Table of Contents:

• Oil Production: Why OPEC’s Keeping a Lid on Production
• Oil Prices: Why Crude Thrives on the Diving Dollar
• Oil Outlook: The Coming Oil Price Shock
• Investing in Oil: The Best Companies, Stocks and ETFs

Oil has staged an impressive rally since dropping below $35 a barrel in mid-February.
And while there remains a risk that prices will retreat further due to sluggish demand, there are also three very compelling reasons why oil is still a safe long-term bet:

• OPEC has made substantial progress in reducing the amount of oil on the market.
• The dollar has been made vulnerable by the U.S. Federal Reserve’s aggressive policy of quantitative easing.
• And low oil prices and tight credit have reduced global energy investment, putting future supply at risk.

There’s no question that downside risk remains. On April 13, the Paris-based International Energy Agency (IEA) lowered its demand forecast by 1 million barrels a day, and now expects the world will use about 83.4 million barrels per day in 2009. That would be 2.4 million barrels a day, or 2.8% less than last year.

But so far dwindling demand has failed to contain oil prices.

As Money Morning predicted in its annual outlook series, the first quarter was a volatile one, in which oil prices tested the low $30s before surging over $50 in recent market rally.

And analysts are almost completely united in the view that, despite its short-term volatility, declines in production, exploration and development, and the value of the dollar will drive oil prices substantially higher in the years ahead.

Oil Production: Why OPEC’s Keeping a Lid on Production

The members of OPEC generated tremendous revenue from oil prices that soared over $147 a barrel last year. However, just as the world’s top oil producers began looking for ways to spend their massive stockpiles of cash, prices began a plunge that would see crude lose more than three-quarters of its value.

In a desperate effort to put a floor under oil prices, OPEC – supplier of 40% of the world’s oil – has issued three production cuts totaling 4.2 million barrels per day (bpd), or nearly 12% of its capacity, since September.

While the cuts have not yet been able to return oil prices to the group’s desired price range of $60-$70 a barrel, the cartel abstained from making any further reductions at its latest meeting in March and even voiced optimism that crude would reach $60 a barrel by the end of the year.

“That suggests to us that not only does OPEC have the firepower to support this oil price, but there’s enough internal agreement between OPEC members that they can actually achieve it,” Tom Nelson, an analyst for the Guinness Atkinson Global Energy Fund told BusinessWeek.

Many analysts had speculated that OPEC members would ignore the quotas and continue to produce oil to generate income, thereby rendering the cuts ineffective. But OPEC’s discipline has proven many critics wrong.

Despite foot-dragging from Iran and Venezuela – two countries that rely heavily on oil revenue to fund massive social programs – OPEC has gotten about 80% compliance on the 4.2 million bpd production cut. Historically, the cartel only gets about 60% compliance on such cuts.

As of February, Saudi Arabia accounted for about 46% of the 3.4 million bpd decline in production, according to PFC Energy. And the United Arab Emirates have fully complied with their share of the cuts. Iran’s compliance by that time was only 33% and Venezuela had only adhered to half of its commitments.

Still, Abdallah El Badri, OPEC’s Secretary General, estimates the production cuts will take about 800,000 bpd of supply off the market, significantly reducing the overhang in global markets, BusinessWeek reported.

OPEC officials from Libya, Algeria, and Iraq have all said that oil prices will reach $60 a barrel by the end of the year.

“One of the reasons why OPEC felt able to roll over quotas was that they do appear to have set a floor for prices,” Mike Wittner, an analyst at Societe Generale SA (ADR: SCGLY), told Reuters. “According to a lot of the balances, including ours, if you have OPEC holding steady or cutting a bit more, you get a big, counter-seasonal stock draw in the third quarter.”

Oil Prices: Why Crude Thrives on the Diving Dollar

Crude futures doubled from July 2007 to July 2008, soaring from about $74 a barrel to a record-high $147 a barrel. Much of that rise can be attributed to supply and demand, but there was another catalyst for the soaring prices that few investors recognized: The rapid decline of the dollar.

