[R-G] Shaul Mofaz Threatens Iran --> Oil Prices Skyrocket, Taking Biggest Jump Ever, and Dow Slides Nearly 400 Points

[Yoshie Furuhashi]

We have to come up with a way of making clear to the US power elite:
no, we can't afford Israel any more.  Otherwise, we'll all go
bankrupt.  Since the decades of neoliberal capitalism have led to
public and private underinvestment in key industries and
infrastructure, including oil, the margin of error is narrow.
Meanwhile, "the unemployment rate in May had its highest monthly
increase in 22 years."  Will the Fed stick to its promise not to cut
rates again any time soon and defend the dollar? -- Yoshie

<http://www.nytimes.com/2008/06/07/business/07oil.html>
June 7, 2008
Oil Prices Skyrocket, Taking Biggest Jump Ever
By JAD MOUAWAD

Oil prices had their biggest gains ever on Friday, jumping nearly $11
to a new record above $138 a barrel, after a senior Israeli politician
raised the specter of an attack on Iran and the dollar fell sharply
against the euro.

The unprecedented gains on Friday capped a second day of strong gains
on energy markets, and fueled suspicions that commodities might be
caught in a speculative bubble.

Oil futures surged $10.75, or 8 percent, to $138.54 a barrel on the
New York Mercantile Exchange. The record gain followed a jump of 5.5
percent on Thursday, bringing total two-day gains to $16 a barrel.

Stocks fell sharply. The Dow Jones industrials fell 323.97 points, or
2.53 percent, in midday trading. Chevron Corp. was the only stock that
rose on the blue-chip index.

"This market is going to shoot itself in the foot," said Adam
Robinson, an analyst at Lehman Brothers. "It is searching for a price
that will build a safety cushion in the system — either as inventories
or as spare capacity. But this takes time. The market has gotten
extremely impatient and is not willing to wait."

Even as uncertainties abound about the fundamentals of the market,
geopolitical tensions in the Middle East regained center stage after
Israel's transportation minister, Shaul Mofaz, said Friday that an
attack on Iran's nuclear sites looked "unavoidable." Iran is the
second-largest oil producer within the OPEC cartel and any
interruptions in its exports could push prices higher levels.

"The return of the Iranian risk premium calls for a careful assessment
of the potential oil supply impact of military strikes on Iran," said
Antoine Halff, an analyst at Newedge, an energy broker.

The strong volatility in energy markets in recent weeks have continued
to puzzle investors and traders. Prices keep rising despite a lack of
shortages in the market, and strong evidence of lower consumption in
industrialized countries. But investors seem to be caught in a bullish
mood, focusing instead on perceived risks to future oil supplies and
continued growth in oil demand from emerging economies that subsidize
fuels.

The latest jump in oil prices also came as the dollar lost almost 1
percent against the euro amid bleak economic news that fanned
recession fears on Friday. The unemployment rate surged to 5.5 percent
last month, the government said, the biggest increase in more than two
decades.

Investors reacted to the latest forecast by a large Wall Street bank
that oil prices would spike to $150 a barrel in the next month because
of strong demand from Asian economies. Morgan Stanley said "an
unprecedented share" of Middle East oil exports are headed to Asia.

Some analysts also said that the threat of a strike by Chevron's
workers in Nigeria could lead to "considerable" shutdowns of Nigerian
production. A similar strike by Exxon Mobil workers last April, which
lasted a week, reduced Nigerian output by 800,000 barrels a day, or
nearly a third of the country's daily exports.

A strike might delay the start of Chevron's 250,000 barrels-a-day
Agbami project, the country's largest offshore venture, which is
slated for June 15.

One view that has been gaining ground in recent months is that the
commodity market is caught in a speculative bubble akin to the housing
or technology bubble of the late 1990s. The notion is buffered by the
fact the oil prices have doubled in 12 months despite a slowing
economy.

That theory was raised by politicians in Washington and a slew of OPEC
producers, who blame speculators for the staggering rally in oil
prices. Speaking before Congress recently, George Soros, a prominent
hedge fund investor, said the current oil markets presented some
characteristics of a bubble.

"I find commodity index buying eerily reminiscent of a similar craze
for portfolio insurance, which led to the stock market crash of 1987,"
Mr. Soros said earlier this week. But he cautioned that an oil market
crash was not imminent. "The danger currently comes from the other
direction. The rise in oil prices aggravates the prospects for a
recession."

Jeffrey Harris, the chief economist at the Commodity Futures Trading
Commission, who was speaking before another Senate committee last
month, said he saw no evidence of a speculative bubble in the
commodity market. Instead, Mr. Harris pointed out to a confluence of
trends that have contributed to the oil price rally, including a weak
dollar, strong energy demand from emerging-market economies, and
political tensions in oil-producing countries.

