of just 1.1 million barrels, MarketWatch.com reported.

U.S. crude stocks are 29.8 million barrels above the five-year average and 52.6 million barrels above year-ago levels, according to Platts.

“The data has been bearish for most of the year, and the market may be ready to acknowledge that we are awash in crude oil and products, and demand is lower than last year despite the fact that oil and product prices are much lower,” WTRG Economics analyst James L. Williams told MarketWatch. “We will be well into the recovery from the recession before there is any appreciable increase in demand.”

As of yesterday afternoon, crude oil for September delivery was trading at $66.80, up $3.45 a barrel. But that’s down $55 a barrel from this time last year – a 45.16% decrease.

Those hoping for a rally may find that they’ve only engaged in a bit of wishful thinking, since a number of analysts say there aren’t any catalysts for higher prices in sight.

Take James Cordier, president of Liberty Trading Group, who says that the rally to prices in excess of $70 earlier this year was “well overpriced.” He expects prices to continue to fall in the weeks and months to come, Cordier said in an interview with Yahoo Inc.’s (Nasdaq: YHOO) Tech Ticker.

Cordier points to the speculative demand driven by government stimulus packages, notably the liquid commodities in China, a nation whose economy looks “a little bit like a bubble to us.”

Cordier’s firm, which trades commodity-based options, is “selling calls with both hands.”

If there’s an upside to any of this, Cordier says it will be lower gas prices, which he expects to fall 15-to-20 cents per gallon around August or September, a welcome relief for consumers.

The low demand and rising supply of oil is catching the eye of regulators worldwide, who are applying the heat to speculators who are believed to be behind the main force behind wild swings in the futures markets over the past two years.

Here in the United States, the Commodity Futures Trading Commission (CFTC) this week held the second of three hearings on energy trading. In the United Kingdom, the Financial Services Authority (FSA) will hold a special meeting on Aug. 5 with oil companies, banks, hedge funds and oil brokers to review regulation in the market.

“A lot of what we’ve seen in recent years has nothing to do with the underlying fundamentals of the market,” Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. (OTC ADR: BNPQY), told Bloomberg. “Something has to be done to reduce some of the speculation, no doubt about it.”

Indeed, the supply-and-demand fundamentals taught in high school and college have actually come under fire just because of how speculators have allegedly distorted the oil-price market in recent years.

This year’s volatility in the market defy the “accepted rules of economics,” French President Nicolas Sarkozy and U.K. Prime Minister Gordon Brown said in an opinion column published earlier this month in The Wall Street Journal.

“The surge in prices last year gravely damaged the global economy and contributed to the downturn,” the two statesmen said. “The risk now is that a new period of instability could undermine confidence just as we are pushing for recovery. Governments can no longer stand idle. Volatility damages both consumers and producers.”

Big Oil executives said it is doubtful the looming U.K.-based meeting would result in any substantial new initiatives, but added that it would discuss “whether the current arrangements [in the oil market] remain appropriate,” The Financial Times reported. “The question of position limits does not seem to have the same level of priority (in Europe) as it does in the United States,” Deutsche Bank AG (NYSE: DB) Chief Energy Economist Adam Sieminski told the FT.

Source: Global Slowdown and Plunging Profits Have ‘Big Oil’ Companies Searching for Ways to Rebound

Spot prices are way down for iron ore and nickel (which goes into iron ore production).

China has increased its iron ore imports over the past few weeks. And, as you can see from the chart below, nickel prices began rebounding at the end of last year.

The $586 billion construction stimulus program in China could be behind these recent trends.

But my Chinese sources say there’s a more mundane (and less hopeful) explanation. They say that China is buying more iron ore to take advantage of current low prices and build up inventories.

China’s economic growth is around 6.5-6.6 percent. It was 11-12 percent before it got caught up in the global economic slowdown. China has a long way to go to get economic growth anywhere near normal.

But I still think the first countries to rebound will come from the east and not from the west. It just won’t be soon.