From July 2007 to July 2008 the dollar plunged 16% against the euro. And as the dollar became less valuable the cost of commodities around the world skyrocketed.

At the time, inflation – not deflation – was the predominant concern among the world’s leading economists, as a decade of low interest rates and unconstrained lending in the United States sucked the life out of the dollar. And while inflation is nowhere near the levels it reached last year, it’s important to recognize that the policies of the U.S. Federal Reserve are no less inflationary.

The Fed has cut its benchmark lending rate to a range of 0%-0.25%, and soon after, Fed Chairman Ben S. Bernanke said the central bank would purchase up to $300 billion of longer-term Treasury securities and $750 billion of mortgage-backed securities as it pursues a policy of quantitative easing.

This announcement by the Fed, along with a corresponding rise in equities, has been the driving force behind oil’s recent rally.

Ultimately, the same fear of inflation that typically drives investors into the gold market is similarly buoying oil prices. And even though the dollar has yet to be seriously affected, there’s no ignoring the fact that the more than $1 trillion worth of government bonds and mortgage-backed securities injected into the market will imperil the dollar’s value.

Oil Outlook: The Coming Oil Price Shock

Now that a weak dollar and reduced production have bolstered oil prices, there is a growing concern about how much higher crude will climb once demand returns. Tighter lending conditions and a trough in oil prices have badly crimped investment and jeopardized future supplies.

More expensive energy projects such as oil sands have been put on hold and the number of drilling rigs at marginal shallow-water fields around the world has been scaled back to a three-year low.

Oil drilling activity dropped 43% in the 12 months through March, with year-over-year oil exploration in the United States alone down 38%. High bids for offshore drilling rights in the central Gulf of Mexico fell by more than 80% compared with last year.

OPEC has said that with oil generating substantially less revenue as many as 35 new projects could be delayed past 2013.

“I have often described unsustainably low oil prices as carrying the seeds of future spikes and volatility. In a low-price environment, the trend is often to focus on survival instead of expansion,” said Ali al-Naimi, the Saudi oil minister. “If we place a low priority on preparing for the future, that lack of action can come back to haunt us through supply shortages and another round of high prices.”

The current economic crisis could reduce future oil supply growth by 8 million bpd, according to a recent study by the Cambridge Energy Research Associates (CERA).

CERA now says that production will grow by just 7.5 million bpd over the next five years, down from the 14.5 million bpd increase it predicted last summer. According to the research group, as demand recovers throughout that span, production will struggle to keep up and a new commodities bull market, similar to the one seen in 2008 will begin.

“Seven consecutive years of rising oil prices – unprecedented in the history of the oil industry – have come crashing down, thus burying the notion that the commodity price cycle was a historical relic,” said the report.

CERA isn’t the only organization worried about the lack of investment in new oil projects, either. The International Energy Agency (IEA) – energy advisor to 28 industrialized nations – has also issued warnings about a coming supply crunch.

The IEA estimates daily oil demand will rise from the current level of 86 million barrels to 106 million barrels by 2030. To meet that demand, the agency estimates that the world needs $26.3 trillion in supply-side investments over the next 21 years.

China, India and other developing countries, alone, will need investments of $360 billion a year through 2030, the agency said.  About 7 million bpd of additional capacity needs to be added to the market by 2015.

“Unless sufficient companies have the will and financial ability to invest through the down cycle, there is a real risk that supply growth may lag the eventual rebound of demand, leading to substantial price increases – possibly as early as this year,” Richard Jones, the IEA’s executive director said at a recent conference in London.

Jones estimates that as much as 2 million bpd of expected new oil production has already been deferred.

The IEA predicts that, by 2015, a lack of investment and rising demand will create a “supply crunch” – that will once again send oil prices up into the triple digits.

“There remains a real risk that under-investment will cause an oil supply crunch in that time frame,” the IEA said in an executive summary of its “2008 World Energy Outlook.” “The gap between what is currently being built and what will be needed to keep pace with demand is set to widen sharply after 2010.”
The agency predicts that crude will average more than $100 a barrel from 2008 to 2015 and rise above $200 a barrel by 2030, as demand far outpaces supply.

