Price of Crude Oil Falls Again, but Analysts Warn It Will Remain at Lofty Levels

?HOUSTON — With the Memorial Day weekend and summer driving season coming soon, the sudden drop in oil prices could mean that drivers will find moderately lower gasoline prices at just the right moment.

But many energy analysts and economists predict that oil and gas prices will remain stubbornly high.

Supplies remain constrained by turmoil in the Middle East and North Africa, oil specialists said, and there is always the possibility that conflict could cut production in Nigeria. At the same time, expanding economies like China and India continue to drive the growth in oil consumption.

“Nothing has changed, except psychology and taking profits,” Allen Sinai, chief global economist of Decision Economics, a consulting firm, said of this week’s selloff in the oil futures market. “This is a correction, and not a shift in trend.”

Light sweet crude, the benchmark of New York trading, fell below $100 on Thursday for the first time since March, but it remains almost 30 percent higher than a year ago. At the close on Friday, oil for June delivery was down $2.62 at $97.18 a barrel.

Gasoline prices fell a fraction of a penny on Friday, according to AAA’s daily gas gauge. But with the average regular gallon costing $3.98, that is still 28 cents higher than a month ago and a $1.06 more than a year ago.

Other commodities were mixed after a sharp selloff on Thursday. Gold and cocoa were higher, while silver, wheat, cotton and copper were lower again on the day.

Tom Kloza, chief oil analyst of the Oil Price Information Service, predicted that the average price for a gallon of regular gasoline would fall to $3.75 by Memorial Day and to $3.50 later in the summer. Those are still historically high prices, taking consumers back to a level they were paying earlier this year.

President Obama, speaking to auto plant workers in Indiana on Friday, acknowledged the public frustration over high gas prices. “We’ve got high gas prices that have been eating away at your paychecks and that is a headwind that we’ve got to confront,” he said.

Meanwhile Attorney General Eric H. Holder directed a special task force to examine whether reductions in oil prices were being passed on to consumers. “Fraud or manipulation must not be allowed to prevent price decreases,” Mr. Holder said in a memo.

Corrections, even sharp ones, are not unusual as commodity prices follow longer trends up. A Barclays Capital research note on Friday observed that on several occasions last year, weak economic data pushed oil prices down to $70 a barrel. “Those periods were indeed short-lived,” Barclays noted, before oil prices continued their march upward.

While commodity traders move oil markets up and down from day to day, the fundamentals of supply and demand are the drivers from month to month and year to year. Though the fundamentals continue to point higher, oil prices are not expected, at least anytime soon, to return to the levels reached in 2008 when a barrel of crude neared $150 a barrel.

The Energy Department predicts moderately tightening world markets. The department last month estimated that world consumption would grow by an average of 1.5 million barrels a day in both 2011 and 2012. Despite more drilling in OPEC and non-OPEC countries, the department projected that supplies would increase to meet only roughly half the added demand this year and roughly 80 percent of the added demand in 2012.

International financial analysts and oil experts have been predicting a correction for some time in oil prices, since there are ample supplies at the moment. But many think oil prices are going higher in the second half of the year. ?

“Worldwide, the macro picture has not changed,” said Andy Lipow, a former Amoco trader who is president of his own Houston consulting firm. “Oil demand around the world continues to increase at the same time we are experiencing a supply disruption in Libya as well as a reduction of supplies from the Gulf of Mexico.”

He predicted that the price of oil would return to the $110 a barrel level by the end of the year. The Macquarie Group projected in a commodities research note this week that light sweet crude would average $110 a barrel this year, $115 in 2012 and $117 in 2013.

The military stalemate in Libya has taken over a million barrels a day of high-quality crude off the market, and oil fields and terminals have been damaged in the fighting. Meanwhile nearly half of Yemen’s 260,000 barrels of daily production is offline. That is a relatively small amount, but Yemeni crude is also a high-quality product that refiners find difficult to replace.

Saudi Arabia promised earlier in the year to increase its production capacity, but it actually cut production recently, claiming that the world markets were flush. Whether the kingdom steps up production remains to be seen, and energy experts are watching closely to see what if any decisions are made on OPEC production and prices at the organization’s next meeting in June.

