Japanese businesses cut spending for an 11th quarter even as their earnings rebounded, signaling a revival in exports remains insufficient to prompt investment that would spur the recovery.
Capital spending excluding software fell 18.5 percent in the three months ended Dec. 31 from a year earlier, the Finance Ministry said today in Tokyo. Sales declined and profits doubled.
Sony Corp. and Panasonic Corp. are among companies cutting costs to protect earnings even as demand from abroad picks up. A stronger yen is forcing exporters to invest overseas rather than at home, and deflation is discouraging spending by domestic service companies, said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co.
“We’re seeing a clear contrast between the rapid recovery in profits and the weakness in capital spending,” Tokyo-based Miyazaki said. “The recovery’s spillover to capital spending has been particularly weak this time, even in comparison to the economic recoveries of the past.”
The yen traded at 88.34 per dollar at 3:12 p.m. in Tokyo after earlier touching 88.31, the highest since Dec. 11. Japan’s currency has gained more than 5 percent this year, eroding the value of exporters’ repatriated profits. The Nikkei 225 Stock Average fell 1.1 percent, extending its losses to 3.8 percent for the year.
Slower Growth
Based on today’s data, the Cabinet Office may revise fourth-quarter economic growth figures lower on March 11. Gross domestic product probably expanded at an annual 3.9 percent pace, slower than the 4.6 percent reported last month, according to the median forecast of 13 economists surveyed by Bloomberg News after today’s figures were released.
The capital spending component likely rose 0.3 percent from the previous quarter, compared with a 1 percent increase in the preliminary report, economists said.
“Capital spending may have hit bottom, but the strength of the rebound is still in question,” said Naoki Tsuchiyama, market economist at Mizuho Securities Co. in Tokyo, who estimates a GDP downgrade to 3.7 percent. “The economic recovery is largely dependent on government stimulus and companies are still cautious about the outlook for final demand.”
Companies’ sales slid 3.1 percent last quarter after tumbling 15.7 percent the previous three months, the ministry said. Profits surged 102.2 percent, the first increase in 10 quarters and the second biggest advance since the survey began in 1955.
Weak Link
Business spending remains the weak link of a recovery that’s being driven by exports and showing signs of improvement in the labor market. About a third of factory capacity is sitting idle in the wake of the nation’s worst postwar recession, discouraging companies from buying equipment free credit score.
“Capital spending may start growing later this fiscal year, but the pace of the recovery will be very moderate,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. “Companies still have excess capacity, so they will try to utilize existing facilities rather than building new plants.”
Sony last month narrowed its forecast for a net loss, saying it is approaching its target of trimming 330 billion yen in costs by eliminating jobs and shutting factories. Capital spending for this fiscal year will probably total 220 billion yen, 34 percent less than a year earlier and lower than the 250 billion yen estimated in October, Sony said on Feb. 4.
Raising Forecasts
Panasonic last month raised its operating profit forecast, as cuts in fixed and material costs lead to a recovery in earnings from consumer electronics and appliances. Capital investment for the nine months ended Dec. 31 stood at 275.6 billion yen, 22 percent less than the same period a year earlier, according to a company statement.
Slumping prices also are squeezing profit margins. Consumer prices excluding food and energy dropped 1.2 percent in January, matching December’s record decline, the government said last week.
Finance Minister Naoto Kan renewed calls on the Bank of Japan to help arrest deflation this week, saying he hopes prices will rise this year.
The government has been encouraging spending by providing incentives to buy cars and consumer electronics. Those initiatives are becoming less effective, said Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs Group Inc.
“Not only is capital investment slack but the demand boost from policies to stimulate replacement purchase of energy-saving electrical goods and environment-friendly autos is fading,” Yamakawa said.
Asia Rebound
Still, some companies are benefiting from rebounding demand in Asia, particularly China, the world’s fastest-growing major economy and Japan’s biggest overseas market.
Hitachi Construction Machinery Co., Asia’s second-largest excavator maker, may double sales in China this quarter, beating its forecast as the nation’s spending on railroads and mining fuels demand, Chief Executive Officer Michijiro Kikawa said in an interview on March 1.
Japanese manufacturers increased output in January at the fastest pace since May and exports climbed the most in almost 30 years, government reports showed last month.
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Luxembourg’s Jean-Claude Juncker said the group of euro-area finance ministers, which he heads, may not reach a decision next week on a successor for European Central Bank Vice President Lucas Papademos.