“Every bull market in oil is really born in the zenith of a bear market,” said Phil Flynn, an analyst at Alaron Trading Corp. “The cutbacks we see today are going to lead to a spike somewhere in the future. The big question is when it’s going to happen.”

Investing in Oil: The Best Companies, Stocks and ETFs

When it comes to investing, the oil sector poses some very clear risks, especially given the murky near-term outlook. However, there are a number of large-cap integrated oil companies that may offer some truly compelling values at current prices.

Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) are currently trading at multi-year lows, making them exceptionally cheap in both relative and absolute terms. These companies also have strong balance sheets (Exxon is “AAA”- rated and has more cash on its balance sheet than debt), generate strong cash flows, and have traditionally increased their dividends on a regular basis.

”Chevron is the kind of company that is capable of continuing to post large profits – propelling its share higher from current levels – even if oil-and-gas prices were to drop from current levels over the next three years,” Money Morning Contributing Editor Horacio Marquez said. “That’s because Chevron’s business is well cushioned, since refining, marketing and chemicals margins would expand dramatically if market ’spot’ prices were to decline. Also, the company’s production is poised to expand strongly and Chevron uses some selective hedging that works very well in downside oil markets.”USO

Offshore drillers, particularly those capable of drilling in the deepest waters, also offer value at current levels. Petroleo Brasileiro (PBR), also known as Petrobras, is particularly appealing, as it recently discovered one of the largest offshore oil fields on earth off the coast of Rio de Janeiro. Known as Carioca, the field could hold 33 billion barrels of oil and gas, making the world’s largest discovery in at least 32 years.

Keith Fitz-Gerald, Money Morning’s Investment Director, suggests investors look at China National Offshore Oil Corporation, or CNOOC Ltd. (ADR: CEO). The Hong Kong-based company recently got approval for a $29 billion exploration project in the South China Sea. The company expects to produce 50 million tons of oil equivalent per year from that region during the next 10-20 years. That would equal the production of China’s biggest project, the Daqing Oil Field.

Petrobras and CNOOC are also attractive because, as foreign companies, they will also get a boost from any devaluation in the U.S. dollar.

All of these companies have been hit hard by the combination of commodity-price weakness and credit market turmoil. But these operators do not require peak-cycle commodity prices to generate stellar results and have little or no credit-market exposure.

For a more direct play on oil prices, you might also try an exchange-traded fund (ETF), such as the United States Oil Fund LP (USO), the iPath S&P GSCI Crude Oil Total Return Fund (OIL), or the United States Gasoline Fund LP (UGA).

Source: Three Big Reasons Oil Prices Will Rally Back Big Time

And while there remains a risk that prices will retreat further due to sluggish demand, there are also three very compelling reasons why oil is still a safe long-term bet:

• OPEC has made substantial progress in reducing the amount of oil on the market.
• The dollar has been made vulnerable by the U.S. Federal Reserve’s aggressive policy of quantitative easing.
• And low oil prices and tight credit have reduced global energy investment, putting future supply at risk.

There’s no question that downside risk remains. On April 13, the Paris-based International Energy Agency (IEA) lowered its demand forecast by 1 million barrels a day, and now expects the world will use about 83.4 million barrels per day in 2009. That would be 2.4 million barrels a day, or 2.8% less than last year.

But so far dwindling demand has failed to contain oil prices.

The futures contract for benchmark crude settled at $49.66 a barrel on March 31, up 11.3% from where it ended 2008. As Money Morning predicted in its annual outlook series, the first quarter was a volatile one, in which oil prices tested the low $30s before surging over $50 in recent market rally.

And analysts are almost completely united in the view that, despite its short-term volatility, declines in production, exploration and development, and the value of the dollar will drive oil prices substantially higher in the years ahead.

OPEC Keeps a Lid on Production

The members of OPEC generated tremendous revenue from oil prices that soared over $147 a barrel last year. However, just as the world’s top oil producers began looking for ways to spend their massive stockpiles of cash, prices began a plunge that would see crude lose more than three-quarters of its value.