Source: Basic Metals Not Ready for Primetime

Surprisingly, two key ingredients of this turnaround formula will be structured investments, such as asset-backed securities, and leverage – the combination and poorly policed use of which acted as the accelerants that helped fuel the financial inferno that’s now sweeping the globe in wildfire fashion.

But the reality is that new U.S. Treasury Secretary Timothy F. Geithner probably realizes that he has little choice.

Nevertheless, there are problems throughout this plan, says Shah Gilani, a retired hedge fund manager and credit-crisis expert who is a contributing editor to Money Morning.

“Maybe I don’t get it because I’m not on the inside of the new Treasury fire-fighting team,” Gilani said. “But it strikes me that the part of the proposed plan to stimulate consumer loan growth by courting opaque hedge funds with an offer to lend them as much as $95 for every $5 they put up, at a giveaway interest rate, so they can buy new security pools of already overly leveraged consumers’ additional borrowing obligations, is like trying to put out a fire with gasoline.”

As Democrats and Republicans continue to tussle in Congress over a controversial economic-stimulus package worth an estimated $825 billion, Geithner will today (Tuesday) formally unveil a financial-markets rescue plan that’s going to be heavily reliant on private investors buying the “compromised” debt-backed securities that are clogging bank balance sheets like “plaque” clogs the arteries of a heart patient.

The plan Geithner is scheduled to outline represents a revamped approach to the $700 billion Troubled Assets Relief Program (TARP) announced by the Bush administration and then approved by Congress last fall. About half the money has been spent in that program, which was initially designed as a way for the government to buy troubled bank assets, but which ended up with the federal government taking direct stakes in the banks themselves.

TARP has been heavily criticized for its lack of accountability and lack of controls. As the ongoing Money Morning investigation has demonstrated, banks have used the money for everything from buying other banks to paying out bonuses – although they often refuse to admit it.

While most investors will refer to today’s proposal as another “banking bailout plan,” the reality is that fixing the banks is the end game, and not the actual strategy. The misconception is easy to understand; after all, most investors believe the credit crisis is due chiefly to a decline in lending, the truth is that this lack of liquidity is due to a decline in “securitization” – the process under which loans made on Main Street are bundled together and repackaged on Wall Street and then resold to investors worldwide as highly rated bonds.

Geithner, in a speech last year when he was still serving as the president of the New York Federal Reserve Bank, said the total value of assets in the “shadow financial system” – a system consisting of hedge funds, investment banks and financial “conduits” such as “structured investment vehicles” (SIVs) – outstripped the those in the traditional banking system as early as 2007.

That’s no surprise: Just one year before that (2006), securitization was for the first time responsible for more than twice the volume of loans being made by regular lenders, Mark Sunshine, the president of middle-market lender First Capital in Boca Raton, told Fortune.

Through securitization, a lot more credit could be created than when banks just originated loans and then held them on their balance sheets. This new reality substantially boosted the “velocity” of lending and credit growth, and provided much of the financing consumers needed to buy cars, houses and other wares.

Then came the subprime-mortgage debacle, which caused a shutdown of the shadow financial system and a virtual halt to lending.

According to First Capital’s Sunshine, between the first quarter of 2007 and the third quarter of 2008, bond issuance fell 93% in asset-backed markets, 73% in corporate-debt markets and 47% in mortgage-related areas. And without those asset-backed bonds being issued, lending dried up.

Bond issuance has “just fallen off the cliff,” Sunshine told Fortune. “The reality is that the banks don’t have the infrastructure or the capital to lend in the kind of volume to make up for the collapse of the credit markets.”

Though the problem is fairly clear, there’s no single obvious fix. When he makes his speech to unveil the latest bailout initiative today, Treasury Secretary Geithner is expected to announce a multi-pronged effort – including government guarantees of losses on some assets and greater assistance for troubled homeowners.

With Congress already angry about how much is being spent on rescue programs, Geithner must find a way to make the needed fixes, while keeping the final price tag as low as possible.