“Whether we do this on Monday evening or in February, I cannot yet say,” Juncker said at a press conference in Luxembourg today. The so-called eurogroup of finance chiefs is scheduled to discuss the three candidates to succeed Papademos at a regular monthly meeting on Jan. 18 in Brussels.
The candidates to take over the central bank’s vice- president post on June 1 are ECB Governing Council members Yves Mersch and Vitor Constancio and Peter Praet, a director at the Belgian central bank who also is chairman of the Frankfurt-based ECB’s Banking Supervision Committee low interest rate personal loans.
Juncker said he lobbied French President Nicolas Sarkozy on behalf of Mersch, who is head of Luxembourg’s central bank, at a meeting yesterday in Paris.
“I’m in touch with all the euro-zone countries. I outlined the merits of Mersch’s candidature to President Sarkozy,” Juncker said. “It’s not my intention to reveal publicly the various reactions I’ve had.”
The government’s Christmas Eve pledge of unlimited financial aid to mortgage giants Fannie Mae and Freddie Mac is aimed at making sure the housing market doesn’t take another turn for the worse and cause the economic recovery to unravel.
This insurance policy taken out by the Treasury Department will help keep mortgage rates low, and may wind up being a gift of sorts to struggling homeowners and banks. But there’s a catch: the housing crisis is now likely to cost taxpayers much more.
The Obama administration’s latest lifeline to Fannie and Freddie will cover unlimited losses through 2012, lifting an earlier cap of $400 billion. It also eases restrictions on the size of the companies’ investment portfolios. That’s a reversal of the Bush administration’s September 2008 plan to shrink the size of the companies’ holdings of mortgage-backed securities.
The action, which didn’t need the approval of Congress, could position Fannie and Freddie to get more aggressive in dealing with the housing crisis, perhaps taking troubled mortgage investments off banks’ books.
"They’ve cleared the decks to use Fannie and Freddie as a vessel for whatever they want," says Edward Pinto, a housing consultant who served as Fannie’s chief credit officer in the late 1980s.
The Treasury could also lean harder on Fannie and Freddie to help troubled homeowners avoid foreclosures — and by extension the banks and other investors who own their mortgages.
Many economists and housing experts say an existing $75 billion government program to prevent foreclosures isn’t working fast enough, threatening the emerging signs of home price stability in many cities across the nation.
Boosting the firepower of Fannie and Freddie, which finance three-quarters of all new mortgages, also should help keep rates on home loans low just as the Federal Reserve starts dialing back its separate $1.25 trillion program aimed at doing just that.
That’s good news for the banking industry, which benefited in 2009 from homeowners refinancing their mortgages, says Jason O’Donnell, senior research analyst at Boenning & Scattergood Inc. "This is an initiative that spreads far beyond just Fannie Mae and Freddie Mac," he says.
But the trade-off is that the Treasury will have to cover much more than the $111 billion in losses at Fannie and Freddie it already has funded. Barclays Capital predicts the losses will range from $230 billion to $300 billion.
Both companies provide vital funding for home loans, buying mortgages from lenders, pooling them into bonds and selling them to investors with a guarantee against default.
While they traditionally backed loans to relatively safe buyers, they dramatically lowered their standards during the housing boom, and those loans are now defaulting in higher numbers.
If the administration leans on Fannie and Freddie to expand its foreclosure-prevention program, it would be pricey. If Fannie and Freddie were, hypothetically, to start forgiving a quarter of borrowers’ mortgage debt, that would cost another $125 billion to help 2.5 million to 3 million borrowers, estimates Barclays analyst Ajay Rajadhyaksha.
The Treasury Department says its only motivation is to make sure investors remain confident that Fannie and Freddie can keep doing their jobs of buying the bulk of mortgages made in the U.S. and turning them into investments.
Experts on retail sales are obsessed with Thanksgiving weekend — particularly the Black Friday frenzy.
Most pundits agree that the start of the season was just ho-hum. But if you examine the details, you’ll come across all sorts of disagreement over exactly how things have gone. Why is it so hard to judge how many shoppers turned out, and how much they spent?
Here are some answers.
How important is Thanksgiving weekend as a predictor of the season?
The day after Thanksgiving is the traditional start of the season. In recent years, Black Friday has been the busiest shopping day of the year. But it’s not considered a predictor of the rest of the season, since it accounts for 10 percent of total holiday sales.
Still, pundits study the weekend’s receipts to decipher shoppers’ mind-sets. And if stores have a weak start, chances are slim that they will be able to make up for lost sales.
