Headlines (Scroll down for complete stories):
1. Oil Regains Recent Lows
2. Can the Average American Family Afford Housing?
3. OPEC Chief Tries to Talk Down Oil Prices
4. Do Jobless Claim Numbers Matter?
1. Oil Regains Recent Lows
The price of crude oil, which had risen to above $63 a barrel a couple of days
ago, is now sinking below the $60 mark. In fact, crude oil hit an 11-month low
today, trading as low as $59.55 a barrel, says Marketwatch.
The fact that there is an abundant supply of oil stores in the U.S., the
possibility of an economic slowdown in the U.S., and an extremely mild hurricane
season are all putting pressure on oil prices.
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Analysts polled by Reuters predict that U.S. distillate inventories, which
include heating oil, will once again rise this week. Distillate inventories are
already at a seven-year high.
In addition, the U.S. Energy Department will delay buying 11 million barrels of
crude for the nation's emergency reserve in order to keep more supply on the
market, according to Reuters.
"Given comfortable middle distillate stocks, it's hard to see a real supply
worry in the winter," Mike Wittner, analyst at Calyon investment bank, tells
Reuters. "If the price comes off another couple of dollars, we'll see more
action out of OPEC."
The resumption of the downward trend for oil prices should put to rest fears
that oil production cuts from OPEC members Nigeria and Venezuela will have a
large impact on supply. Still, there is a risk that an across the board
production cut by OPEC, namely one led by leading oil producer Saudi Arabia,
could send prices upward (see article below).
"The Nigerian and Venezuelan announcements are significant, but they don't
remove a lot of oil from the market," Wittner said. "Saudi Arabia has been
conspicuous by its silence."
The cuts by Nigeria and Venezuela, about 170,000 barrels in total, account for
less than 1 percent of OPEC's total output, says Reuters.
Editor's Note:
2. Can the Average American Family Afford Housing?
As home prices skyrocketed over the past five years, Americans are paying a
growing percentage of their incomes on a place to live. And that could mean
cutbacks in consumer spending or an increasing number of foreclosures, says a
published report.
The New York Times, based on data from the Census Bureau, says homes and rentals
are becoming increasingly unaffordable for the average American.
The report says that 34.5 percent of homeowners with a mortgage pay 30 percent
or more of their gross income in housing costs. And about 46 percent of all
renters pay 30 percent or more of their gross income on housing. The 30 percent
level is widely seen as the limit of affordability.
Not surprisingly, the hugely expensive California market has the top two cities
where the most people are paying 30 percent or more on housing. For example, the
Southern California town of Temecula has a whopping 74 percent of renters
spending 30 percent or more on housing. In a nearby town, Hemet, 73 percent of
renters spend that much.
But there are other regions where renters pay more than 50 percent of their
gross income on housing. For example, 47 percent of renters in Boulder, Colo.
spend at least 50 percent of their gross income on housing. In College Station,
Tex., 46 percent of renters spent half their gross pay on housing.
As for homeowners, the Times points out rising mortgage costs in Clifton, N.J.,
for example, have caused 27 percent of homeowners to shell out at least 50
percent of their income, up from 12 percent in 2000. In New Britain, Conn., the
percentage of homeowners paying at least 30 percent of income on their mortgage
rose to 57 percent from 27 percent in 2000.
The report is based on Census Bureau data collected in 2005. The Census Bureau
says that housing prices jumped an average of 32 percent from 2000-2005. At the
same time, incomes have remained largely stagnant, points out the Times.
"Housing prices have gone up much more than incomes have," Christopher Jones,
vice president for research at the Regional Plan Association in New York, told
the paper. "Clearly, you can't sustain that sort of imbalance over the long run.
There's only so long that housing prices can go up without sustained increases
in income to support them."
In fact, home prices have started to fall, according to the most recent reports
on existing and new home sales. But rents are still rising in many parts of the
country, notes the paper.
Editor's Note:
3. OPEC Chief Tries to Talk Down Oil Prices
OPEC President Edmund Daukoru on Tuesday called on other members of the oil
exporting group to join Nigeria in reducing supply to world markets.
