Stocks surged Thursday, hitting their highest levels in nearly 9 months, as investors eyed the latest batch of better-than-expected profits and forecasts and a report that suggested the labor market is starting to stabilize.
The Dow Jones industrial average (INDU) rose 83 points, or 0.9%, ending at its best level since Nov. 4. It was also the highest close for the blue-chip index in 2009.
The S&P 500 (SPX) index added 11 points, or 1.2%, ending at its highest point since Nov. 4.
The Nasdaq composite (COMP) gained 16 points, or 0.8%, to reach its highest close since Oct. 1.
The major gauges had managed bigger gains earlier in the session, but lost a little momentum by the close.
Stocks drifted for the first three sessions of this week, as the recent euphoria that lifted markets faded out. The major gauges all gained between 11% and 12% in the previous two weeks as investors welcomed a spate of better-than-expected quarterly results.
But after this week’s early volatility, stocks charged ahead Thursday.
"The market is finally getting its arms around the fact that we are close to being out of this recession," said Burt White, chief investment officer at LPL Financial.
White pointed to three supporting factors: the drop in the continuing claims portion of the weekly jobless report, the cumulative effect of better profit reports, and lessening fears about a slowdown in Asia and the global economy.
Friday brings the biggest economic report of the week, the first reading on second-quarter gross domestic product growth. GDP is expected to have shrank at a 1.5% annualized rate, according to forecasts. GDP shrank at a 5.5% annualized rate in the first quarter.
"It’s important than GDP is roughly in line," said Ron Kiddoo, chief investment officer at Cozad Asset Management. "If we get a bad number, you’re going to see a selloff."
The Chicago PMI, a regional reading on manufacturing, is due shortly after the start of trading and is expected to have risen to 43 in July from 39.9 in June.
Also on tap: quarterly results from Dow component Chevron (CVX, Fortune 500). The oil services firm is expected to report earnings of 90 cents per share, versus $2.90 a year earlier.
Labor market: The number of Americans filing unemployment claims for a week or more, a measure known as continuing claims, slipped by more than expected.
According to a Labor Department report, continuing claims dipped to 6.2 million last week, from a revised 6.25 million the previous week, for their lowest level since mid-April and short of forecasts for 6.3 million.
The continuing claims report overshadowed the regular weekly jobless claims report, which showed a bigger-than-expected rise to 584,000. However, that rise was largely related to seasonal issues related to auto plant shutdowns cashadvance.
Quarterly results: Two Dow components reported results Thursday morning.
Oil behemoth Exxon Mobil (XOM, Fortune 500) reported a steep drop in second-quarter income due to weaker demand and falling oil and gas prices. Weaker quarterly earnings missed estimates on weaker revenue that topped estimates. Shares fell 1%.
Dow component Travelers (TRV, Fortune 500) also reported weaker profit that missed forecasts. But the financial company also boosted its full-year earnings forecast. Shares fell 2%.
Among other companies reporting results, telecom Motorola (MOT, Fortune 500) posted higher quarterly earnings that topped forecasts on weaker revenue that missed. The company shipped 14.8 million phones in the quarter, nearly half what it shipped a year ago, but more than what analysts expected. Shares gained 9.4%.
Other movers: Stocks gains were broad-based Thursday, with 25 of 30 Dow components rising, led by IBM (IBM, Fortune 500), Chevron (CVX, Fortune 500), Johnson & Johnson (JNJ, Fortune 500), Caterpillar (CAT, Fortune 500), Coca-Cola (KO, Fortune 500) and United Technologies (UTX, Fortune 500).
Shares of Dow component General Electric (GE, Fortune 500) gained nearly 7%. Goldman Sachs upgraded it to "buy" from "neutral" after legislators appeared to back down on the question of whether GE should separate itself from its troubled finance unit GE Capital.
A variety of financial shares gained, including Dow components Bank of America (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and American Express (AXP, Fortune 500).
Other financial gainers included Morgan Stanley (MS, Fortune 500), Goldman Sachs (GS, Fortune 500) and Wells Fargo (WFC, Fortune 500). Regional banks KeyCorp (KEY, Fortune 500), Regions Financial (RF, Fortune 500) and Fifth Third Bancorp (FITB, Fortune 500) advanced as well.
Market breadth was positive. On the New York Stock Exchange, winners beat losers three to one on volume of 1.36 billion shares. On the Nasdaq, advancers topped decliners two to one on volume of 2.57 billion shares.
Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.60% from 3.66% late Wednesday. Treasury prices and yields move in opposite directions.
Other markets: In global trading, European and Asian markets both gained on improved profit reports.
U.S. light crude oil for September delivery rose $3.57 to settle at $66.72 a barrel on the New York Mercantile Exchange.
In currency trading, the dollar gained versus the euro and fell against the Japanese yen.
COMEX gold for December delivery rose $7.60 to settle at $937.30 an ounce.
Sportscar maker Porsche conceded a months-long power struggle to mass-market rival Volkswagen by axing its chief executive and saying it would raise at least €5 billion in equity as the two prepared for a merger.
After an all-night meeting of its board of directors, Porsche said Wendelin Wiedeking, Germany’s best-paid executive and its CEO for the past 16 years, along with finance chief Holger Haerter, would quit the group immediately.
Their hasty exit will be sweetened by payoffs of €50 million and €12.5 million, respectively.
Wiedeking, who had opposed selling Porsche to Volkswagen, which would have helped the company reduce the debt he had run up in a botched attempt to take over VW, will be succeeded by Porsche’s production head Michael Macht, the board said in a statement early on Thursday.
The meeting of the non-executive directors, which include the Piech and Porsche families that between them control Porsche, approved Wiedeking’s proposal to raise fresh equity — either in cash or through a contribution in kind — and endorsed talks to sell a stake to the Gulf state of Qatar.
"This should lay the foundations for the creation of an integrated automobile group consisting of Porsche SE and Volkswagen," Porsche said.
It was unclear from Porsche’s statement who would contribute to the capital increase and whether it would be taken up by Qatar. A Porsche spokesman declined to comment further.
The board’s unanimous approval signals that the powerful Porsche and Piech clans may be open to surrendering some of their influence at the maker of the 911 sports coupe.
Between them they control 100% of Porsche’s voting shares and have resisted selling a stake to an outsider.
At 0820 GMT, Porsche shares were up 1%, while Volkswagen’s were down around 3%, compared with a 0 life insurance quote.8% fall in the DJ Stoxx auto index and a flat German market.
Joining forces
A source at Volkswagen, speaking on condition of anonymity, told Reuters it was still open whether oil-rich Qatar would take a stake in the Porsche SE holding company or directly in Volkswagen, or in both groups.
The issue was due to be discussed by Volkswagen’s own board of directors, which gathers for an extraordinary session on Thursday in Stuttgart, where Porsche’s Zuffenhausen headquarters are based, rather than its own headquarters in Wolfsburg.
Volkswagen, Europe’s biggest carmaker, declined to comment.
The moves came as Porsche enters the final stretch of negotiations with Volkswagen to create what both sides have called an "integrated" auto group, in which Porsche would essentially become the 10th brand in Volkswagen’s sweeping automotive empire.
Porsche SE, the holding company that controls sportscar maker Porsche AG, needs to bolster its finances after accumulating more than €10 billion in debt through its botched attempt to seize control of VW.
Porsche was forced to abandon attempts to win control over 75% of VW, leaving it with a stake of nearly 51%. The failed takeover attempt opened the door to Ferdinand Piech, VW’s powerful chairman and himself a part-owner of Porsche, to turn the tables on Porsche.
The Porsche and Piech families had been at loggerheads for months over how to resolve the company’s debt woes and the role VW would play. Piech has pushed for VW to take over Porsche, on condition that Porsche fixes its finances first.
Californians have fewer places to redeem IOUs issued by the cash-strapped state.
At least three major banks, Wells Fargo (WFC, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Bank of America (BAC, Fortune 500), stopped accepting the IOUs after Friday.
More than 60 credit unions, however, continue to accept the paper.
State Controller John Chiang started issuing the IOUs on July 2 to conserve cash, while lawmakers and Gov. Arnold Schwarzenegger tussle over closing a $26 billion budget gap. Friday also marked the start of a mandatory third furlough day for most state employees.
The state, the world’s eighth largest economy, has issued more than 90,000 IOUs worth nearly $355 million. Also called registered warrants, the IOUs pay an interest rate of 3.75% and can be redeemed on Oct. 2 or earlier if divided state officials reach a budget deal.
Recipients will include state contractors, social service agencies and those owed income tax refunds.