What makes this season’s kickoff particularly hard to assess?
One major factor is that stores have increasingly been hawking deals and offering expanded hours throughout November. That has likely diluted sales for the holiday weekend.
Parsing the data got even trickier because for the first time, major merchants offered early morning Black Friday specials on their websites at the same time as in their stores, as they aimed to compete with pure online retailers.
That helped boost online sales on Thursday and Friday, which rose 11 percent compared with a year ago, according to comScore Inc same day payday loans., an Internet research company. Also, more stores, like Old Navy, were open on Thanksgiving.
"Black Friday was definitely expanded. It wasn’t as concentrated," said Bill Lewis, executive vice president of Karabus Management, a retail advisory firm. He noted that heavy online buying likely depressed store traffic.
What type of data has been out there in recent days? Any contradictions?
The National Retail Federation released data on spending and traffic late Sunday, based on an online poll of 5,000 shoppers. The group extrapolated that total spending reached $41.2 billion for Thursday through Sunday, up 0.5 percent from a year ago; it reported 195 million people were visiting stores and websites, compared with 172 million a year ago.
Meanwhile, research firm ShopperTrak released data that showed customer counts actually declined 1.1 percent for the Friday-through-Sunday weekend, but showed sales were up a more robust 1.6 percent.
When will we get a full picture of the start of this year’s holiday season?
Major retailers’ individual sales reports should offer some sense, even though most figures exclude online business.
Shares of Amazon.com surged to an all-time high Friday as investors bet that the online retailer would dominate e-commerce as shell-shocked consumers gradually begin spending again.
The rally came one day after Amazon reported a 69% surge in third-quarter profit, led by strong sales of the Kindle e-reader and other electronics and general merchandise.
The Seattle-based company’s stock closed up 27%, to 118.49, shattering the previous high of $106.68 from December 1999.
"[Amazon] held up better than overall e-commerce and retail during the downturn and it appears to be one of the first to be spring-boarding out of it," said Frederick Moran, an analyst who follows the company for The Benchmark Company.
Moran said Amazon drew price-wary consumers away from online competitors and traditional retailers as the recession forced many households to cut back on expenses. Now that consumer spending appears to be gradually recovering, "the rate of growth at Amazon looks truly stunning," he said.
Amazon (AMZN, Fortune 500) said Thursday that sales climbed 28% to $5.45 billion in the third quarter, beating analysts’ expectations for an 18% rise to $5.03 billion.
Sales of electronics and other general merchandise, which represent 43% of Amazon’s revenue mix, grew 51% in North America and 48% internationally.
Looking ahead, Amazon said it expects fourth-quarter sales to range between $8.12 billion and $9.12 billion, or to grow between 21% and 36% compared with fourth quarter 2008.
Amazon could sustain a 25% growth rate through next year, according to Moran. "Amazon has very uniquely stood out above the retail crowd," he said.
Research In Motion’s shares plummeted 17% on Friday after the smartphone maker’s fiscal third-quarter outlook announced Thursday missed expectations.
The Waterloo, Ontario-based RIM, which makes the BlackBerry, reported earnings after the close of trading Thursday.
A disappointing forecast punished RIM shares more than two hours after the open. Shares fell $14.15, or more than 17%, to close at $68.91.
"I would look at this as an overreaction, and a buying opportunity," said Nick Agostino, analyst at Research Capital. "The report was lighter than expectations, but to say ’significantly lower’ is a bit strong."
Excluding one-time charges, RIM (RIMM) said it earned $1.03 per share in its second fiscal quarter, up 17% from earnings of 86 cents a share last year. Revenue jumped 37% to $3.53 billion. Analysts were expecting earnings of $1 per share on revenue of $3.62 billion.
During the quarter, which ended Aug. 29, RIM said it shipped 8.3 million smartphone devices.
But RIM’s outlook was not as rosy. For the third fiscal quarter, which ends in November, RIM said it expects revenue of between $3.6 billion and $3.85 billion. Analysts were expecting $3.92 billion.
The company expects earnings per share of between $1.00 and $1.08, while analysts are expecting $1.05. RIM expects to ship between 9.2 million and 9.9 million units in the third quarter.
"Expectation is certainly a key risk," Agostino said, noting that RIM will upgrade many of its devices in its third quarter.
Shares also suffered on some analyst downgrades. Goldman Sachs (GS, Fortune 500) cut its rating on RIM to "neutral" from "buy," while Deutsche Bank (DB) moved it to "sell" from "hold."
