Oil Falls Below $90 for First Time in 4 Weeks as Supplies Rise

(Bloomberg) -- Crude oil fell below $90 a barrel for the first time in four weeks after a U.S. Energy Department report showed that supplies rose more than expected.

Inventories surged 4.29 million barrels to 287.1 million in the week ended Jan. 11, the first increase in nine weeks, the report showed. Supplies were expected to rise 1.25 million barrels, according to the median of 15 responses in a Bloomberg News survey.

``This confirms that the seasonal period of crude-oil inventory builds has begun and gotten off to a good start with a larger-than-expected build,'' said Eric Wittenauer, an analyst at A.G. Edwards & Sons Inc. in St. Louis.

Crude oil for February delivery fell $2.47, or 2.7 percent, to $89.43 a barrel at 10:56 a.m. on the New York Mercantile Exchange. Prices touched $89.35 today, the lowest since Dec. 18. Futures reached a record $100.09 a barrel on Jan. 3. Prices are up 75 percent from a year ago.

Brent crude for February settlement declined $2.09, or 2.3 percent, to $88.89 a barrel on London's ICE Futures Europe exchange. Futures touched $98.50 on Jan. 3, the highest intraday price since trading began in 1988.

Refineries operated at 87.1 percent of capacity, down 4.2 percentage points from the week before, the report showed. It was the biggest one-week drop since September 2005 when Hurricane Rita shut refineries in Texas and Louisiana after roaring in from the Gulf of Mexico.

``The big drop in refinery runs is the most shocking number inside the report,'' said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. ``It could be that we are seeing an early start to the next round of refinery maintenance.''

 

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Boeing delays 787 by three more months

(Reuters) - Boeing Co (BA.N: Quote, Profile, Research) said on Wednesday it would push back first test flight and deliveries of its 787 Dreamliner by about three months, as it struggles with production of the new, carbon-fiber airplane.

The delay is the second major setback for the program in three months, after announcing a six-month delay in October.

Only a month ago Boeing's commercial airplane chief assured Wall Street that the plane was on track to meet its revised schedule.

Boeing said on Wednesday the first test flight of the plane would now take place around the end of the second quarter, compared with its previous target of near the end of March.

First deliveries of the plane are now scheduled for early 2009, rather than its previous estimate of late November or December this year.

Chicago-based Boeing said the new delay would not have a significant effect on 2008 results, but it would update its financial forecasts for this year when it reports quarterly earnings on January 30.

It plans to provide financial forecasts for 2009 when it reports first-quarter earnings at the end of April. The new delay is likely to have a greater impact on 2009, as that is when deliveries of the 787 are now scheduled to start.

 

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Consumer prices data open door to rate cut

(Reuters) - Consumer prices rose modestly in December while industrial production was flat, leaving the door open for the Federal Reserve to slash interest rates later this month to shore up an economy that some fear is on the verge of a recession.

The reports released on Wednesday also showed consumer prices shot up last year at the fastest rate in 17 years, driven by soaring energy costs, while manufacturing growth was the weakest since 2003.

The data "underlines our view that we're on the razor's edge here, that we could be headed into recession," said Mike Schenk, senior economist with Credit Union National Association in Madison, Wisconsin.

Stock markets were mixed, with technology shares hurting after a disappointing earnings report from sector bellwether Intel Corp. Bond prices weakened while the dollar's value declined against other major currencies.

The Consumer Price Index, the most broadly used gauge of inflation, rose 0.3 percent in December, slightly ahead of economists' forecasts for a 0.2 percent rise, the Labor Department report showed.

Still, core prices that strip out volatile food and energy items rose 0.2 percent last month - in line with forecasts - following a 0.3 percent November increase.

For the full year, CPI jumped 4.1 percent, well ahead of the 2.5 percent increase posted in 2006 and the largest 12-month rise since a 6.1 percent increase in 1990. Core prices were up 2.4 percent for the full year, following a 2.6 percent pickup in 2006. That was the smallest 12-month rise in core prices since a 2.2 percent increase in 2005.