Banks will work with customers on an individual basis to assist them, perhaps offering them home equity lines or short-term loans, said Beth Mills, spokeswoman for the California Bankers Association. But the institutions are also hoping to send a message to Sacramento.
"What’s ultimately in the best interest of everyone will be for the state to act quickly and resolve the budget impasse," she said.
Bank of America’s decision stems from its experience in 1992, the last time the state issued IOUs amid a financial crisis. The bank, along with Wells Fargo, were among the first to stop accepting the IOUs. A budget was signed about a month later.
"The longer the registered warrants were accepted, the longer it took the legislature to resolve the matter," said Britney Sheehan, a Bank of America spokeswoman. "We do not want our acceptance of registered warrants to deter the state from reaching a budget agreement as soon as possible."
Customers at participating credit unions can continue to redeem the IOUs. The institutions are bracing for a crush of people looking to turn the warrants into cash.
"There are options," said Daniel Penrod, senior industry analyst at the California Credit Union League. "If people look for those options, they’ll realize they are not stuck past the July 10 deadline."
IOUs to be regulated
Some people actually want to get their hands on the registered warrants, posting ads on online marketplaces such as Craigslist payday loans. Several postings offer to buy the paper for 85 cents on the dollar, while another listing is looking to sell the IOUs for 95 cents.
This practice, however, has heightened fears that desperate IOU holders might be taken advantage of and that counterfeiters might make copies of the warrants.
State Treasurer Bill Lockyer last week said that warrant buyers must obtain a notarized bill of sale from the recipient when purchasing the IOUs. This will help ensure that the person redeeming the IOUs is the legitimate owner, said Bill Dresslar, Lockyer’s spokesman.
The Securities and Exchange Commission on Thursday said that the IOUs are securities and are subject to federal anti-fraud provisions. The agency also issued an investor alert warning both buyers and sellers to be careful when trading the warrants.
"If you hold an IOU and wish to sell it prior to maturity you should consider whether you think you are getting a fair price," the alert said. Investors who wish to buy IOUs should also understand who the seller is. If you are buying from a third party, ask if the person is registered to do this business.
The SEC’s action has both positive and negative impacts on IOU recipients, experts said.
It should cut down on scams because the warrants would have to be traded through registered brokers, said Joseph Fichera, who heads Saber Partners, a financial consulting firm for governments and corporations. Sellers would have to provide disclosure and make sure they are marketing the products properly.
This, however, would also make it harder to offload the IOUs, which could frustrate recipients in need of cash.
"The SEC is trying to provide some sort of framework for investor protection in the middle of uncharted territory," Fichera said.
How have California’s IOUs affected your life? Have you received one? Are you trying to get your hands on one? We want to hear your experiences. E-mail your story to realstories@cnnmoney.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here.
— One of the executives whose hapless job it was to determine whether Michael Jackson really had it in him to mount a 50-show concert gig in London slated to begin next month told me a few weeks ago that Jackson was surprisingly robust.
What was clear, the executive recalled, was that Jackson was motivated not just by financial gain or rehabilitating his career — though he had dug himself quite a hole in both areas over the years. More than that, Jackson was doing it for his three young kids and his wish for them to see him back on top of his game — more "King of Pop" than the "Wacko Jacko" the tabloids had branded him (with considerable justification).
Buz Kohan, a producer, longtime friend and collaborator of Jackson’s — he wrote the lyrics to the now sadly apt ballad "Gone Too Soon" — was planning to attend a full rehearsal of the show at Los Angeles’ Staples Center this weekend. "He was very enthused and his energy level was high as well as his optimism," said Kohan. "Not that it was a last hurrah — but it was like a reawakening."
Another executive who had dealings with Jackson over the years recalled hearing of his being rushed to hospital in Los Angeles on Thursday: "The first thing everybody thought was ‘here he goes again,’ " this person said. "Three weeks before a TV show or concert he gets sick to get out of things."
Very quickly, of course, it became clear that Jackson, 50, had suffered apparent cardiac arrest, and he was pronounced dead after being rushed to UCLA Medical Center. It was all over except for the speculation about his final days, the tributes, and the messes that Jackson’s untimely death has left behind.
Jackson’s was a life and career of staggering talent and towering weirdness, and perhaps the ultimate cautionary tale of the perils of child stardom. We’ll leave most of the saga for others to parse, but marvel instead at how Jackson is now something more: the ultimate story of the Hollywood comeback that was never to be — at least not the way it was planned.