“We want to get the private sector to take responsibility for a situation that in many ways was created in the private sector,” Lawrence H. “Larry” Summers, a top economic aide to President Obama, told CNN yesterday (Monday). “If the government is going to be putting money at risk, we want to make sure somebody in the private sector is willing to take the same risk the taxpayers are being asked to take.”

Thus, to get the “shadow financial system” re-started, Obama administration insiders had to think creatively, and possibly accept a higher level of risk than taxpayers might realize or be comfortable with. That includes attracting private-sector investments – no easy task, given that the securitization market is still frozen, U.S. unemployment is soaring, and the American housing market remains in a free-fall.

“The administration is having to juggle three different chain saws,” Brian Olasov, a managing director at the Atlanta office of law firm of McKenna Long & Aldridge LLP, told Reuters. “The key question is, does the plan make it attractive for the private sector to participate?”

Geithner must generate support for a greater flow of investor funds into key areas such as the markets for mortgage-backed securities, auto loans and asset-backed bonds, Reuters said.

Olasov says plans like the U.S. Federal Reserve’s Term Asset-Backed Lending Facility, or TALF, hold great promise for jump-starting private credit flows. Under the TALF program, buyers of “AAA-rated” securities backed by credit cards, student loans and other assets can swap those bonds for U.S. Treasury securities that they can use to get new financing.
In The Fed created TALF as a $200 billion program back in November, but never deployed it, for it was too complicated to roll out that quickly.

Already, however, federal officials are considering expanding the types of securities eligible for the TALF, as well as related plans to include residential and commercial mortgage securities. That’s creating some real concern about the level of risk the federal government may be taking on, especially since the potential exists for private-sector investors to “game” – manipulate – the financial system, if the guidelines aren’t strict or specific enough, some experts worry.

Under the $200 billion TALF program, the central bank will loan money to virtually any U.S. firm that’s willing to use this government financing to buy securities that are tied to  auto, credit-card, small-business or student loans, The Wall Street Journal reported.

In other words, since the government doesn’t want to buy these securities itself, it is lending money to make it possible for professional investors to buy the securities – and in some cases is even guaranteeing payment on the loans that back these securities in order to make this happen.

Some hedge funds – the shadow-financial-system players that borrowed money to boost returns for clients – are “are lining up to get in on the Fed program, seeing a chance to make high double-digit-percentage returns with little downside using low-cost loans made on easy terms,” The Journal reported. Some Fed officials are admittedly nervous about relying on unregulated and often opaque hedge funds, but see the arrangement as a necessary trade-off to increase the velocity of lending and utlimately get capital into the hands of consumers.

“This is exactly what the financial system needs,” Andrew Feldstein, chief executive officer of Blue Mountain Capital Management LLC, a multibillion-dollar hedge fund that is gearing up to participate in the Fed program, told The Journal. “Sending help through the banking system is like sending an ambulance through a traffic jam.”

Others see big risks, however, since the program essentially combines the very same elements that led to the financial crisis in the fist place – leverage, asset-based securities, and questionable credit ratings on debt.

“Between setting up an aggregator bank to buy toxic assets that still no one has any idea how to value and setting up “foxy” hedge funds with their own henhouse of government-backed consumer-weary loan pools, it’s probable that the Treasury will succeed in bringing in private capital,” Money Morning’s Gilani said. “It’s just too bad that if the scheme actually works, it will be the rich-money hedge funds that win and if it doesn’t work, it will be poorer U.S. taxpayers that get their necks rung.”

Source: Obama Administration Must Revive “Shadow Financial System” to Revive U.S. Banks

Editors Note: This is the eighth installment of an investigative series in which Money Morning examines how U.S. banks are using federal bailout funds.