Agostino said he left his rating unchanged at "buy," with a price target of $98.
"I’m hoping that as we move toward November and get more visibility on new devices and launch dates, the stock will get a reaction," he said. "We’ll need to see about fourth-quarter outlook, but it should be an interesting few months for these guys."
Swiss bank UBS AG and the U.S. government have agreed to settle a long-running dispute over the disclosure of names of wealthy American clients suspected of tax evasion, a U.S. government lawyer said Wednesday.
The settlement is expected to involve the disclosure to U.S. authorities of thousands of names of people suspected of using offshore accounts to conceal assets and evade taxes.
Washington’s case against UBS, the world’s second-largest wealth manager, had strained relations between the United States and Switzerland because it challenged the latter’s jealously guarded bank secrecy laws.
The case therefore has big implications not just for Switzerland, whose private banks manage around $2 trillion of foreign wealth, but for the entire offshore banking industry.
At a roughly three-minute hearing before U.S. District Judge Alan Gold in Miami, U.S. Department of Justice tax lawyer Stuart Gibson said the government would drop the case against UBS once a final settlement was in place.
"The parties have initialed agreements," Gibson said. "It will take a little time for the agreements to be signed in final form."
The U.S. government and UBS had reached a settlement in principle on July 31. Subsequent talks focused on how to transfer client data to Washington while respecting Swiss bank secrecy laws.
U.S. authorities had been seeking the names of 52,000 wealthy American clients suspected of trying to evade taxes quick cash.
The authorities believe many of the clients either inherited substantial wealth and have European roots, are frequent business travelers who receive offshore compensation via Swiss accounts, or intended their accounts from the start as a means to avoid U.S. taxes.
But UBS, backed by the Swiss government, held onto the data, calling the U.S. demand a fishing expedition that would breach Swiss laws and bilateral tax agreements.
In February, UBS had agreed to pay $780 million to settle criminal charges it had faced in a similar tax dispute with the U.S. government.
It agreed to hand over data related to about 250 U.S. clients who held secret accounts, and promised to close its offshore business to U.S. clients.
Swiss bank secrecy rules have eroded in recent years, and in March the government made concessions to abandon the distinction between tax fraud and tax evasion when dealing with foreign authorities.
UBS (UBS) shares were up 1% at 16.01 Swiss francs in afternoon trading in Switzerland. In the United States, they were up 1% at $14.87 in morning trading.
WASHINGTON–U.S. President Barack Obama wants to strengthen the government’s authority over financial institutions in a sweeping attempt to modernize a regulatory latticework that failed to detect early signs of a worldwide crisis.
The president was to detail the administration’s overhaul plan on Wednesday, recommending new powers for the Federal Reserve; a new consumer protection agency to govern lending and credit; and new rules that would reach into currently unregulated regions of the financial markets.
An 85-page draft of the administration’s plan details an effort to change a regulatory regime that Obama’s economic team maintained had become too porous for the innovations and intricacies of the today’s financial markets.
With Congress already embroiled in health care legislation, Obama has set an ambitious schedule, pushing lawmakers to adopt a new regulatory regime by year’s end.
Obama said Tuesday his administration was going to put forward “a very strong set of regulatory measures that we think can prevent this kind of crisis from happening again.”
Meanwhile, Christina Romer, chairman of the White House Council of Economic Advisers, said Wednesday morning the administration’s proposal strikes "the appropriate balance" and that it was "not bulldozing the whole system.”
But House Republican Leader John Boehner differed with that assertion, predicting "we’ll have the federal government deciding what interest ought to be charged on credit cards, having the government decide what kind of financial products are available,” the Ohio Republican said.
"I think it’s just going to be too big of a foot on an industry that already is having financial problems," Boehner said in an appearance on ABC’s "Good Morning America." Appearing on the same program, Romer insisted that wholesale regulatory change is crucial to overall economic health, saying that in the past "there were gaps, there were failures, in our regulatory system, and we need to make it better.”
The financial sector and lawmakers from both parties concede the need for significant changes in the rules that govern the intricate and interconnected world of banking and investment. But the details of Obama’s proposal already are facing resistance, signaling a tough sell for a president who is spending major political capital on his health care overhaul.
Under Obama’s plan, the Fed would gain power to supervise holding companies and large financial institutions considered so big that their failure could undermine the nation’s financial system. But even as it gains new powers, the Fed also would lose some banking authority to a new Consumer Financial Protection Agency.
