Oil Hits Fresh Five-Month Low

(Headlines - scroll down for full stories)
1. Realtors Blame Sellers for Housing Woes
2. Another Builder Bites the Dust
3. Is OPEC Going to Pump up Prices?
4. Oil Hits Fresh Five-Month Low

1. Realtors Blame Sellers for Housing Woes

Realtors pointed their collective finger at home sellers for the slumping housing market. They say that sellers are refusing to cut prices to attract prospective buyers. As a result, the National Association of Realtors dropped its sales forecast for the year.

"Sellers are more stubborn than I expected," said David Lereah, the NAR's chief economist. "For five years in a row, it was a seller's market. They were calling all the shots, and they got accustomed to it."

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The NAR now says sales of existing homes will fall 7.6 percent this year. That's much worse than the 4.4 percent drop it called for in January. Sales of new homes will plunge 16 percent, predicts the NAR. In January, the NAR said new home sales would fall 6 percent.

Because sellers are holding out, the NAR expects that prices will rise above last year's highs. However, the NAR expects prices to start falling within months as sellers become more anxious. It points to the record 3.86 million homes on the market or a 7.3-month supply.

The national median existing-home price for all housing types is expected to grow 2.8 percent this year to $225,900, with the median new-home price rising only 0.2 percent to $241,400, says the NAR.

"Folks are still thinking they can get top dollar for their homes," says Tom Rath, an agent at Re/Max Premier in Ocala, Fla., to USA Today. "I don't think reality has set in."

Prices for new homes aren't rising as much because builders are offering incentives to reduce inventory, according to the NAR. Yesterday, three builders acknowledged that they are giving away free upgrades such as granite counter tops, pools and vacations to lure buyers.

The NAR does say that home prices should level out after they correct. According to Lereah, "Home prices should return to positive territory within a few months and annual appreciation will be slower than historic norms."

"Keep in mind that over time, home prices rise at the rate of inflation plus one-to-two percentage points - buyers in most of the country who plan to stay in their home for a normal period of homeownership can pretty well bank on those historic averages, but people who purchased last year with the intent of flipping are likely to get burned," he continues.

Editor's Note:

Housing expert and Yale professor, Robert Shiller, tells Financial Intelligence Report that housing prices nationwide could fall by as much as 40% over the next few years. Find out how the five ways to protect yourself and profit from the coming real estate crisis. Go here now.

2. Another Builder Bites the Dust

The nation's third largest homebuilder slashed its earnings outlook today. This follows warnings from two other homebuilders yesterday concerning the health of the housing market.

Yesterday, MoneyNews told you about the plights of Beazer Homes and KB Home. Today Lennar Corp. joins the growing list of homebuilders warning shareholders that they won't meet earnings targets.

Miami-based Lennar cut its third-quarter earnings outlook to $1.25 to $1.35 per share. That's well below last year's earnings of $2.06 per share. According to a poll by Thomson Financial, analysts were looking for earnings of $1.81 per share for the quarter ending August 31.

Lennar left its annual earnings guidance unchanged. In June, Lennar lowered its full-year earnings forecast to $8 to $8.25 per share, down from $9.25 per share. Analysts don't think Lennar will meet this target, expecting earnings to come in at $7.54 per share.

President and Chief Executive Stuart Miller said in a statement, "The U.S. housing market has continued to deteriorate. Given difficult market conditions, we have limited our land purchases while we have remained focused on even flow production and minimizing completed inventory. As a result of this strategy, we experienced only a slight decline of 5 percent in preliminary net new orders for the quarter."

However, increased sales incentives along with certain land adjustments were the primary factors in lowering our earnings per share estimate," Miller continued. Free upgrades (see previous story) cut into profits for homebuilders.

Editor's Note:

Profit from the housing sector slowdown. Learn how to invest in sectors the smart way. Go here now.

3. Is OPEC Going to Pump up Prices?

OPEC is likely to keep its current oil production targets steady at its meeting next week, experts say, despite concerns that high crude prices threaten to put the brakes on global economic growth.

Even with prices more than $10 a barrel off their July highs and no shortage of supplies, economists concede that jittery market sentiment doesn't leave the Organization of Petroleum Exporting Countries with much choice. Cutting output would drive prices even higher, and pumping more isn't an option for most members already producing at maximum capacity.

"They're not powerless. But there are some things they can do and some things they can't," said Jason Schenker, an economist with Charlotte, N.C.-based Wachovia Corp., who expects energy prices to moderate with slowing economic growth and predicts "no real change in output."

"Inventories have been building, and without major hurricanes in the United States, we're looking at energy markets likely to move lower in the fall and winter," he told The Associated Press. "They really don't have that much room to do much."

Key members of the 11-nation cartel, who meet Monday in Vienna, have said they would like to see prices closer to $65 a barrel. That's already well above the $50-per-barrel benchmark that many members long have contended is optimal.

Oil has been edging lower since light sweet crude hit a record $78.40 a barrel on July 14, two days after fighting erupted in Lebanon. It was trading at around $67 a barrel on Friday.

Global production has taken a hit from BP's leak-prone Alaskan oil pipelines, outages in Iraq and Nigeria -- where militants have attacked oil infrastructure -- and concerns over Iran's escalating nuclear standoff with the U.N. Security Council.

But though supplies remain ample, crude prices are still high, said Eshan Ul-Haq, chief analyst at PVM Oil Associates in Vienna.

"There's enough oil. There's no scarcity," said Ul-Haq, who doubts OPEC will do anything as long as prices remain above $50.

