gwmt

Fuel prices seem to be the number one concern on just about everyone's mind lately, and it seems like things are not going to be getting better any time soon. As prices have risen to record levels, many of us have decided to cut back on our driving, especially on long trips in order to save a little on our fuel prices. Well, the airlines are no different, and there's an interesting report today in The Wall Street Journal showing how airlines are cutting back on long flights in order to save a little on fuel consumption.

It is a pretty nasty cycle we are seeing with the airlines. The higher fuel costs have led to higher tickets prices and extra fees. These higher prices have led to less air traffic, and that has led to an even greater need to find more ways to cover rising costs. Definitely a tough situation.

The new way they are starting to combat the high costs of flying is by cutting back, or postponing long international flights, in particular flights that are in excess of 12 hours.

Oil fell more than $5 to $136 per barrel Tuesday morning as concern about a global economic slowdown prompted traders to conclude that oil demand growth may slow in the quarters ahead.

Oil fell $5.11 to $136.26 per barrel -- a drop that brought its two-day decline to more than $8. (Oil is still about 90% higher than a year ago, and about 400% higher than in 2000.)

The other major energy commodities, likewise, plunged for a second day, in early Tuesday trading. Heating oil plummeted 14 cents to $3.83 per gallon, unleaded gasoline fell 12 cents to $3.36 per gallon, and natural gas plunged 45 cents to $12.53 per million BTUs.

Some bloom off the energy rose?

Economist Peter Dawson said investors and traders are taking a harder look at the energy picture, in light of recent corporate and economic data points. While underscoring that "it's always difficult to try to evaluate events in motion," Dawson said a protracted recession in the U.S. combined with a global slowdown "would take some of the bloom off the energy asset rose."

During June, inflation in China was up 7.1%. That is somewhat better than recent figures, but is still very troubling. According to Reuters, "for the first six months as a whole, consumer prices were 7.9 percent higher than a year earlier -- well above the government's official full-year target of 4.8 percent."

Over time, and that time may be brief, high costs in China means rising prices for exports to places like the US. Much of the inflation on the mainland comes from rocketing oil and commodities prices. Those will eventually have to be passed through the manufacturing process and that means that prices for American-bought goods sourced in China are going up. That in turn, puts pressure on US inflation rates.

The China numbers should remind US companies and policy markers that rising costs are a global issue and not a local one. The rising price of oil and food will take their toll across the world and cannot be contained in any one geographic sector. As the American economy slows, increasing prices out of China also increase the risk of stagflation.

All in all, China is just the first link in a long chain and that link is weakening.

Douglas A. McIntyre is an editor at 247wallst.com.

Apparently rock musician Sammy Hagar is not one of U.S. Sen. John Warner's (R-Virginia) constituents.

Sen. Warner has suggested that the U.S. Congress might want to consider reimposing a national speed limit to save gasoline and possibly ease fuel prices, The Associated Press reported.

However, Warner has not specifically sponsored legislation calling for a roll-back to 55 miles per hour: he has only asked U.S. Energy Secretary Samuel Bodman to research which speed limit would provide optimum gasoline efficiency given current technology, and also wants to know if the Bush Administration would support a Congressional effort to mandate a lower speed limit, The AP reported.

Last 55 mph law: 1973-74

The United States last imposed a 55 mph speed limit in 1974, as part of an effort to conserve gasoline in response to the world's first oil shock, the 1973-74 oil crisis.

OPEC President Chakib Khelil Monday blamed the U.S. Federal Reserve for sky-high oil prices, The Associated Press reported, adding that surging prices are not likely to decline.

Khelil said he believes the declining dollar has pushed oil higher and that the Fed's interest rate reductions to boost the U.S. economy are the primary reason for the dollar's decline, the AP reported Monday.

In an effort to jump-start the U.S. economy slowed by the nation's worst housing slump in a generation, the Fed has cut short-term interest rates by 325 basis points to 2% since September 2007.

Khelil's comments did not push oil higher as of early Monday afternoon. Oil traders looked past those comments and focused on the dollar's rise for the day versus the euro and pound, and new data points suggesting a deeper, longer U.S. recession, energy trader Jim Dietz told BloggingStocks Monday. Oil fell $3.70 to $141.59 per barrel, with futures hitting a daily low of $140.15 earlier in the day.