 

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JPMorgan takes $1.3 billion writedown

(Reuters) - JPMorgan Chase & Co said on Wednesday quarterly profit fell a worse-than-expected 24 percent as the No. 3 U.S. bank lost $1.3 billion on risky mortgages and set aside more money for rising losses on home-equity loans.

The bank quadrupled to $1.1 billion the provision it needs to cover continued problems on home equity and subprime mortgage loans. It also said credit card spending slowed in December, a sign the U.S. economy could suffer as cash-strapped consumers face rising food and heating costs while the value of their homes slide.

"We remain extremely cautious as we enter 2008," JPMorgan Chief Executive Jamie Dimon said in a statement. He said a worsening U.S. economy would boost consumer credit losses beyond current levels.

 

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Williams-Sonoma Shares Fall Most in 5 Years on Lower Forecast

(Bloomberg) -- Williams-Sonoma Inc., the U.S. gourmet-cookware retailer, fell the most in five years in New York trading after reducing its fourth-quarter profit forecast on an unexpected decline in holiday sales.

Fourth-quarter earnings per share, excluding some items, will probably be $1.12 to $1.15, compared with an earlier forecast of no less than $1.20, the San Francisco-based retailer said today in a statement. Sales at Williams-Sonoma's stores open more than a year fell 0.4 percent for the nine weeks through Dec. 30, the company said.

Customer visits to home-furnishings stores slowed more than Williams-Sonoma expected, and 2008 may be ``increasingly challenging,'' Chief Executive Officer Howard Lester said in the statement. The retailer cut prices and offered cheaper shipping at its Pottery Barn home-furnishings unit during the holidays to lure shoppers discouraged by falling house prices.

``Home furnishings retailers in general were highly promotional this holiday period,'' Laura Champine, a New York- based analyst with Morgan Keegan Inc. said in an interview Jan. 11.

Williams-Sonoma declined $2.30, or 10 percent, to $19.90 at 9:53 a.m. in New York Stock Exchange trading. It was the biggest decline since July 2002.

Three analysts surveyed by Bloomberg estimated an average gain of about 0.8 percent in comparable-store sales during the November-December period. For the fourth quarter, 21 analysts expected profit of $1.20 a share, on average.

 

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Soros Hires BlackRock's Anderson as Investment Chief

(Bloomberg) -- George Soros's hedge-fund firm named BlackRock Inc. co-founder Keith Anderson as its new chief investment officer, according to a letter sent to shareholders.

``Keith will assume responsibility for managing all investment activities at Soros Fund Management,'' said the letter, dated yesterday and signed by Soros's sons Robert, 44, and Jonathan, 37, deputy chairmen of the New York-based fund- management group. Anderson, 48, starts his job next month.

Anderson takes the helm after a year in which the $17 billion fund returned 32 percent, outpacing the average hedge- fund gain of 10.4 percent. In 2007, the senior Soros, 77, was more involved in Quantum Endowment Fund's investments than he has been in years. Money-making trades in the portfolio included investments in China and India and in the currency markets.

Robert, who stepped down at the end of July as chief investment officer but continues to manage money, also contributed to the outsize return.

Anderson is the fourth chief investment officer at Soros since the billionaire philanthropist decided to scale back risk at the Quantum Endowment Fund following the departures of star traders Stanley Druckenmiller and Nicholas Roditi in April 2000.

In addition to Robert, the other investment executives were Robert Bishop, previously a principal at hedge fund Maverick Capital Ltd., and former Goldman Sachs Group Inc. partner Jacob Goldfield.

 

 

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U.S. Retail Sales Unexpectedly Declined in December

(Bloomberg) -- Sales at U.S. retailers unexpectedly fell in December, capping the weakest year since 2002.