In business, as in life, Jackson did nothing in small measure.
When tickets for Jackson’s 50-date comeback concert series went on sale in March, some 750,000 tickets sold out in five hours. The shows had been arranged by AEG Live Entertainment, an arm of former telecom billionaire Phil Anschultz’s private empire, which also owns 02, the large London arena where the shows were scheduled to take place over several months.
Swarovski, the crystal-maker, had prepared a new suit for Jackson to perform in encompassing 300,000 crystal elements that is reportedly worth 1 million pounds. Jackson’s comeback was to include a concert DVD, video game, and the release of the singer’s first new singles in years. And the London dates were just the beginning of a tour that, if it all panned, out, might have earned Jackson more than $400 million and even spawned a "Thriller" casino in Macau — the name coming from his 1982 album that remains the best-seller of all time.
There’s no question Jackson needed the money, having dug himself into a hole of close to $500 million in debts over the years by living beyond even his own outsized fantasyland means and fending off a seemingly endless stream of litigation fast cash. He also certainly had assets — mostly notably his own music royalties plus his stake from a music publishing library with more than 200 Beatles songs that he had shrewdly purchased in 1985.
But after various financial reorganizations aimed at staving off creditors, Jackson today owns 25% of the library — the remainder is held by Sony Music — and it is held in a trust designed to shield it from future claims against his estate.
Jackson only released one album in the past decade –it didn’t sell well — and his last few years were marked by controversy and strange dealings.
In 2005, Jackson paid $22 million to settle a civil lawsuit brought by the parents of a 13-year-old boy who had accused Jackson of molesting him, even though he had been acquitted of those charges in a criminal trial. Last year, Jackson narrowly avoided foreclosure on his Neverland Ranch after defaulting on a $24.5 million mortgage when the note was acquired by a big private equity firm that specializes in real estate, Colony Capital. And in April, an auction of Jackson’s possessions from Neverland — from sequined gloves to artwork — was called off after Jackson arranged a settlement with the auction house. (The timing of this, coming right after tickets for Jackson’s London shows sold out and presumably he was paid something, might suggest that the two events are related.)
Colony Capital’s CEO, Thomas Barrack Jr., has done billions of dollars of real estate deals that are often much larger than his firm’s bet on Neverland — for which Jackson was given a piece of the note on the property.
But the purchase was part of a bigger mission by Barrack to rehabilitate Jackson’s career, and in turn (and in theory) boost the market value of Neverland. According to the Los Angeles Times, it was Barrack who called his friend Anschultz to pitch the idea of Jackson’s comeback concert series. After all, AEG was behind other megastar shows like Celine Dion’s concert run in Las Vegas.
In all, AEG has reportedly invested more than $30 million in Jackson’s comeback that will never be. Judging by the throngs holding vigils for Jackson, Neverland still has obvious potential to pay off as a kind of Graceland (i.e., a museum for Jackson devotees) if Barrack decides to go that route. And speaking of Graceland, it’s also the case that Elvis Presley sold more records in the six months following his death in 1977 than he had over the previous decade. And, yes, Presley’s daughter was married to Jackson briefly wasn’t she?
Anyway, people will speculate for years about whether Jackson’s London concerts would have worked or even happened had he lived. One person close to Jackson said that he did a full rehearsal of the show on Wednesday night, but wasn’t feeling well when he got home. AEG is just the latest — and last — Jackson business partner to be left with something of a mess to sort out. But there is an unmistakable irony in this tragedy: In death, Jackson’s long-awaited comeback looks to already be well underway.
The United Auto Workers union has ratified a package of concessions designed to reduce General Motors Corp.’s labor costs, completing a key piece of the automaker’s massive restructuring effort.
UAW President Ron Gettelfinger said at a news conference Friday that 74 percent of GM’s 54,000 U.S. production and skilled-trade workers voted in favor of the deal, which took effect Friday afternoon.
Workers at GM’s Wentzville assembly plant OK’d the changes to the contract with a 59 percent approval rate, said Tom Brune, the sourcing representative for UAW Local 2250, which represents more than 1,700 hourly workers at the full-size van plant.
UAW leaders last week agreed to the revised contract that freezes wages, ends bonuses, eliminates noncompetitive work rules and ends the possibility of a strike until the next contract expires in 2015 payday loans. The UAW said the cuts would save GM $1.2 billion to $1.3 billion a year.