"Simply put, the economic data shows that overall commodity price
levels, including agricultural commodity and energy futures prices,
are being driven by powerful fundamental economic forces and the laws
of supply and demand," Mr. Harris said. "Together these fundamental
economic factors have formed a 'perfect storm' that is causing
significant upward pressures on futures prices across the board."

Oil prices had been weakening in recent days but reversed dramatically
after the president of the European Central Bank, Jean-Claude Trichet,
suggested on Thursday that the bank might raise interest rates. That
pushed up the euro against the dollar and prompted investors to buy
into commodities to hedge against the weaker American currency.

Gasoline prices have also been rising steadily. American drivers are
now paying an average of $3.99 for a gallon of gasoline nationwide,
according to AAA, the automobile group. In many parts of the country,
like California, Connecticut and New York, consumers are already
paying well over $4. Diesel costs $4.76 a gallon on average.

"I don't know how else to say it, this is not a bubble," Jan Stuart,
global oil economist at UBS, said. "I think this is real. There is a
whole bunch of commercial buyers out there who are spooked and are
buying. You are an airline, right now, you're scared. But I don't see
who would buy at these prices unless they need to."

<http://www.nytimes.com/2008/06/07/business/07stox.html>
June 7, 2008
Dow Slides Nearly 400 Points; Oil Surges
By ABHA BHATTARAI

The markets opened lower on Friday and then just kept falling, hit by
remarkable rise in the price of crude oil and a spike in the
unemployment rate.

Wall Street suffered its worst losses in more than two months.

The Dow Jones industrials plunged more than 400 points on fears about
high energy prices and a continued economic slowdown, raw nerves that
have pestered investors for months.

"The market is meeting its worst fears right now," said Quincy Krosby,
chief investment strategist at The Hartford, a financial services
firm.

At the close, the Dow was off 3.13 percent, at 394.64. The broad-based
Standard & Poor's 500-stock index fell 43.37 points, or 3 percent, to
1,360.68, and the technology-laden Nasdaq composite index declined
75.38 points, or 2.96 percent, to 2,474.56. Shares opened lower after
the government reported that the unemployment rate in May had its
highest monthly increase in 22 years. But the decline accelerated as
investors confronted a $10.75 jump in the price of crude oil, the
biggest one-day climb ever.

"Oil prices have reached the tipping point," said Richard Sparks, an
analyst at Schaeffer's Investment Research. "Prices have rallied for a
good two months but now it's really weighing on the market."

Wall Street has run into choppy waters over the last two weeks after a
period of relative calm. Friday's decline marked a return to the
triple-digit collapses of February and March, when the market was
rocked by the Bear Stearns bailout and significant interest rate cuts
from the Federal Reserve.

The last time the Dow fell this far was March 19, a day after the Fed
slashed rates by three-quarters of a point.

On Friday, the blue-chip index was dragged down by shares of American
International Group, the big insurer, which stumbled after accusations
that the company may have overstated the value of contracts tied to
subprime mortgages.

Shares of A.I.G. closed down $2.48, or nearly 6 percent, to an 11-year
low of $33.93.

Shares of financial firms and companies that depend on discretionary
spending were the hardest hit, as investors worried that the weak
labor market is likely to raise anxieties among some Americans and put
a pall on spending habits. Friday's report from the Labor Department
said that the economy lost jobs for the fifth straight month and the
unemployment rate surged to 5.5 percent in May from 5 percent.

Investors are also worried that high energy prices will further slow
the economy.

"If oil prices stay this high, you're going to have to reexamine your
estimates for G.D.P., inflation and consumers' ability to spend
outside of non-discretionary items," Ms. Krosby said. "This has all of
the elements of an investor's worst-case scenario."

Oil prices surged almost 8 percent, to $138.54 a barrel after a senior
Israeli politician raised the specter of an attack on Iran and the
dollar fell against the euro.

"As soon as that news hit the tape, oil spiked about $6," said David
Kovacs, an investment strategist at Turner Investment Partners.

Prices were buoyed further by a report from Morgan Stanley that
predicted oil would reach $150 a barrel by July 4 because of higher
demand in Asia. Shares of General Motors, whose fortunes can depend on
oil prices, fell more than 4 percent, to a record low.

Mr. Sparks added the market is also taking a hit from a string of bad
news that came out earlier this week: Standard & Poor's downgrading of
Lehman Brothers, Merrill Lynch and Morgan Stanley; the ousting of
Wachovia's chairman.

"All of this has culminated and it's bringing the boogeyman back out
of the closet," he said.

Bond prices jumped on Friday as investors sought the safety of
Treasuries in the volatile market. The dollar declined against other
currencies, a move that makes each barrel of oil more expensive. Gold
prices rose.

-- 
Yoshie
<http://montages.blogspot.com/>