Recent International Energy Agency and Energy Department reports predict that China, India, other developing nations and the Middle East itself will continue to consume more oil as they build factories and their middle classes add thousands of cars every week to the world fleet.

The Energy Department reported that crude inventories last week had risen by 3.4 million barrels, because American gasoline consumption has been slowing. Consumption may rebound somewhat as prices ease again, energy experts say.?Meanwhile, after the earthquake in Japan, demand for oil was down by about 30,000 barrels a day. That reduction was less than expected, and Japan will almost certainly import more oil as its economy recovers and it replaces some nuclear generation with heating oil.

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Ownership of TV Sets Falls in U.S.

The Nielsen Company, which takes TV set ownership into account when it produces ratings, will tell television networks and advertisers on Tuesday that 96.7 percent of American households now own sets, down from 98.9 percent previously.

There are two reasons for the decline, according to Nielsen. One is poverty: some low-income households no longer own TV sets, most likely because they cannot afford new digital sets and antennas.

The other is technological wizardry: young people who have grown up with laptops in their hands instead of remote controls are opting not to buy TV sets when they graduate from college or enter the work force, at least not at first. Instead, they are subsisting on a diet of television shows and movies from the Internet.

That second reason is prompting Nielsen to think about a redefinition of the term “television household” to include Internet video viewers.

“We’ve been having conversations with clients,” said Pat McDonough, the senior vice president for insights and analysis at Nielsen. “That would be a big change for this industry, and we’d be doing it in consultation with clients if we do it.”

Nielsen’s household figures suggest that while the TV set is still firmly at the center of the average American’s media life, a small minority of Americans are finding ways to live without it. The “persistently rocky economy” is a factor, the company says in the report to be released Tuesday.

Similarly, the economy was the reason cited by Nielsen when the percentage of homes with sets declined in 1992. That decline, the company’s report says, “also followed a prolonged recession and was reversed during the economic upswing of the mid-1990s.” If the current decline persists, it will have profound implications for the networks, studios and distributors that are wedded, at least in part, to the current television ecosystem.

Nielsen’s estimates incorporate the results of the 2010 census as well as the behavior of the approximately 50,000 Americans in the national sample that the company relies upon to make ratings projections. “One thing we are seeing in the Nielsen sample are fewer people owning TVs,” Ms. McDonough said. It was first evident in the sample in late 2008, she said, during the worst of the financial crisis and the recession.

Nielsen’s research into these newly TV-less households indicates that they generally have incomes under $20,000. “They are people at the bottom of the economic spectrum for whom, if the TV breaks, if the antenna blows off the roof, they have to think long and hard about what to do,” Ms. McDonough said. Most of these households do not have Internet access either. Many live in rural areas.

The transition to digital broadcasting from analog in 2009 aggravated the hardship for some of these households. Some could not afford to upgrade, Nielsen surmised, though the government tried to provide subsidies in those situations.

And some in rural areas could not receive digital signals as effectively as analog signals for technical reasons. In those cases, “if you’re an affluent household — or most middle-class households — you’re going to get a satellite dish. If you’re a struggling household, likely you’re not going to be able to afford that option,” Ms. McDonough said.

Then there are the tech-savvy Americans who once lived in a household with a television, but no longer do. These are either cord-cutters — a term that refers to people who stop paying for cable television — or people who never signed on for cable. Ms. McDonough suggested that these were younger Americans who were moving into new residences and deciding not to buy a TV for themselves, especially if they “don’t have the financial means to get one immediately.”

Nielsen has not yet assessed what proportion of the decline can be attributed to this behavior. But the decline in the percentage of homes with sets is sure to kick off another round of speculation about cord-cutting.

Sensitive to its clients’ concerns, Nielsen explains the trend this way in the report: “While Nielsen data demonstrates that consumers are viewing more video content across all platforms — rather than replacing one medium with another — a small subset of younger, urban consumers seem to be going without paid TV subscriptions for the time being. The long-term effects of this are still unclear, as it is undetermined if this is also an economic issue that will see these individuals entering the TV marketplace once they have the means, or the beginning of a larger shift to online viewing.”