The agreement also gives a union-run retiree health care trust 17.5 percent ownership of a postbankruptcy protection GM, with a warrant to buy another 2.5 percent. The stock will come in exchange for part of the company’s $20 billion obligation to the trust.
Post-Dispatch reporter Angela Tablac contributed
to this report.
At least four U.S. insurers won approval on Thursday to raise billions of dollars through the government’s bank bailout plan, the U.S. Treasury Department said.
Hartford Financial (HIG, Fortune 500), the No. 4 U.S. insurer beset by worries about capital, got preliminary approval to raise $3.4 billion via the Troubled Assets Relief Program, known as TARP.
Three other insurers that also secured a greenlight included Prudential Financial Inc. (PRU, Fortune 500), Lincoln National Corp. (LNC, Fortune 500), and the Principal Financial Group (PFG, Fortune 500), a Treasury spokesman said.
The Wall Street Journal reported that Allstate Corp. (ALL, Fortune 500) and Ameriprise Financial Inc. (AMP, Fortune 500) had been cleared too.
Shares in a raft of U.S. insurers soared between 3% and 6% in after-hours trade amid reports the Treasury Department had doled out approvals.
Investors have worried about the health of Hartford and other insurers since the near-collapse in September of American International Group (AIG, Fortune 500).
The four firms confirmed by the Treasury Department qualified because of their status as bank holding companies and because they applied for access before a Nov. 14, 2008, deadline, the Treasury spokesman said.
A Prudential spokesman declined to comment.
Executives at Allstate and Ameriprise were not immediately available for comment. Lincoln and Principal spokesmen did not return calls for comment.
Hartford, which in April posted its third straight quarterly loss because of dismal financial markets, said in a statement it received preliminary approval for the capital participation — subject to final negotiation and approval pay day loans.
"Applying for participation in the CPP was a prudent step for the Hartford, particularly given the continued economic uncertainty," Chief Executive Ramani Ayer said.
"These funds would further fortify our capital resources and provide us with additional financial flexibility during one of the most volatile market climates in our nation’s history."
Life insurers such as Hartford have endured criticism in the past year for taking reckless bets, such as "variable annuities" or policies that promised unrealistic guarantees to buyers.
Walloped also by tanking financial markets, the largest U.S. insurers have sought government aid to tide them over the financial and economic crisis.
As a condition for taking part in the Treasury Department’s Capital Purchase Program, Hartford had agreed to buy Florida-based Federal Trust Corp, a small savings and loan.
Hartford said at the time it would be eligible to sell $1.1 billion to $3.4 billion of preferred shares to the government under the Treasury Department’s $700 billion TARP.
Shares in Hartford climbed to $15.65 in after-hours trade from a $14.75 regular close. Stock in Lincoln rallied 4.6%. Principal gained more than 3%.
But Allstate, Ameriprise and Prudential, which had gained between 2.5% and 6.4% during the regular session, held steady in extended trade.
The Canadian Auto Workers union says it has not reached agreement with Chrysler or Ford on the value of concessions at General Motors, which is holding up their restructuring plans to qualify for government loans.
CAW president Ken Lewenza said yesterday the union and two companies will continue meetings today in efforts to find some consensus on how much the GM concessions will save them during the next three years.
"Until we agree on the numbers, there’s not much point going forward," he said at a downtown hotel free credit report and score. "They’re still crunching numbers."
GM workers voted for wage freezes and benefit cuts last week. But Ford and Chrysler are trying to buck that "pattern" deal and say they need more savings to become competitive in Canada and get the public aid. The CAW has insisted on the same GM deal at Ford and Chrysler.
Hammered by the ailing housing market, mortgage finance giant Fannie Mae said Thursday it would tap its lifeline from the Treasury Department after reporting $58.7 billion in losses for 2008.
The company, a crucial source of funding for mortgage lenders, said it would draw down $15.2 billion of its $200 billion federal line of credit. In return, the government will receive preferred shares.
And it gave a dour view of the housing market — saying it expects peak-to-trough price declines to be in the 33% to 46% range, up from the 27% to 32% range it gave in the previous quarter. For 2009, it predicts home values will drop 12 to 18%.
For the fourth quarter, Fannie Mae reported $25.2 billion in losses, or $4.47 per share. The results mark the sixth straight quarter of losses, though slightly narrower than it reported in the third quarter. A year ago, Fannie Mae reported $3.6 billion in losses.
