Wednesday, October 22, 2008

Paulson Sees Banking Consolidation; Oil Drops to $70 a Barrel; iPhone Delivers for Apple

Treasury Secretary Henry Paulson said on Tuesday that he expects to see consolidation within the stressed U.S. banking industry and indicated he sees that as positive, according to Bloomberg.

"There will be some situations where it's best for the economy and for the banking system for there to be a consolidation," Paulson was quoted saying by Bloomberg.

Oil Falls to $70 a Barrel

Oil prices slumped back below $71 a barrel Tuesday as a stronger dollar overshadowed expectations of a sizable OPEC output cut and led investors to shed commodities bought as an inflation hedge (investors often buy commodities like crude oil as an inflation hedge when the dollar weakens and sell those investments when the greenback rises).

At the pump, consumers got another price cut as a gallon of regular gasoline lost 3.4 cents overnight to a new national average of $2.89, according to auto club AAA, the Oil Price Information Service and Wright Express. Prices have fallen 30% from their July 11 peak of $4.11 a gallon and are quickly closing in on year-ago levels.

The dollar muscled higher against rival currencies as credit market conditions eased some and on speculation that the U.S. government might roll out another stimulus package in an effort to jump start the economy.

Light, sweet crude for November delivery fell $3.36 to settle at $70.89 on the NYMex. On Monday, the contract rose $2.40 to settle at $74.25 a barrel. Crude oil is down 52% from its all-time peak of $147.27 reached July 11.

Alarmed by the rapid slide, the Organization of the Petroleum Exporting Countries (OPEC), which controls 40% of the world's oil supply, is holding an extraordinary meeting Friday in Vienna. OPEC's president, Chakib Khelil, said Sunday the group is planning to announce an output reduction that analysts believe could total at least 1 million barrels a day.

But experts are divided over how much impact on OPEC cut will have on prices. Some believe waning global demand for energy will push prices as low as $50 a barrel, while others say a significant supply reduction could halt the downward the momentum.

"If OPEC does cut production, prices could return to the upside over the next three to six months," said Costanza Jacazio, an oil analyst with Barclays Capital in New York. She said tighter global supplies could eventually push prices back toward the $90 range, a level believed to be favored by several OPEC members including Iran and Venezuela.

Oil-producing countries are facing steep serious budget shortfalls as oil prices come down from record levels. Khelil has said OPEC may cut output again at a meeting in December, and that the group considers the oil market oversupplied by about 2 million barrels a day.

Investors are also keeping a close eye on whether non-OPEC producers, such as Russia, will reduce supply as analysts lower price expectations for next year. Deutsche Bank on Monday cut its 2009 oil price forecast to $60 a barrel from $92 and predicted $57.50 for 2010.

Oil market traders are also closely watching economic conditions in the U.S.

Federal Reserve Chairman Ben Bernanke told the House Budget Committee on Monday that a fresh round of government measures might help ease the country's downturn. There were also signs Tuesday of a reviving credit market as bank-to-bank lending rates eased further.

In other NYMex trading, heating oil futures fell 3.24 cents to settle at $2.1975 a gallon, while gasoline prices lost 2.82 cents to settle at $1.6919 a gallon. Natural Gas for December delivery rose 10.1 cents to settle at $7.312 per 1,000 cubic feet.

iPhone Delivers for Apple

Apple (AAPL) said its profit jumped 26% in its fiscal fourth quarter as the newest iPhone 3G outsold the market-leading BlackBerry from Research in Motion (RIMM).

For the three months ended Sept. 27, Apple's profit climbed to $1.14 billion, or $1.26 per share, from $904 million, or $1.01 per share in the same period last year. Sales jumped 27% to $7.9 billion from $6.22 billion in the year-ago quarter.

Cupertino, Calif.-based Apple's profit topped Wall Street's expectations, but the sales revenue missed slightly. Analysts had expected the company to sell $8 billion worth of Macintosh computers, iPods, iPhones and other gadgets, for a profit of $1.11 per share, according to a Thomson Reuters poll.

Peter Oppenheimer, Apple's chief financial officer, said in an interview Tuesday that Apple set records for Macintosh sales and for iPod sales in a non-holiday quarter, but that iPhone results marked the brightest spot. The company sold 6.9 million of its next-generation iPhone 3G in the quarter -- more than the 6.1 million total first-generation iPhones sold.

Research in Motion reported it sold 6.1 million BlackBerry smart phones in the quarter that ended Aug. 30.

"We blew it out on the iPhone," Oppenheimer said. Apple said it sold 2.6 million Macs and 11.1 million iPods in the quarter, allaying fears that the sluggish economy would weigh on Apple's back-to-school sales.

Sources: Reuters, Bloomberg, AP, Yahoo

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