Oil traders adopt 'defensive' stance

"Right now the oil market is focused on the U.S. economy not OPEC's comments, and many were spooked by the Freddie Mac and Fannie Mae announcement. Everything is in pullback mode now, oil, stocks, gold, other commodities. The mood is defensive...preserve capital, basically," Dietz said.

Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) may have to raise up to $46 billion and $29 billion in capital, according to Lehman Brothers (NYSE: LEH), Bloomberg News reported Monday. Fannie Mae fell $3.17 to $15.61 while Freddie Mac declined $2.51 to $11.99 in Monday afternoon trading.

Minyanville Professor Adam Michael dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit www.minyanville.com.

One of the top stories on Bloomberg today discusses a problem I have highlighted multiple times in the Ville over the past year: the accelerating decline of Mexico's Cantarell oil field. The latest numbers show Cantarell oil production falling to a 12-year low. I expect the decline in production from Cantarell to only accelerate.

If I am correct, crude oil supply for the United States is going to get tighter in the coming months. Today, we found out Pemex was having problems meeting commitments to Texas refineries due to falling production. I expect this problem to get more press in the future as Cantarell production accelerates to the downside and US refiners are forced to look to an already tight oil market for additional supply.

The Commitment of Traders report comes out today due to the holiday last week. The last COT report for crude oil showed commercials net buyers (first time since February 2007) and one has to wonder why...perhaps commercial traders see the coming collapse in Mexico oil production? I have repeatedly said the COT reports are still bullish for crude and am looking forward to seeing this weeks report when it is released later today.

My favorite energy names continue to be BPZ Energy (AMEX:BZP) and Pacific Rubiales (PEG:CA), both of whom have catalysts in the next month that could move the stocks.

On a housekeeping note, the Hindenburg signal and head and shoulders patterns I highlighted in the S&P and Russell 2000 seem to be playing out. My minimum target on the S&P500 is/was about 1225, which also happens to be in the neighborhood of the 2006 lows.

With gasoline prices sitting at record highs, and the auto industry struggling to deal with the situation, there is a new shift in the design of cars. Historically, when you bought a smaller engine car, that engine came in a vehicle that had far less in the way of comfort and amenities... well, that is changing.

Think back a few years. You went to your local auto lot to pick up a new car, and your first choice was what size engine you wanted, the heavy duty 8-cylinder, 6, or 4-cylinder car? Suppose you decided the 8-cylinder was for you, can you picture the car that supported this engine? Typically these cars had all the bells and whistles you could imagine: the sunroof, the leather seating, fancy radios, power windows, etc. Basically, the bigger the engine, the better the "packaging" that it came along with.

Now, picture the 4-cylinder car from the past. Not much to picture here. Power windows? Doubtful. Yes, the 4-cylinder cars of the past were typically your bare bones vehicle with few fewer amenities than those coming with the 8-cylinder alternatives. If you were lucky, you would at least get some power steering in the car, but that was not always the case either.

By all accounts, China's demand for oil will continue to grow at a rapid clip (the country is already the #2 consumer in the world). Of course, there will also be a huge need for oil services.

To this end, CNOOC (NYSE: CEO)'s oil services division, China Oilfield Services Ltd, has agreed to purchase Awilco Offshore for $2.5 billion.

As should be no surprise, China Oilfield's business is ramping, and with Awilco, which is based in Norway, there will be a nice boost. The company posted $203.5 million in revenues last year. What's more, it has seven oil rigs in operation and six being developed.

Thus, in all, China Oilfield's rig fleet will go from 15 to 22, which is certainly a big deal. Basically, there is an extreme shortage right now. More importantly, rigs are likely to produce significant cash flows for the next couple years as daily lease rates can be as much $600,000.

So far in today's trading, CNOOC's shares are down marginally by $0.54 to $170.45.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

When last week one analyst after another suggested a bankruptcy at one of the automakers is inevitable, many readers commented that bankruptcies at financials were very likely as well. One holiday weekend later and it seems Wall Street is more inclined to agree with this analysis than ever.