The bearish camp is pointing towards Japan and claiming that asset prices will not rebound for many years. According to these folks, corporate earnings will continue to decline and unemployment will rise to much higher levels. So, the bears have concluded that global financial markets will stay depressed for the foreseeable future. It is my observation however that in post-war history (with the exception of the previous recession when stocks were grossly overvalued) stock markets have always commenced a new bull-market prior to the end of each recession.

The current U.S. recession commenced late last year, so it has already lasted for more than a year. The average post-war US recession lasted 10 months making this downturn more severe. With the exception of the Great Depression, the worst post-war recessions occurred in 1974 and 1982. Both of these lasted for 16 months, making them the worst recessions since World War II. Now, if we were to assume that the current recession continues well into 2009, this would imply that stock markets will probably bottom out over the coming months.

We must remember that the financial markets are a discounting mechanism and with prices down significantly from their highs, most of the negative news seems to be already factored in today’s prices. In the past few months, some nations have been brought to their knees, the entire investment banking industry has been decimated, homebuilders have taken huge losses and now auto-makers are facing bankruptcy! For sure, such circumstances are not signs of a major top; rather they are usually associated with the bottom of the business cycle. So, liquidating positions and taking losses during such a pessimistic environment would be a big mistake. On the contrary, the ongoing liquidation of all assets is providing long-term investors with a fantastic buying opportunity. Accordingly, over the past couple of months, I have deployed all of my personal surplus cash reserves into the markets. Now, I concede that it is possible that prices may continue to drift lower in the short-term, but the recent market action suggests that we may have reached an important low. Unfortunately, I cannot state with certainty as to whether or not last quarter’s low will turn out to be the ultimate low for this bear-market. However, I do know that investors who deploy capital in commodity stocks and bullion today, will probably be sitting on huge profits in 5 years from now.

At present, the markets are extremely oversold relative to their moving averages and investor sentiment is awful. In this environment, I anticipate a multi-month rally in commodities, related stocks and precious metals. Conversely, at the same time, I expect a decline in the U.S. dollar, Japanese yen and U.S. Treasuries. All of these assets appreciated considerably during the liquidation phase and they will come under pressure when the tide changes.

The main reason why I do not foresee deflation (decrease in the supply of money) is due to the fact that the contraction in credit arising from deleveraging is being more than compensated by the money-pumping actions of the various governments. In the past year alone, the Federal Reserve has expanded its balance-sheet by a whopping US$1.2 trillion! Moreover, thanks to Mr. Bernanke’s cash injections (quantitative easing), reserve balances have sky-rocketed from roughly US$5 billion to almost US$600 billion in roughly 3 months (Figure 1)!

Figure: Lift off in bank reserves – helicopters being primed?

Source: Federal Reserve Bank of St. Louis

Furthermore, it is interesting to note that the Federal Reserve (money-printer extraordinaire) has now started to inflate the supply of money. Over the past few weeks, the Federal Reserve has injected roughly US$300 billion into the banking system without a proportionate increase in its non-banking liabilities via deposits by the US Treasury. In simple terms, what this means is that the Federal Reserve is now increasing bank reserves without the US Treasury removing an equivalent amount of money from the system. Usually, when the Federal Reserves provides surplus reserves to its member banks, the US Treasury borrows this money from the market by issuing bonds; thereby offsetting the inflationary impact of the Federal Reserve’s monetary injections. However, this is not what is happening now and this has inflationary implications. Essentially, the Federal Reserve is now creating money ‘out of thin air’, debasing its currency and sowing the seeds for sky-high inflation.

At present, commercial banks are hoarding this cash, but I expect this newly created money to seep through the economy over the following months. When that occurs and credit starts flowing again, business activity will pick up and prices will start appreciating.

In the past few weeks, we have received numerous queries from anxious investors who want to know if we are heading into deflation. Obviously, we don’t know what will happen in the future, but for now, data shows that all the deflation hype is absurd. If you have any doubt whatsoever as to whether we are facing inflation (expansion in the supply of money) or deflation (contraction in the supply of money), you need to look no further than Figure 2 which highlights the rate at which various nations are inflating the money supply. There is no doubt in this writer’s mind that deflation is out of the question when the money supply is expanding at such a frantic pace. For the sake of clarification, I must state that what we have witnessed over the past year is not deflation but a contraction in asset prices due to forced liquidation (non-availability of credit).