Sales dropped 0.4 percent, the first decline since June, following a revised 1 percent gain in November, the Commerce Department said today in Washington. Purchases excluding automobiles also decreased 0.4 percent.

Treasury notes rose and stock-index futures dropped as the figures underscored Federal Reserve Chairman Ben S. Bernanke's concern that risks to growth are intensifying. A sustained slump in consumer spending brought on by falling property values and rising unemployment would mean the end of the six-year expansion, economists say.

``Consumer spending slowed down pretty dramatically'' in the fourth quarter, said Brian Bethune, director of financial economics at Global Insight Inc. in Lexington, Massachusetts, who correctly forecast the drop in sales. ``We are kind of flying very close to a stall speed.''

Economists forecast retail sales would be unchanged, according to the median of 74 estimates. Projections ranged from a decline of 0.8 percent to a gain of 0.5 percent.

Yields on benchmark 10-year notes dropped to 3.72 percent at 8:55 a.m. in New York, from 3.77 percent late yesterday. Futures contracts on the Standard & Poor's 500 stock index expiring in March declined 1.1 percent to 1, 404.40.

Producer Prices

Producer prices in the U.S. also dropped in December, against economists' forecasts for an increase. Wholesale prices fell 0.1 percent after a 3.2 percent surge in November that was the biggest in 34 years, a Labor Department report showed.

For all of 2007, retailers posted a 4.2 percent sales increase, the smallest in five years. Purchases rose 5.9 percent in 2006.

``Growth stalled out at the end of the fourth quarter and into the new year,'' Joshua Feinman, chief U.S. economist at Deutsche Asset Management in New York, said before the report. ``The economy will narrowly be able to avoid recession.''

Sales excluding automobiles were forecast to decrease 0.1 percent from the prior month, according to the survey median.

The drop in sales was led by a 2.9 percent decline at building-material stores, the biggest since February 2003, reflecting the slump in housing. Sales at clothing, electronics and sporting-goods stores were among those that also decreased.

Gas Stations

Purchases at service stations dropped 1.7 percent, which economists said reflected lower gasoline prices. The price of a gallon of regular gasoline in December averaged $3.01, down from $3.07 the previous month, according to AAA, a group representing motorists. Excluding gas, retail sales fell 0.2 percent.

Auto dealers saw a 0.4 percent decline in sales.

AutoNation Inc., the largest publicly traded U.S. car dealer, doesn't expect the nation's auto market to pull out of its slump until 2009, Chief Executive Officer Michael Jackson said from Fort Lauderdale, Florida.

The drop in housing and the slowing economy usually take ``30 to 40 months to work through,'' Jackson said in a Bloomberg Radio interview yesterday. ``So we've had declines in 2006, 2007 and 2008, but I'm feeling pretty good about 2009.''

Excluding autos, gasoline and building materials, the figures the government uses to calculate gross domestic product, sales increased 0.1 percent, following a 0.7 percent gain the month before. The government uses data from other sources to calculate the contribution from the three categories excluded.

Spending Outlook

Consumer spending, which accounts for more than two-thirds of the economy, is likely to cool rather than collapse in coming months as the housing slump worsens and hiring slows, according to the median estimate of economists surveyed by Bloomberg News earlier this month.

Spending will grow at an annual rate of 1.6 percent this quarter, down from an estimated 2.6 percent pace in the last three months of 2007, according to the median estimate of economists surveyed by Bloomberg News this month. Spending expanded at an average 3.5 percent pace per quarter over the past decade.

The continued gains, together with increasing exports, will help the economy avoid recession, economists said. Fed rate cuts will ensure a short downturn should one occur, they said.

Bernanke on Jan. 10 pledged ``substantive additional action'' to insure against ``downside risks'' to the economic expansion.

Investors are certain the Fed will lower the benchmark interest rate by at least a half percentage point following two days of meetings of Jan. 29-30.

 

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