The day started off nicely with stocks staging a quiet rally as crude prices declined more than $5 a barrel and the dollar strengthened. But by midday, the bears, it seems, have had enough of entertaining the bulls and returned in drove to sell more of their financials holdings, taking the rest of the stock markets with them. By 1:15 p.m., the Dow was off a 100 points, or 0.9%, the S&P 500 was down 1.28% and the Nasdaq composite declined 0.85%.

Citigroup Inc. (NYSE: C) shares were down over 5%, American Express (NYSE: AXP) shares down over 4.2% and JPMorgan Chase (NYSE: JPM) shares were off 4.8%.

Financial regulators also announced not too long before the selloff began an information-sharing agreement between the Federal Reserve and the Securities and Exchange Commission "aimed at better detecting potential risks to the U.S. financial system." Perhaps the agreement reminded investors of the fragile condition financials are still in and eroded confidence in their ability to bounce back without any more nasty surprises. Recent mentions of liquidity concerns at banks and brokerages, and their need to raise more capital and sell assets, has been weighing markets and financials down.

"The agriculture, mining and oil and gas businesses are booming globally, and mining firms have been plagued by a lack of available earth-moving and subsurface mining equipment," notes Paul Tracy.

To benefit from this trend, the editor of The StreetAuthority Market Advisor recommends Ritchie Brothers Auctioneers (NYSE: RBA), the "largest auctioneer of used industrial and agricultural equipment in the world."

"The prices of wheat, soybeans, corn and other basic food commodities are surging to new multi-year highs. There are two main drivers of this trend: rising consumption of agricultural commodities in emerging markets and increased consumption of crops for biofuels production.

"The developing world is also driving demand for petroleum products and other raw materials. A building boom in China, for example, is driving demand for steel, copper and aluminum used in building construction.

"One problem holding back these industries in recent years is a shortage of equipment. Mining firms have been plagued by a lack of available earth-moving and subsurface mining equipment. And agricultural products producers need tractors, combines and other equipment that are in short supply globally to efficiently run their farms.

Oil fell more than $5 to about $140 per barrel Monday morning after Iran's foreign minister expressed confidence in talks with western governments regarding the nation's nuclear program, Bloomberg News reported.

Iran's foreign minister Manouchehr Mottaki told CNN talks are "in a new environment" and "new approaches" are possible.

A rising dollar Monday morning also helped push oil lower. The dollar strengthened against the euro and the British pound on expectation G-8 industrial leaders will verbally support the dollar at an upcoming economic summit in Japan.

Oil fell $5.14 to $140.15 per barrel Monday morning before recovering slightly to $141.30. The other major energy commodities also plunged in early Monday trading. Heating oil plummeted 13 cents to $3.97 per gallon, unleaded gasoline fell about 10 cents to $3.47 per gallon, and natural gas plunged 42 cents to $13.16 per million BTUs.

Economist Glen Langan, who argues that fundamentals (primarily rising demand) are the major factors determining oil's price, said legitimate progress on the Iran uranium enrichment issue would ease traders' concerns about Iran's supply. "Iran is still OPEC's No. 2 producer and a major exporter of oil, so lasting good news with regard to Iran will ease traders minds about tensions in and near the Persian Gulf. That will take some pressure off prices," Langan said. About 20% of the world's oil flows through the Persian Gulf and the Strait of Hormuz.

Now and then, a media outlet or analyst will talk about $200 crude. Most analysis shows oil peaking at $160 or so and dropping back over the next few months. The commodity may never trade at $60 again, but most of its rise may be over.

Unfortunately, the picture of the energy world seems to be changing. According to The Wall Street Journal, "Oil's historic ascent from $100 to nearly $150 a barrel in just six months is lending weight to a far grimmer prediction: Crude could reach $200 a barrel by the end of the year." The paper adds that this could mean gas would rise to $6 a gallon.

Oil may actually go higher especially if demand in China and India continues to rise and oil producing countries, including Venezuela and Nigeria, stay politically unstable.

What is truly frightening is what $200 oil would do to the U.S. economy. It would almost certainly send companies in the automotive and airline sectors into Chapter 11. Some consumers could see the cost of gas and heating their homes become as high as 20% to 25% of their total cost of living. That would destroy current retail spending habits.