The company, which was taken over by the government in September along with Freddie Mac, attributed the losses to soaring defaults. Its provision for credit losses plus foreclosed property expense came to $12 billion for the quarter, up 30% from the previous quarter. Its charge-offs, or loans written off as uncollectable, rose 219% to $7 billion in 2008.
The value of non-performing loans were $119.2 billion at year-end, compared with $63.6 billion on Sept. 30 and $27.2 billion at the end of 2007.
Fannie Mae (FNM, Fortune 500) had said it would need up to $16 billion to cover its fourth quarter losses. Freddie Mac (FRE, Fortune 500), which has accessed nearly $14 billion and has said it may need up to $35 billion more, should report its results in coming weeks. The companies need the funding because their liabilities exceed their assets, giving them a negative net worth.
The companies’ net worth is declining in part because its mortgage guaranty becomes a costlier obligation as the housing market worsens no fax payday loans. Also, its funding costs have run higher as investors demanded higher rates because of the agencies’ perceived riskiness.
The results come a week after President Obama unveiled his foreclosure prevention plan, which relies heavily on Fannie and Freddie. The companies will allow borrowers whose mortgages they own or back to refinance even if they have little or no equity. And they will contribute more than $20 billion toward subsidizing interest rates to lower the monthly payments for borrowers on the verge of or already in default.
Fannie Mae, which unveiled with Freddie Mac their own streamlined loan modification program in November, said it conducted 33,249 loan modifications, 7,875 repayment plans and 11,682 preforeclosure sales in 2008.
Acknowledging the need to strengthen Fannie Mae and Freddie Mac at a time when the companies are under pressure from rising defaults, Obama doubled their federal lifeline, which was originally $100 billion each. He also is allowing each to hold up to $900 billion in loans in their portfolios, an increase of $50 billion.
The companies provide critical financing for mortgage lenders by purchasing their loans. They dominate the home loan market now that private investors have been spooked by the mortgage meltdown.
Their long-term future, however, remains in doubt. Set up by the government, they were private companies whose debt carried an implicit federal guarantee. But as the mortgage crisis deepened, the Treasury Department in September put them into conservatorship, a form of reorganization similar to bankruptcy.
Despite the recent rout in oil prices, the government expects crude to shoot back up over the long term. That is expected to result in a drastic drop in oil imports and a greater use of renewable energy.
Oil imports - which currently make up 60% of all the oil consumed in the U.S. - should drop to about 40%, the Energy Information Administration said in its long-term energy outlook on Tuesday.
The drop will largely be the result of higher oil prices encouraging conservation and an expanded use of home-grown biofuels.
In making its predictions, EIA used an average crude price of $130 a barrel in 2030. That price is nearly double the projections for 2030 made last year - $70 a barrel.
Although the report was not meant to predict oil prices, EIA analysts say increased demand and limited access to new supplies will push crude prices up in the long term, despite crude’s recent plunge.
The upward revision in price is a major shift in the government’s long-term views on oil supply and demand. Limited access to new oil sources - particularly in OPEC countries - is a major reason why prices should increase.
"People are becoming aware of the fact that conventional supplies of oil outside of OPEC are quite limited," said Robert Kaufmann, director of Boston University’s Center for Energy & Environmental Studies. "It’s getting harder and harder to tell the story that oil prices will remain low forever."
EIA’s higher price estimate could give ammunition to policymakers seeking a big push into alternative fuels, or those seeking a more hawkish foreign policy, or both, said Kaufmann.
He said non-OPEC production peaked in 2004, and OPEC countries are expected to provide a greater share of the world’s oil going forward.
But OPEC has little incentive to increase its ability to pump oil. The cartel has seen the world is willing and able to pay over $100 for oil, and many OPEC countries have become accustomed to revenues generated from those high prices. For them, the higher the price the better - so long as it doesn’t kill the global economy or spur a mass shift away from oil easy pay day loans.
EIA’s price revision is in-line with predictions made earlier this year by the International Energy Agency (IEA), a similar group to EIA that has a more global focus.
The IEA drastically lowered its long-term world oil supply forecast this spring - from nearly 120 million barrels a day to maybe 100 million per day by 2030 - citing access to resources as a major concern.
In making its predictions, EIA does factor in the growth of supplies from "nonconventional" oil, like oil from tar sands or biofuels made from plants. It also makes its projections based on current policy, which does not include things like laws restricting greenhouse gas emissions, which could potentially drive up the cost of fossil fuels.