In a desperate effort to put a floor under oil prices, OPEC – supplier of 40% of the world’s oil – has issued three production cuts totaling 4.2 million barrels per day (bpd), or nearly 12% of its capacity, since September.

While the cuts have not yet been able to return oil prices to the group’s desired price range of $60-$70 a barrel, the cartel abstained from making any further reductions at its latest meeting in March and even voiced optimism that crude would reach $60 a barrel by the end of the year.

“That suggests to us that not only does OPEC have the firepower to support this oil price but there’s enough internal agreement between OPEC members that they can actually achieve it,” Tom Nelson, an analyst for the Guinness Atkinson Global Energy Fund told BusinessWeek.

Many analysts had speculated that OPEC members would ignore the quotas and continue to produce oil to generate income, thereby rendering the cuts ineffective. But OPEC’s discipline has proven many critics wrong.

Despite foot-dragging from Iran and Venezuela – two countries that rely heavily on oil revenue to fund massive social programs – OPEC has gotten about 80% compliance on the 4.2 million bpd production cut. Historically, the cartel only gets about 60% compliance on such cuts.

As of February, Saudi Arabia accounted for about 46% of the 3.4 million bpd decline in production, according to PFC Energy. And the United Arab Emirates have fully complied with their share of the cuts. Iran’s compliance by that time was only 33% and Venezuela had only adhered to half of its commitments.

Still, Abdallah El Badri, OPEC’s Secretary General, estimates the production cuts will take about 800,000 bpd of supply off the market, significantly reducing the overhang in global markets, BusinessWeek reported.

OPEC officials from Libya, Algeria, and Iraq have all said that oil prices will reach $60 a barrel by the end of the year.

“One of the reasons why OPEC felt able to roll over quotas was that they do appear to have set a floor for prices,” Mike Wittner, an analyst at Societe Generale SA (ADR: SCGLY), told Reuters. “According to a lot of the balances, including ours, if you have OPEC holding steady or cutting a bit more, you get a big, counter-seasonal stock draw in the third quarter.”

Crude Thrives on the Diving Dollar

Crude futures doubled from July 2007 to July 2008, soaring from about $74 a barrel to a record-high $147 a barrel. Much of that rise can be attributed to supply and demand, but there was another catalyst for the soaring prices that few investors recognized: The rapid decline of the dollar.

From July 2007 to July 2008 the dollar plunged 16% against the euro. And as the dollar became less valuable the cost of commodities around the world skyrocketed.

At the time, inflation – not deflation – was the predominant concern among the world’s leading economists, as a decade of low interest rates and unconstrained lending in the United States sucked the life out of the dollar. And while inflation is nowhere near the levels it reached last year, it’s important to recognize that the policies of the U.S. Federal Reserve are no less inflationary.

The Fed has cut its benchmark lending rate to a range of 0%-0.25%, and last month, Fed Chairman Ben S. Bernanke said the central bank would purchase up to $300 billion of longer-term Treasury securities and $750 billion of mortgage-backed securities as it pursues a policy of quantitative easing.

This announcement by the Fed, along with a corresponding rise in equities, has been the driving force behind oil’s recent rally.

“[Oil prices] are being possessed by the dollar and the stock market,” Phil Flynn, an analyst at Alaron Trading Corp. told The Associated Press. “It’s not an oil market anymore. It’s a stock-currency market because that’s what we’re reacting to right now.”

Ultimately, the same fear of inflation that typically drives investors into the gold market is similarly buoying oil prices. And even though the dollar has yet to be seriously affected, there’s no ignoring the fact that its value has been imperiled.

“The recent announcement by the U.S. Federal Reserve of its intention to purchase over $1 trillion worth of government bonds and mortgage-backed securities has served to put additional pressure on the value of the dollar as this is viewed by the market as creating a lower yield and fanning the flames of inflation,” Wall Street Strategies’ senior research analyst Conley Turner told Xinhua.

The Coming Oil Price Shock

Now that a weak dollar and reduced production have bolstered oil prices, there is a growing concern about how much higher crude will climb once demand returns. Tighter lending conditions and a trough in oil prices have badly crimped investment and jeopardized future supplies.