But the economic effect would be more widespread than the airline and car sectors. Every industry that has to ship large amounts of its products, from newspapers to food processors, would be faced with nearly unimaginable additions to their costs of doing business.

All of that would send the US economy into a long and very deep recession. If nothing is done about oil prices soon, the odds of tremendous trouble go way, way up.

Douglas A. McIntyre is an editor at 247wallst.com.

The dollar rose to its highest level in more than a week Monday morning on talk leaders at the G-8 summit in Japan will support the currency in an attempt to halt rising commodity prices.

The dollar strengthened about one-half cent versus the euro to $1.5629 and about 1 cent versus the British pound to $1.9659 in Monday morning trading. The dollar also rose about one-half yen to 107.66 versus Japan's yen.

Ian Stannard, a senior currency strategist at BNP Paribas SA (NASDAQ: BNPQY), France's largest bank, told Bloomberg News Monday that support for the dollar in the form of verbal invention continues, driven by the thesis that a stronger dollar, globally, is in everyone's interest.

Many economists agree that a falling and weak dollar has been a factor in rising commodity prices. Oil and other commodities tend to rise when the dollar falls as investors / traders seek to preserve purchasing power of the decreased value of dollar-denominated commodities by bidding their price up. However, economists differ regarding the extent of the weak dollar's commodity-inflation impact, with some arguing it is only a mild factor.

'Actions speak louder than words'

Further, economist Peter Dawson told BloggingStocks Monday, dollar bulls should not feel too emboldened by a verbal stance by the G-8.

U.S. stock futures were mixed early Monday morning after the long holiday weekend to start a week that is also set to kick off second quarter corporate earnings. While oil weakness and the dollar strength helped the mood on the Street, there is much concern over earnings.

U.S. stocks ended mixed on a short trading day Thursday. The Dow Jones Industrial Average climbed 73 points, or 0.65%, but it wasn't enough to pull it out of bear-market territory it fell into during last week. The S&P 500 also climbed 1 point, or 0.11%, but the Nasdaq composite fell 6 points, or 0.27%, on Thursday.

No economic data is scheduled for release Monday, so investor will likely continue to focus on energy prices while anticipating the beginning of earnings season. Oil prices fell more than $2 a barrel Monday to just over $143 a barrel as the dollar strengthened. Still, the dollar is expected to resume its decline and as Mideast tensions continue, traders don't expect oil to decline much further.

Meanwhile, investors in general don't anticipate corporate America to deliver good earnings. The season will officially kick off Tuesday, when Alcoa Inc. (NYSE: AA) reports after the close. General Electric (NYSE: GE), reports Friday. The question seems to be more how bad results will be, and if they would signal a bottom from which stocks could recover.

The headline in The New York Times reads "American Energy Policy, Asleep At the Spigot." The rise in old prices could have been prevented to some extent. The question is who is at fault. Describing how out of control crude consumption is in the U.S., the paper writes, "Home to only 4 percent of the world's population, the nation slurps up about a quarter of the planet's oil -- and Americans' daily use is nearly twice the combined consumption of the Chinese and Indians."

Well said, and true. But, the actions described are terribly American and could not, under the current economic and government system, have been prevented.

Oil consumption is not unlike the use of cigarettes or liquor. The government can tell citizens that the behavior is dangerous. It can even raises taxes on the products to remarkable levels. But, it is not willing to legislate limited use of oil. It is not willing to create a "Prohibition" like Congress did when it tried to eliminate drinking. The attempt lasted from 1920 to 1933. Americans drank right through the 13 years.

No matter how bad the oil crisis is now, on the consumption side, the U.S. government is poorly equipped to change the behavior of its citizens unless there is a period of emergency. In WW II, people were willing to go along with restrictions in their use of certain goods and services, like rubber.

With gas over $4 and going higher, the present turmoil has the hallmarks of a grave danger. Perhaps it is time for Congress to pass an "Emergency Gas Act." Nothing short of that is going to change how fossil fuels are consumed.

Douglas A. McIntyre is an editor at 247wallst.com.