Figure 2: Inflation is the problem

Source: The Economist

Now, you may be wondering why there is so much talk about deflation these days when inflation (expansion in the money-supply) is the real issue at hand. There are two reasons for this:

First and foremost, you must remember that banks are in the business of lending and the central banks’ prime objective is to manage inflationary expectations. So, Mr. Bernanke and his comrades are paid to keep a lid on the public’s inflationary fears. Accordingly, a ‘deflation scare’ is engineered ever so often, so that they can continue with their long-term stealth inflation agenda without raising too many eyebrows. Secondly, the establishment needs to advertise a ‘deflation scare’ so that the central banks can slash interest rates. If inflation rather than deflation was perceived as the legitimate threat, then the Federal Reserve would not get away with near zero interest-rates.

In summary, I am of the view that the set-backs in our preferred areas (energy, miners, agriculture and bullion) will prove to be temporary and these assets should outperform the broad market once the recovery commences. Finally, it is worth noting that silver and platinum are now unbelievably oversold and they should rally hard and outperform gold over the following months. Accordingly, I would recommend buying some silver and platinum bullion at these levels.

Source: Sowing the Seeds

Oil fell a dollar to below $43 a barrel on Thursday on weak economic data from the United States and China, the world’s two largest oil consumers.

The focus will shift later in the session to weekly U.S. fuel stocks data, which is expected to show crude inventories rose for a fourth consecutive week, and higher gasoline inventories.

U.S. crude fell $1.10 to $42.45 at 1510 GMT. Earlier in the session prices rose as high as $45.10. London Brent was down 3 cents at $44.99.

Prices came under pressure from another round of gloomy economic data.

The number of U.S. workers filing new claims for jobless benefits rose by more than expected last week, while housing starts and permits fell to a record low in December, data showed.

China’s economy slowed sharply in the fourth quarter and Japan’s central bank on Thursday predicted two years of deflation as Asia’s largest economies buckle under the strain of the financial crisis.

U.S. crude oil stocks are expected to have risen by 1.4 million barrels and gasoline by 1.9 million barrels in weekly data due at 1600 GMT on Thursday.

Traders were looking for news of the oil storage levels at the Cushing, Oklahoma, delivery point for NYMEX crude, which have been a drag on the nearby contract for U.S. crude futures.

European equities also pared early gains to turn negative, pressuring crude prices, traders said. Microsoft earnings missed expectations, contributing to a weaker opening for U.S. stocks.

Investors have been watching moves in equity markets to try and gauge the resilience of the broader economy, as the global economic slowdown has curbed demand for fuel around the world.

LONDON, Jan 22 (Reuters)

The dollar rose against the yen on Monday after the Bank of Japan followed last week’s interest rate cut with a warning that the health of Japan’s economy has deteriorated and is likely to get worse.

But investors’ equally dim view of the U.S. economy hurt the greenback against the euro, which rose broadly in holiday-thinned trade. Doubts about whether a U.S. automaker bailout would steer the economy out of recession also hit the dollar.

Traders said volumes were razor-thin in the lead-Up to the Christmas holidays, aggravating even the slightest moves in the currency markets. Still, many said demand for dollars remained low.

“The dollar view is so opaque at the moment, and the risk reward at this time of year is not worth it unless you really have to trade,” said Maurice Pomery, head of foreign exchange at IDEAglobal in London.

The dollar managed to rise above 90 yen for the first time in nearly a week after BoJ Governor Masaaki Shirakawa said yen strength and a global slowdown may force Japanese exports still lower even after a record plunge in November.

“All Asian exporters are at risk in this global economic slowdown, but Japan is at the top of the list,” said Dustin Reid, senior currency strategist at RBS Global Global Banking & Markets in Chicago. “The stronger yen has been playing havoc for Japanese exporters, and the auto companies in particular are likely to be significantly affected.”