More expensive energy projects such as oil sands have been put on hold and the number of drilling rigs at marginal shallow-water fields around the world has been scaled back to a three-year low.

Oil drilling activity dropped 43% in the 12 months through March, with year-over-year oil exploration in the United States alone down 38%. High bids for offshore drilling rights in the central Gulf of Mexico fell by more than 80% compared with last year.

OPEC has said that with oil generating substantially less revenue as many as 35 new projects could be delayed past 2013.

“I have often described unsustainably low oil prices as carrying the seeds of future spikes and volatility. In a low-price environment, the trend is often to focus on survival instead of expansion,” said Ali al-Naimi, the Saudi oil minister. “If we place a low priority on preparing for the future, that lack of action can come back to haunt us through supply shortages and another round of high prices.”

The current economic crisis could reduce future oil supply growth by 8 million bpd, according to a recent study by the Cambridge Energy Research Associates (CERA).

CERA now says that production will grow by just 7.5 million bpd over the next five years, down from the 14.5 million bpd increase it predicted last summer. According to the research group, as demand recovers throughout that span, production will struggle to keep up and a new commodities bull market, similar to the one seen in 2008 will begin.

“Seven consecutive years of rising oil prices – unprecedented in the history of the oil industry – have come crashing down, thus burying the notion that the commodity price cycle was a historical relic,” said the report.

CERA isn’t the only organization worried about the lack of investment in new oil projects, either. The International Energy Agency (IEA) – energy advisor to 28 industrialized nations – has also issued warnings about a coming supply crunch.

The IEA estimates daily oil demand will rise from the current level of 86 million barrels to 106 million barrels by 2030. To meet that demand, the agency estimates that the world needs $26.3 trillion in supply-side investments over the next 21 years.

China, India and other developing countries, alone, will need investments of $360 billion a year through 2030, the agency said.

About 7 million bpd of additional capacity needs to be added to the market by 2015.

“Unless sufficient companies have the will and financial ability to invest through the downcycle, there is a real risk that supply growth may lag the eventual rebound of demand, leading to substantial price increases – possibly as early as this year,” Richard Jones, the IEA’s executive director said at a recent conference in London.

Jones estimates that as much as 2 million bpd of expected new oil production has already been deferred.

The IEA predicts that, by 2015, a lack of investment and rising demand will create a “supply crunch” – that will once again send oil prices up into the triple digits.

“There remains a real risk that under-investment will cause an oil supply crunch in that time frame,” the IEA said in an executive summary of its “2008 World Energy Outlook.” “The gap between what is currently being built and what will be needed to keep pace with demand is set to widen sharply after 2010.”

The agency predicts that crude will average more than $100 a barrel from 2008 to 2015 and rise above $200 a barrel by 2030, as demand far outpaces supply.

“Every bull market in oil is really born in the zenith of a bear market,” said Alaron Trading Corp.’s Flynn. “The cutbacks we see today are going to lead to a spike somewhere in the future. The big question is when it’s going to happen.”

Source: Three Big Reasons Oil Prices Will Resume Their Rally

I have been extensively researching the global energy crisis that’s now underway. My research is uncovering some very interesting investment candidates with lots of profit potential. The interesting thing is…NONE of these firms are traditional big oil & gas firms that investors are so fond of.

Crude oil soared as high as US$135 a barrel last week – more than double the price of a year ago. But big oil firms like ExxonMobil WILL NOT be cashing in on the next phase of the energy boom.

Instead, the richest investment opportunities can be found in the fast-emerging alternative energy sector.

That’s where oilman T. Boone Pickens is putting his money – his company Mesa Power just placed an order for US$2 billion in wind turbines. And there’s much more profit potential in other parts of the alternative energy sector too – especially alternative fuel.

• The market for ALL alternative energy sources grew 40% last year alone to US$77.3 billion and will explode into a US$250 billion industry within 10 years.
• Bio-fuel grew to a US$25.4 billion market last with more than 15 billion gallons of ethanol and biodiesel produced globally – more than double the output of just four years ago.
• The worldwide Bio-fuel industry will continue to enjoy explosive growth for years to come – expanding into a US$81 billion business within the next 10-years!