Obama’s proposal would require the Fed, which now can independently use emergency powers to bail out failing banks, to first obtain Treasury approval before extending credit to institutions in "unusual and exigent circumstances.”
The expanded Fed role and the new consumer regulator are likely to be the two main political flash points in the administration’s proposal. Many bankers oppose a new consumer protection regulator and many lawmakers worry the Fed could become too powerful. Friction over those points could slow any major overhaul.
Besides having the Federal Reserve supervise "systemically significant" institutions, Obama will recommend a council of regulators, which would include the Fed, to monitor risk throughout the broader financial system creditreport. The arrangement is designed to prevent crashes like those that felled AIG and Lehman Brothers.
In conjunction with the Fed’s authority over large financial institutions and the new consumer agency, Obama also will propose:
– Additional protections for investors, including greater disclosure by hedge funds; regulation of credit default swaps and over-the-counter derivatives that previously operated outside of government oversight; and new conditions on brokers and originators of asset-backed securities.
– A system for the orderly disposition of any troubled, interconnected firm whose failure poses a risk to the entire financial system, together with rules that insist that financial institutions hold more capital to avoid over-leveraging.
Obama’s plan does not attempt major consolidation of turf-conscious regulatory agencies and does not inject itself into an ongoing debate over whether to bring some insurance companies under federal oversight.
"We don’t want to tilt at windmills," Obama said on CNBC.
Obama’s decision to create a consumer agency comes amid criticism that mortgage lenders and credit card companies have taken advantage of unwitting customers and saddled them with debt.
The new regulator would have the power to demand that customers have the option of simple financial products, to impose fines and to allow states to pass laws that are stricter than the federal standards. Consumer protections are now spread among various state and federal authorities, including the Fed, the Securities and Exchange Commission, the Federal Trade Commission and banking regulators.
Financial lobbyists rallied against the new agency, saying it’s impossible to separate bank regulation from oversight of the products they offer.
"We’re supposed to be trying to plug holes and connect dots” with the regulatory overhaul, said Scott Talbott, top lobbyist with the Financial Services Roundtable. "The consumer regulator idea moves in the opposite direction.”
Sen. Chuck Schumer, D-N.Y., called the new consumer products agency "the cornerstone of regulatory reform." The Fed and other banking regulators, he said, were too focused on the "safety and soundness" of the institutions they oversee, and "did not do a very good job of protecting consumers.”
Rep. Bill Delahunt, a Massachusetts Democrat who has helped write a consumer protection bill in the House, said: "Here we are just beginning to extract ourselves from this mess that was on the cusp of total collapse, and the banks don’t want further regulations. Give me a break.”
The administration will also have to use its political skills to strengthen the Fed. While Democrats generally agree with a need for regulatory changes, many oppose a Fed with expanded powers.
Democratic Sen. Christopher Dodd of Connecticut, chairman of the Senate Banking, Housing and Urban Affairs Committee, has advocated an alternative plan to strip the Fed of its regulatory role entirely and create a new consolidated bank regulator that would assume the roles that the Fed and Federal Deposit Insurance Corp. now play in helping regulate state-chartered banks.
Dodd, however, is a strong proponent of a consumer protection agency and is likely to champion that component of Obama’s plan.
Michigan officials said Friday that the state is closing three prisons and five prison camps in hopes of narrowing a $1.4 billion budget gap for fiscal 2010.
The state, which has been hammered by the auto industry meltdown, estimates that it will save $120 million by shuttering the eight facilities. None of the 4,149 prisoners in the facilities will be released early, but up to 1,000 workers may lose their jobs.
Michigan is not alone in turning to its prison system for savings. Some 25 states cut spending on corrections in fiscal 2009 and another 25 are proposing to do so in fiscal 2010, as they struggle to address massive budget shortfalls.
"It’s a trend we’ll be seeing more and more of in coming months given the dire revenue situation states are in," said Sujit CanagaRetna, senior fiscal analyst at the Council of State Governments, a research group.
The Wolverine State is targeting the correctional system because it takes up 22% of the state’s general fund budget, the largest component. (Education is funded separately.) The state must close the $1.4 billion gap before its fiscal year ends on Sept. 30.
In part because of a 5-year-old initiative to reduce recidivism, Michigan has seen its prison population decline to 47,552, down 7.3% from January 2007. It already closed two prisons and a camp earlier this fiscal year for a savings of $30 million, Cordell said. The latest downsizing eliminates 6,400 beds from the system.