Prices are unlikely to drop to that level this year, he added, but they could start plummeting next year if production from non-OPEC nations such as Angola, Brazil and Azerbaijan rises significantly as expected in 2007. "All this is likely to put pressure on prices," he said.

Ahead of Monday's meeting, Saudi Arabia -- the world's biggest oil exporter, and the only OPEC member with significant spare production capacity -- signaled that the group is likely to maintain its current production quota of 28 million barrels a day. Algeria, too, has said the cartel doesn't really have a choice.

U.S. crude inventories fell 2.2 million barrels last week to 330.6 million barrels, but stocks remain 6.2 percent above their levels a year ago -- the highest since 1998 -- largely because of higher refinery production, the U.S. Department of Energy said this week.

"We're starting to see a lot of oil on the market, so supply is not the issue, and prices are coming down," said Matthew Cordaro, an energy specialist and business professor at Long Island University in New York.

That, Cordaro said, distills OPEC's influence to providing "moral support for the market -- one way or the other."

OPEC's output quota, which does not include Iraq, meets about 40 percent of the world's demand for crude.

The markets are more susceptible to events in the Middle East, "being the tinder box that it is," and to hurricanes that could damage refineries in the Western Hemisphere, he said.

Analysts said it's probably too early to gauge the impact of a newly discovered petroleum pool beneath the Gulf of Mexico that experts say eventually could yield anywhere from 3 billion to 15 billion barrels -- a find Cordaro conceded "does challenge the notion that we're all tapped out."

As OPEC members assess where the oil markets are heading, they're also expected to discuss whether to appoint a new secretary-general, a mostly symbolic post now held by Nigeria.

Iran has been lobbying for the job, arguing that as the cartel's No. 2 producer, it has a right to a top leadership slot. OPEC has shut Iran out of the position since the 1979 Islamic Revolution.

Editor's Note:

Discover how to triple your money with energy investments. Go here now.

4. Oil Hits Fresh Five-Month Low

Oil hit a fresh five-month low on Friday after U.S. fuel supplies rose and BP said it might fully restore the largest U.S. oilfield sooner than expected.

U.S. fuel inventories are rising, BP Plc said the Prudhoe Bay field in Alaska may return to full capacity by end-October and OPEC, which meets on Monday, is expected to keep consumers well supplied (see above article).

"Oil's under a lot of pressure at the moment," said Bruce Evers, analyst at Investec Securities. "There's a lot of distillate and gasoline about, and crude supplies are ample."

U.S. crude slipped 56 cents at $66.76 a barrel by 1510 GMT after earlier falling as far as $66.65, the lowest since April 7. London Brent fell 49 cents to $66.04.

BP said on Thursday Prudhoe Bay may hit full capacity above 400,000 barrels per day (bpd) by end-October - months earlier than many estimates - if regulators approve its plan to bypass a corroded pipeline.

The field, which supplies 8 percent of U.S. oil, is running at about 220,000 bpd. It was not immediately clear when the U.S. government would make a decision on the matter.

BP's comments on Prudhoe Bay came after U.S. government data showed fuel stocks in the world's top oil consumer were building up more quickly than analysts expected.

"Traders are comfortable selling oil for the first time in a while," Tobin Gorey, a commodity strategist at Commonwealth Bank of Australia, said in a research note.

"The U.S. inventory report last night points to comfortable supply conditions for now."

Comfortable Stocks

U.S. distillate stocks, including heating oil, rose 3.1 million barrels to 139.9 million barrels in the week of Sept. 1, the highest level since January 2002, the Energy Information Administration said.

Gasoline inventories rose by 700,000 barrels to 206.9 million barrels, against analysts' forecasts for a decline.

Oil in New York has fallen from a record high of $78.40 reached in July with the breach of a key technical level - identified by analysts who study past price patterns for clues to future direction - potentially deepening losses.

On Thursday, U.S. crude settled below the 200-day moving average - a major technical trigger for speculators - for the first time since mid-March.

Oil has also shed much of the premium attached to concerns over Iran's nuclear row with the West, analysts say. Iran is the world's fourth-largest oil exporter.

The United States wants the U.N. Security Council to begin talks next week on a draft resolution that sets out sanctions against Iran for its nuclear activities, U.S. Undersecretary of State Nicholas Burns said on Friday.

But it was far from clear whether other major world powers supported Washington's push to penalise Tehran for defying a U.N. demand that it freeze uranium enrichment by Aug. 31.

The Organization of the Petroleum Exporting Countries is expected to keep pumping at high rates for the rest of 2006. The group will meet to review output policy on Monday in Vienna.

Editor's Note:

In April 2004, Financial Intelligence Report predicted that oil prices would skyrocket from $29 per barrel to over $60 within a year. That forecast was dead-on. Our investors made a fortune on that advice. Since then FIR has been warning that oil prices would collapse in the next 12 months and could go as low as $40 per barrel. Discover the top 5 ways you can profit from the coming Oil Bust. It's already begun! Go Here Now.

Editor's Notes:

Housing expert and Yale professor, Robert Shiller, tells Financial Intelligence Report that housing prices nationwide could fall by as much as 40% over the next few years. Find out how the five ways to protect yourself and profit from the coming real estate crisis. Go here now.
Profit from the housing sector slowdown. Learn how to invest in sectors the smart way. Go here now.
Discover how to triple your money with energy investments. Go here now.
In April 2004, Financial Intelligence Report predicted that oil prices would skyrocket from $29 per barrel to over $60 within a year. That forecast was dead-on. Our investors made a fortune on that advice. Since then FIR has been warning that oil prices would collapse in the next 12 months and could go as low as $40 per barrel. Discover the top 5 ways you can profit from the coming Oil Bust. It's already begun! Go Here Now.
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