But you don’t have to wait two decades or even two years to start making serious money from this energy-sector market shock…

Fossil fuels are dead – the future belongs to alternative energy. Vast fortunes will be made in the “great fuel revolution!”

MIKE BURNICK, Senior Editor & Global Markets Analyst

P.S. I’m pulling the trigger on my first market-shock recommendations to take advantage of the great fuel revolution. My first pick is a renegade oil firm that develops “HemiCell-190″, which already powers 2.6 million cars. My second selection is a “giant killer” that just scooped-up gold-mine in alternative energy assets that ExxonMobil threw away. Subscribers to my signature research investment service Market Shock Trader will be hearing from me about even more ways to profit. Very soon, I’ll be sending them specific rifle-shot plays to cash in on alternative energy!

Source: Legendary Oil Man Turns Back on Oil

There’s also another crisis brewing at the moment – that’s becoming more painfully obvious with each passing day: A global energy crisis! In many ways, the two are closely connected…

U.S. corn-based ethanol production is a big reason why corn prices surged 56% higher in the past 12 months alone. About one-third of the entire U.S. corn crop is being diverted from kitchen tables to gas tanks.

As a result, people are rioting in poor countries around the world. They’re taking to the streets in protest over U.S. corn-based ethanol. They complain bitterly that we are trading THEIR food for OUR fuel. But there is a better way…

In fact, there is an “emerging” alternative bio-fuel source that is a lot more efficient than corn-based ethanol, and doesn’t require the same food vs. fuel trade-off.

In fact, Brazil is leading the great fuel revolution – with sugar cane-based ethanol…

Brazil’s Big Ethanol Advantage

Brazil is far and away the global leader in ethanol production technology. In fact, the country began large-scale development of ethanol as an alternative fuel source amid the oil shock of the late 1970’s and early 80’s.

Today, ethanol accounts for 50% of Brazil’s total annual automotive fuel consumption. More than 70% of new cars sold in the country are flex-fuel capable. That means they’re able to run either on gasoline, ethanol, or some combination of the two.

Currently, Brazil is the world’s second-largest ethanol producer, and largest exporter, with total output of about six billion gallons a year.

The country has its sights set on becoming the dominant global exporter of ethanol by 2020. Brazil’s global ethanol exports could total as much as 200 billion gallons a year within that time – that’s over 30-times today’s ethanol production. Talk about a growing industry!

U.S. and Europe Just Can’t Compete with Brazilian Ethanol

Brazil enjoys a big advantage over other nations – as the world’s lowest cost ethanol producer. As shown in the graph above, Brazil can distill bio-fuels from sugar cane at a significant cost advantage to other nations.

Neither U.S. corn-based ethanol, nor wheat-based ethanol from Europe, can come close to matching the Brazilians on a production cost basis.

The sugarcane plant, which flourishes in Brazil’s tropical climate, produces a “yield” of 6,000 liters of ethanol per hectare of land. That’s about twice the yield of corn-based ethanol!

In fact, Brazilian ethanol is about 40% cheaper to make than in the U.S. – and costs less than half the price of European ethanol.

When Trade Tariffs Fall, Brazilian Ethanol Will Flow

Of course Washington, in their infinite wisdom, maintains silly trade tariffs equal to 54-cents a gallon on imported ethanol. This ridiculous trade barrier benefits a relatively small number of U.S. corn farmers at the expense of millions of American drivers.

In spite of this, Brazil’s largest ethanol export market remains the United States. In fact, Brazil shipped us more than 430 million gallons of ethanol last year – up fourfold from 2004! Wholesale gasoline prices in the U.S. are leaping above US$4 a gallon, and will keep spiraling higher as crude oil goes through the roof during what’s shaping up to be a long, hot summer.

Naturally, pressure is mounting for Congress to eliminate this silly, protectionist ethanol tariff. When that happens, the floodgates will open wide for much-cheaper Brazilian ethanol to flow freely into U.S. markets.