"Rightsizing our prison system is the responsible thing to do," said John Cordell, a spokesman for the Michigan Department of Corrections.
The facilities being closed are Camp Cusino in Shingleton, Camp Kitwen in Painesdale, Camp Lehman in Grayling, Camp Ottawa in Iron River and Camp White Lake in White Lake.
Camps are the lowest security facilities in the system and house the lowest-risk prisoners who are within two years of release online payday advance. Camp detainees, who do public works projects for the state or local communities, will be transferred to other locations. These are the last remaining camps in the system, signaling an end to the program that has existed for more than 50 years.
The three prisons that are closing are Muskegon Correctional Facility, a medium security institution in Muskegon, Hiawatha Correctional Facility, a minimum security location in Kincheloe, and Standish Maximum Correctional Facility in Standish.
Instead, the state will put $60 million toward increased supervision of some paroled prisoners. The savings include that figure.
Dire straits
Friday’s announcement was the latest in a string of spending cuts in Michigan.
With tax revenues coming in below estimates, Gov. Jennifer Granholm last month was forced to slash spending by $350 million, including a 4% across-the-board reduction. The move comes after the governor cut $134 million from the budget in December.
"Michigan government can no longer afford to be all things to all people," Granholm said in a May 5 statement. "We expect to have to make more cuts like these in the future, which are the very type of wrenching cuts we have worked so hard to avoid in the past."
The cuts made in May mean adults on Medicaid are losing dental and vision coverage. New state trooper graduates are losing their jobs, and local communities are losing 1/3 of their remaining state revenue-sharing funds.
Like other states, Michigan is seeing its tax revenues dry up. Personal income taxes are down 22.6%, while sales taxes fell 7.6%.
Oil settled at a six-month high above $66 per barrel Friday, for its largest monthly percentage gain in more than a decade, after U.S., Japanese and Indian data suggested the economic downturn may be easing.
Oil prices have jumped around 30% this month, the largest monthly rise since March 1999, buoyed by expectations of a global economic recovery later this year, which helped push stock markets higher.
U.S. crude oil for July delivery settled up $1.23 at $66.31 per barrel, after reaching $66.47. The settlement was the highest since it closed at $70.53 on Nov. 4.
The dollar hit a five-month low against a basket of other currencies. A weak dollar makes oil cheaper for holders of other currencies and tends to support prices.
Data Friday showed Japanese industrial production rose 5.2% in April on a monthly basis, and the government said it expected continued gains through June.
U.S. growth data Friday also reinforced the sense that the global economic slump might be abating.
The Commerce Department said the world’s largest economy contracted slightly less than initially estimated in the first quarter, dropping at a 5.7% annual rate, rather than the 6.1% fall published by the government last month.
The revision was nevertheless below market expectations for a 5.5% contraction for the January-March quarter.
India’s economy grew faster than expected in the first quarter, helped by strength in farm and services sectors.
"Oil market participants’ conclusion that the worst of the recession has passed and a recovery in demand must be at hand was bolstered overnight by higher-than-expected first-quarter growth in India and a sharp jump in Japan’s April industrial production," said Mike Fitzpatrick, vice president at MF Global in New York payday loan.
U.S. inventories
Another supportive influence was Thursday’s report by the U.S. Energy Information Administration on U.S. crude oil stocks, which fell 5.4 million barrels in the week to May 22, way above analysts’ expectations in a Reuters poll for a 700,000 barrel decline.
Gasoline inventories also fell for the fifth week in a row as demand rose in the week preceding the Memorial Day holiday, which traditionally marks the start of the summer driving season in the United States.
"The market has reacted to the headline figures," said Harry Tchilinguirian, analyst at BNP Paribas in London. "That has helped extend technical buying as we moved above the psychologically important 200-day moving average (MA)."
The front month for U.S. crude oil futures crossed up through its 200-day MA on its daily price chart Tuesday and it is now acting as a strong support, according to technical analysts who track prices on charts.
OPEC’s decision to hold oil production steady also helped prop up prices. The producer group Thursday kept its output targets unchanged as expected, betting on a strengthening world economy and tentative signs of increased demand.
Analysts said Saudi Arabia’s statement this week that the global economy could now cope with $75 to $80 a barrel oil was a shift from the world’s largest oil producer, which has until recently hinted it would be happy with a lower price to help the world economy back on its feet.
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