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DealBook: Wells Fargo Profit Jumps, but Revenue Falls Slightly

 Noah Berger/Bloomberg News

8:20 p.m. | Updated

Wells Fargo & Company posted a 48 percent increase in first-quarter profit on Wednesday, but investors were not impressed by the results, given fears that sluggish mortgage loan growth would erode the bank’s earnings power.

Shares of the bank, which is based in San Francisco, fell 4.1 percent as traders looked past bottom-line earnings of $3.8 billion and focused on slow top-line growth.

Revenue fell 5.2 percent to $20.3 billion as rising interest rates caused the mortgage refinancing boom to slow down.

The bank, which is the nation’s biggest mortgage underwriter, said that home loan origination volume fell by more than 34 percent from the fourth quarter.

Nonetheless, Wells Fargo beat analysts’ estimates by a penny and recorded a record profit with the help of some sophisticated financial management.

The bank reduced the amount it set aside to cover future loan losses by about $3 billion from a year ago even as its pile of bad loans decreased.

The reserve reduction strategy has been a favorite of the major banks this quarter, as they have all taken advantage of the improved economy to lower loan-loss provisions. That leaves more money to be counted as profit, although it can camouflage underlying weakness.

Other giant banks with big Wall Street businesses were able to make up for some of the missing income with stronger results from investment banking and trading. But Wells Fargo, which is more oriented to retail banking, could not.

However, Timothy J. Sloan, Wells Fargo’s newly installed chief financial officer, brushed aside concerns that Wells Fargo would be severely hurt by a fall-off in its mortgage business.

“If rates go up, it is probably because the economy is going to grow,” he said in an interview. “And if the economy is growing, it’s more likely the rest of our businesses will grow.” With an improved economy, he said, he foresees a pickup in its wealth management and small business lending operations, as well as finding new profits by deploying more than $100 billion of cash it has on hand.

Investors were not convinced. Wells Fargo’s stock fell $1.24, to $28.83 a share, while shares of its rivals, Bank of America, Citigroup, and JPMorgan Chase, were flat.

Along with the slowdown in mortgage lending, Wells Fargo faces rising operating costs for servicing loans that are headed into foreclosure, especially after reaching a deal with federal regulators this month to increase staff levels and improve oversight.

Wells Fargo said it took a quarterly charge of about $214 million on its mortgage servicing business after factoring in the higher operating expenses.

The bank has strengthened internal processes and hired 1,000 staff members after adding several thousand last year.

Wells also said it was setting aside an additional $472 million to cover other foreclosure expenses, like fines and litigation costs. That is up from about $193 million in the fourth quarter.

Like the other big banks, Wells Fargo may be required to buy back bad loans it sold to Fannie Mae, Freddie Mac and other private investors.

In the first quarter, the bank set aside $249 million to cover future repurchases, after setting aside $464 million in the fourth quarter.

Still, the spill of red ink has slowed. Although the housing market and broader economy remain fragile, Wells Fargo said it had released $1 billion from its loan loss reserves in the first three months of the year and expected to continue drawing down its reserves in the coming quarters.

“We wanted to see more sustained performance in the improvement of the portfolio,” Mr. Sloan said. “We have seen that trend continue.”

 

Sprint's Common Cents brand falls into the sofa cushions, replaced by Virgin Mobile Beyond Talk

 By Tim Stevens posted Apr 9th 2011 10:46AM It was some... curious timing. On May 6th of last year Sprint's new boy toy Virgin Mobile announced the Beyond Talk prepaid plan. Then, just a week later, Sprint launched its own, separate prepaid plan, Common Cents. Beyond Talk started at $25 a month for 300 minutes while Common Cents was $.07 per minute, all contact free. The latter of those two is now dying away, never catching on despite what must be said is a rather catchy name. Its users are being lumped into the Virgin payLo scheme, while Beyond Talk will take over the kiosks and marketing avenues currently occupied by Common Cents. There, with its rag-tag group of featurephones and data plans,