By leveraging the strength of its vast sugarcane growing region, and building on its already well-established ethanol producing technology, Brazil is perfectly positioned to benefit.

In fact, this emerging market tiger could easily become the Saudi Arabia of ethanol within the next decade. You heard it here first!

MIKE BURNICK, Senior Editor & Global Markets Analyst

P.S. Want to know more about the great fuel revolution – including the alternatives that may be running your car within the next 10 years? Click here to read my FREE special report to get all the details.

Source: Put This Emerging Market Tiger in Your Tank!

• Wholesale prices rose 0.2% in April after seasonal adjustments, with food prices flat and energy prices falling, the Labor Department reported yesterday (Tuesday). The core PPI – which excludes food and energy prices – rose 0.4% in April, more than expected, MarketWatch reported.

• Target, the nation’s second-largest discount retailer said softer-than-expected sales and higher costs caused the profit fall 8% for the quarter that ended May 3, the Associated Press reported. Target reported a profit of $602 million, or 74 cents per share, in the three months ended May 3, down from $651 million, or 75 cents per share, during the same period last year. Revenue rose 5% to $14.8 billion.

• Chinese power plants are running out of coal, with less than a three-day supply in some areas, the Associated Press reported yesterday (Tuesday). It is the second time in three months that Chinese power plants have run short of coal, an unintended effect of government price controls to shield the public from rising global energy costs. About 32 power plants have already shut down due to lack of fuel, the State Electricity Regulatory Commission said in a report.

• Carl Icahn’s proxy gambit with Yahoo Inc. (YHOO) was given a boost yesterday, when Third Point LLC, a $5.7 billion hedge fund with more than 5 million Yahoo shares, announced its support for Icahn, Reuters reported, citing a source familiar with the matter. Last week, another hedge fund, Paulson & Co., announced its support of Icahn’s plan. Paulson & Co. owns 50 million shares in Yahoo.

• Oppenheimer & Co. analyst Meredith Whitney, who has famously slashed forecasts for leading U.S. banks in the past year, again cut her earnings outlook for several top banks, citing a “far from over” credit crisis, Reuters reported. She cut her outlooks for Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and Wachovia Corp. (WB).

• Luxury department store operator Saks Inc. (SKS) announced yesterday (Tuesday) that its first-quarter net income increased 66% to $18.3 million, or 13 cents a share, from $11 million, or 7 cents a share, for the same period in the prior year. Analysts had expected earnings of 17 cents per share, causing Saks stock to shed 93 cents, a decline of over 6%, to close at $13.20.

• New Jersey-based Merck & Co. Inc. (MRK) has agreed to pay $58 million to 30 states to settle complaints that it made deceptive claims about its Vioxx-brand arthritis drug and painkiller. Attorneys claimed Merck played down the drug’s health risks in advertising. Shares dropped 28 cents yesterday (Tuesday) to close at $39.74.

• U.S. Federal Reserve Vice Chairman Donald Kohn indicated the Fed intends to pause in its rate-cutting campaign. “With the information now in hand, it is my judgment that monetary policy appears to be appropriately calibrated for now to promote both rising employment and moderating inflation over the medium term,” Kohn said yesterday (Tuesday), while speaking before a business group in New Orleans, MarketWatch reported.

Global Investing Roundups: Wednesday, May 21st, 2008

The end of today’s trading marks the expiration of the June crude contract, which could lend some extra volatility to the day’s action.

As analysts cited large diesel purchases by China in the wake of the earthquake, Neal Ryan, of Ryan Oil & Gas Partners, wrote that “the continued and seemingly relentless price increases we’ve had the last few weeks is the combination of global energy market news coupled with the begrudging realization that this isn’t the 1980s again when OPEC can turn on another 4 million barrels of supply and satiate the market.”

Ryan believes that, from current levels, “we should see a spike followed by a decent-sized pullback, but that pullback is going to be back to the $110-$115 level, not the double-digit levels we were in just a few months ago.”

Source: Crude Hits Another Record Close