Daukoru, who is also Nigeria's top oil official, told Reuters that the latest
fall
in oil prices below $60 a barrel vindicated Nigeria's decision to cut output
from Oct 1.
But not all members of the 11-member group viewed the market in the same way, he
added.
"We believe that the market is slightly oversupplied. Nigeria wants to show a
good example. We are simply doing what we think is right in light of the
market," he said by telephone.
He was referring to Nigeria's unusual move last week of announcing a unilateral
reduction in oil exports. This was followed by a similar move by Venezuela. OPEC
nations rarely take such individual steps, preferring to act in concert.
Oil hit a seven-month low below $60 on Tuesday, extending a two-month decline,
on forecasts of another rise in fuel stocks in top consumer the United States.
Nagging at the cartel is the knowledge that U.S. heating oil stocks are at their
highest in seven years, that the group has been oversupplying the market for
most of the past year and demand for OPEC's oil is expected to fall sharply.
All that could be setting the stage for a price collapse — and a collective
output cut when OPEC next meets on Dec. 14. Some believe it could come even
sooner.
"It's very early to say OPEC is in disarray," said London-based oil analyst
Geoff Pyne. "But at some stage there will have to be a decision on whether a
serious surplus of oil is building. And that could be quite soon."
Asked whether OPEC was planning to hold an emergency meeting of ministers before
its next scheduled meeting, Daukoru said:
"We would rather watch what the members do. We don't all of us read the market
in the same way."
He added: "[Today's drop in the oil price] vindicates what Nigeria is doing and
I hope other members will act in the same way."
Public pronouncements suggested last month that Saudi Arabia, OPEC's kingpin and
a close ally of Washington, was at ease with an oil price that had fallen to
around $62 a barrel from its mid-July peak.
But shipping data points to a drop in Saudi and OPEC exports in September, even
as the 11-member producer group agreed in Vienna to leave its output unchanged.
For years Saudi Arabia has adjusted its exports in line with its customers
needs, regardless of its official OPEC quota.
In the second quarter, when crude was above $70 a barrel, Riyadh cut supplies by
around 500,000 bpd because there were no takers for the oil.
© 2006 Reuters.
Editor's Note:
- Financial Intelligence Report told subscribers to prepare for falling oil
prices. That forecast was dead on.
Its not too late to profit.
4. Do Jobless Claim Numbers Matter?
That's the question that BusinessWeek asks in its article "A Job Growth
Indicator Gets Iffy." BusinessWeek says that changing demographics in the U.S.,
specifically the aging of the baby boom generation, make the jobless claims data
a poor predictor for the health of the economy.
‘The aging of the baby boom generation and the steady decline of young workers
in the labor force are causing a breakdown in the relationship between new
claims and hiring," says BusinessWeek.
"Older, more experienced persons typically have longer tenures at jobs. Workers
55 to 64 years old average over nine years at their company, nearly twice as
long as those 35 to 44. Meanwhile, the share of 16- to 24-year-olds in the
workforce has fallen from 64.6 percent in 2001 to 60.7 percent in July. These
less experienced workers tend to move in and out of the job market more
frequently, and they have a higher unemployment rate," BusinessWeek explains.
In other words, as baby boomers age, they tend to stay at their job longer than
their counterparts in the 35-44 age range. Because they outnumber their younger
counterparts, the number of jobless claims is artificially lowered.
JP Morgan Chase economist Michael Feroli tells BusinessWeek that the aging
workforce translates into less churning in the workforce, which in turn reduces
claim activity. Indeed, even as the population has grown, weekly claims outside
of recessions have stayed in a narrow range of 300,000 to 400,000 for most of
the past three decades.
In addition, Feroli thinks that unemployed baby boomers are more likely to take
their time to find the right job, thereby using up their unemployment benefits
and are no longer counted among the unemployed.
"These workers [unemployed, older workers] either find it harder to break back
into the workforce, or they have the financial wherewithal to be choosy about
their next job," says BusinessWeek.
Editor's Note:
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