Higher oil prices, combined with some government mandates, are expected to yield a boost in renewable energy use as well.
Renewables should account for 21% of all energy used in the U.S. by 2030, the agency said, up from about 15% currently. Last year EIA said renewable use would remain flat at 15% in 2030.
Under current policies, EIA predicts energy-related carbon dioxide emissions will slow in the years ahead, but will increase about 7% by 2030. Last year the agency said carbon dioxide emissions should grow by 15% by 2030.
Most climate scientists say the world needs to cut its carbon dioxide emissions by about 80% by 2050 if it is to avoid the worst effects of global warming. During the presidential campaign, President-elect Barack Obama pledged to cut U.S. emissions by that amount.
The EIA estimates that if the country were to cut its greenhouse gas emissions by 40% in 2030, electricity prices would rise by about 10% due to the costs of switching from cheap coal to more expensive wind or natural gas sources to produce electricity. The agency does not have projections for an 80% reduction by 2050.
Oil prices continued falling on Tuesday, tumbling to 3-1/2 year low, as concern about the floundering global economy and falling demand again took center stage.
U.S. crude for January delivery fell $2.32 to settle at $46.96 a barrel. It was the lowest closing price since May 20, 2005, when oil settled at $46.80 a barrel.
A day earlier, oil prices plummeted more than $5 a barrel in the wake of a spate of gloomy economic reports.
"People are worried about their jobs, about their ability to pay for Christmas," said Tom Orr, head of research for brokerage Weeden & Co.
Slowing economy: Businesses and consumers in the United States, the world’s largest oil consumer, have been under intense pressure.
High unemployment and potential collapse of the U.S. auto industry have led many to cut back on fuel use in spite of falling gasoline prices.
During the past four weeks, U.S. demand for gasoline has fallen to about 9 million barrels a day, down 2.8% from last year, according to the Energy Department. On Tuesday, motorist group AAA reported that gas prices fell for the 76th consecutive day to an average of $1.812 per gallon.
Stocks have also taken a pummeling, as the Dow Jones industrial average lost 7.7% on Monday.
"People are getting slaughtered in the market, and they’re getting laid off left and right," said Orr.
Inventories: A government report scheduled for release on Wednesday is expected to show a 2 million barrel increase in U.S. crude inventories, according to analysts polled by financial information firm Platts.
Last week the report showed crude stockpiles had spiked higher than expected, and helped drive prices lower.
Weekly reports on energy inventories can naturally fluctuate from week to week as tankers are delayed, weather disrupts production, or other unforeseen events alter oil’s import and production schedule. But if supplies continue to build, it could be another signal that U.S. crude use was dropping, according to Orr.
"If [Wednesday’s] number doesn’t balance out tomorrow, that could make people a little more nervous," said Orr free credit reports.
OPEC: Investors have also been waiting to see what the Organization of Petroleum Exporting Countries will do when it meets on Dec. 17 to discuss crude prices, which have fallen more than 66% since hitting a record high of $147.27 in mid-July.
OPEC members produce about 40% of the world’s oil and include major exporters such as Saudi Arabia and Venezuela. The decline in oil prices has prompted many OPEC members to advocate production cuts in order to keep prices from falling further.
Over the weekend, Saudi Arabia’s King Abdullah said told a Kuwaiti newspaper that $75 a barrel is a fair price for crude.
At an unscheduled emergency meeting in Cairo this weekend to discuss falling prices, OPEC decided to wait until the December meeting to take action, thus refocusing investors onto declining demand.
"OPEC is really having trouble getting ahead of the curve and cutting production as consumption decreases," said James Williams, energy economist with analysis firm WTRG Economics in Arkansas.
Compliance: Many investors believe OPEC nations have been inconsistent in their compliance with the organization’s October decision to take 1.5 million barrels a day off the market.
Some OPEC producers, seeing their oil profits slide due to falling prices, have been reluctant to cut production further, according to Williams.
"As the price drops, the incentive to cheat goes up," he said.
Saudi Arabia, OPEC’s largest producer, said over the weekend that it hoped member nations would meet at least 80% of the goal. Many investors took that statement to mean OPEC had not yet reached its pledge, with some pegging compliance at as little as 60%, according to Orr.
The failure of member nations to fulfill their existing obligations may put the burden of a second production cut squarely on the shoulders of Saudi Arabia, he added.
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