So far this year, Japan’s currency is up nearly 20 percent against the dollar and more than 22 percent against the euro.

Early in New York, the dollar was changing hands at 89.85 yen , up 0.8 percent, after earlier rising to 90.23. The BoJ cut Japanese interest rates last week to near zero.

The euro also rose 1.3 percent to 125.79 yen after earlier hitting a session peak of $1.4123. Sterling fell 0.8 percent to $1.4814 , while the euro rose 1.1 percent to 94.35 pence , near a record high of 95.56 pence touched last week.

A move by China’s central bank to cut lending and deposit rates by 27 basis points — its fifth cut since September — shed more light on the scope of the global slump.

GRIM U.S. OUTLOOK

After coming under steady pressure in December, the dollar rallied on Friday after the Washington announced emergency loans for crippled General Motors and Chrysler.

But while the move averted a crisis for now, traders said uncertainty over the companies’ restructuring plans left many doubting the long-term effect it would have on the economy.

Last week, the Federal Reserve cut benchmark interest rates to near zero, underlining the severity of the economic crisis and undermining support for the dollar.

Investors are also looking for the European Central Bank to cut interest rates, currently at 2.5 percent, in January, though ECB executive board member Lorenzo Bini Smaghi warned about the risks of monetary policy being too lax, according to the Rome newspaper Il Messaggero.

Steven C. Johnson, Reuters 12/22/08

Oil was higher on Wednesday, but cut back early gains after U.S. inventory data showed fuel stocks in the world’s largest energy consumer rose sharply last week.

U.S. crude for January delivery touched $45 a barrel on Tuesday, recovering from an overnight slump by more than 4 percent, but by 1618 GMT oil had trimmed gains to trade at $43.07, up $1.00.

London Brent crude was up 48 cents at $42.04.

U.S. crude oil inventories rose by 400,000 barrels to 320.8 million, with distillate and gasoline stocks also up, according to the U.S. Energy Information Administration (EIA). Refinery run rates rose to 3.1 percent to 87.4 percent.

“If you were an oil bear and you were looking for a Christmas gift, you got everything you wanted in this report,” said Phil Flynn, analyst at Alaron Trading in Chicago.

Rising fuel stocks in the United States and other consumer nations have heightened fears of slowing demand for fuel as the global economic slowdown starts to cut into consumption.

The market now looks to OPEC’s Dec. 17 meeting in Algeria where the group is expected to cut as much as 2 million barrels a day in a bid to shore up prices which have fallen by more than $100 dollars since peaking above $147 a barrel in July.

Russia’s energy minister on Wednesday said OPEC members were preparing a “significant cut” in oil production, and that Russian output was likely to decline in 2008 despite government attempts to stimulate production.

Sergei Shmatko also said Russia, the largest oil producer outside the producer group, would make its own proposal at the Algeria meeting, which it will attend as an observer.

“Sentiment rules the oil market at the moment, with most traders tracking equities,” said Andrey Kryuchenkov, vice president of commodities research at VTB Bank.

“A lot of people will wait to see how much OPEC will but by next week, and then whether then can comply with the quota cuts.”

China’s November crude oil imports hit a year low, as the world’s secong-largest oil user shipped in 13.36 million tonnes last month, official data showed, a 14.6 percent cut in daily volumes from October and 1.8 percent down on November last year.

U.S. weekly inventory report shows fuel stock rise sharply… Year-on-year rise in U.S. gasoline purchases- Mastercard… Russia says OPEC to make “significant cuts”

Chris Baldwin
LONDON, Dec 10 (Reuters)

Oil fell more than $2 to below $53 a barrel on Monday after OPEC decided to wait until mid-December to make another cut in output to try to defend sagging prices.

U.S. light crude for January delivery was down $2.28 at $52.15 a barrel by 1200 GMT.

Oil had settled at $54.43 on Friday after a shortened post-Thanksgiving holiday session. On Nov. 21, it touched a three and half year low of $48.25.

London Brent crude was $2.05 lower at $51.44 a barrel.

“The markets are discounting OPEC’s decision to stand pat by selling off,” said Edward Meir, analyst at broker MF Global.

“When it comes to calibrating supply and demand to fit the new post-September economic realities, OPEC seems to be in a state of denial,” he said in a research note.

Oil is down by almost two-thirds from a peak of more than $147 a barrel in July. Prices fell almost 20 percent in November and 32 percent in October, their biggest monthly fall ever, despite OPEC’s around 2 million barrels per day cutbacks.

A global economic slowdown that has tipped a growing number of countries into recession has caused sharp falls in demand for oil.

But OPEC’s Gulf producers want to see strict compliance with the producer group’s existing output curbs of 2 million barrels per day (bpd) before agreeing to any more.

“FAIR PRICE”

“I was a little surprised they didn’t announce anything stronger,” said Simon Wardell, senior oil analyst at IHS Global Insight. “I think this (meeting) was to underline that everyone really needs to work together.”

The Organization of the Petroleum Exporting Countries (OPEC) meets next in Algeria on Dec. 17.

Saudi Arabia on Saturday pointed to $75 a barrel as a “fair price” for oil, the first time in years that the world’s biggest exporter has identified a target for crude prices.

Saudi Oil Minister Ali al-Naimi in Cairo cited this price as necessary to keep more expensive new projects at the margins of world supply on track.

“I believe $75 is the price for the marginal producer,” he told reporters in Cairo.

On Sunday he told the Saudi-owned al-Hayat newspaper the effect of OPEC’s existing cuts was still not clear.

In Cairo, OPEC ministers discussed how much more they needed to cut. Most, including Gulf producers led by Saudi Arabia, saw the need to trim another 1 to 1.5 million bpd.

OPEC Secretary General al-Badri told reporters in Tehran on Monday: “It will be a good amount, a good quantity,” without naming a specific figure.

Analysts said OPEC’s delay could prove costly.

“The longer OPEC waits to cut supplies, the higher stocks rise and the longer we think it’ll take for fundamentals to tighten once the tide does turn,” Jan Stuart, an economist with UBS in New York, said in a weekly U.S. oil data report.

By Jane Merriman
LONDON, Dec 1 (Reuters)

Felipe Reis, an analyst for Banco Santander SA (ADR: STD), yesterday (Monday) slashed his target price for the U.S.-listed shares by more than half, stating that the worldwide outlook has become “more challenging.”

Reis, who previously had placed a year-end 2009 price target of $40 a share Vale’s U.S.-listed American Depository Receipts (ADRs), now says the shares of the Rio De Janeiro-based mining-and-metals heavyweight will trade at $18 at next year’s close. If you’re keeping score, that’s a reduction of 55% from his prior target. But it still represents a 59% gain from yesterday’s closing price of $11.32 a share.

”We are adjusting our estimates for Vale in order to reflect the more challenging scenario in the commodities market,” Reis wrote in a research missive, noting that the reduced target price takes into account “the significant global economic slowdown.”

In related news yesterday, Merrill Lynch & Co. Inc. (MER) cut its 2009 economic-growth forecast for Brazil to 2.9%, from a previous estimate of 3.1%, as the lagging effect of scarcer credit may be deeper than thought.

The Brazil exchange-traded fund, theiShares MSCI Brazil Index (NYSE: EWZ), was the focus of a recent Money Morning “Buy, Sell or Hold” column, and soared as much as 42% in six days after it was recommended as a “Buy.”

Source: Hot Stocks: Despite Lowered Target, Vale Still Poses Potential 59% Gain, Analyst Says

Editors Note: “Hot Stocks” is a new Money Morning feature that analyzes the investment outlook of global companies that are in the news. This is the sixth installment of this ongoing investment series.