Experts: Pump Prices to Provide Relief

Headlines (Scroll down for complete stories):
1. Experts: Pump Prices to Provide Relief
2. Bernanke Bullish on Productivity Gains
3. Unemployment Falls as Payrolls Climb
4. Venezuela-China Oil Pact to Hurt U.S.?

1. Experts: Pump Prices to Provide Relief

Are gas prices, now averaging $2.80 a gallon, about to ease more? Some experts in the field are saying it's very likely.

The experts cite slowing demand from motorists as the summer driving season ends, the chance of hurricanes diminishing, a slowing economy, falling crude oil prices, and traders dumping crude on the market.

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Tom Knight, director of trading at Texarkana, Texas fuel wholesaler Truman Arnold Cos., tells Bloomberg News that gas prices may drop another 15 to 20 cents a gallon in September.

Scott Hartman, chief executive officer of gasoline distributor CHR Corp., tells Bloomberg that it's possible gas prices will fall to $2.50 to $2.60 by December.

"The only place they have to go is down," says Fred Rozell, gasoline analyst at the Oil Price Information Service (OPIS). "We'll be closer to $2 than $3 come Thanksgiving," he tells USA Today. Rozell says that petroleum traders, fearing that prices are too high to last, are selling their holdings.

OPIS senior analyst Tom Kloza adds that traders also believe that hurricanes won't disrupt Gulf of Mexico production.

Says Bloomberg, gasoline inventories are 2.6 percent above the five-year average. In other words, gasoline supplies are greater than the demand from consumers. And without an oncoming threat such as a hurricane, geopolitical, or supply risks, supplies are expected to remain above average.

Stan Sheetz, president of Sheetz Inc., an Altoona, Pennsylvania, gasoline retailer who sells more than a billion gallons of fuel a year comments to Bloomberg, "Right now the supply situation seems to be completely under control." Sheetz says that a decline to $2.50 a gallon is possible during the next two months.

"I don't think the drop in futures prices is all factored in yet," adds James Cordier, president of Liberty Trading Group in Tampa. "Without some sort of supply disruption, the highs are in for the foreseeable future." Cordier tells Bloomberg that he expects prices to fall 10 cents a gallon next week and another 10 cents by November.

Crude oil, which accounts for 54 percent of the cost of gasoline, is down 5 percent in the past month and 10 percent from its peak. Crude oil inventories are 12 percent above their five-year average, according to the latest report from the Energy Department.

Editor's Note:

In April 2004, the Financial Intelligence Report (FIR) 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. Find out the top 5 ways you can profit from the coming Oil Bust. It's already begun! Go here now.

2. Bernanke Bullish on Productivity Gains

America's productivity probably will keep growing solidly for some time to come, an important force in bolstering living standards, Federal Reserve Chairman Ben Bernanke said Thursday.

Although future productivity gains can be difficult for economists to forecast, Bernanke offered a largely optimistic case that the country will continue to log good efficiency gains over the long term. He said recent figures showing a short-term slowing in productivity didn't change his view.

"A case can be made that the strong productivity growth of the post-1995 era is likely to continue for some time," Bernanke told an economic and development conference in Greenville, S.C. A copy of his remarks was made available in Washington.

Since 1995 productivity has been growing at a significantly faster rate than it had in the previous two decades, when efficiency gains had been sluggish.

Between 1995 and 2000, productivity growth was about 2 1/2 percent a year, Bernanke noted. In contrast, from the early 1970s until about 1995, productivity growth averaged about 1 1/2 percent a year, he said.

Big investments in computers and other productivity-enhancing equipment has played a role in the productivity improvements. Companies have yet to reap all the benefits of their previous investments in such productivity-enhancing technology, Bernanke said. That's part of the reason why he is mostly bullish about future gains.

Competition, the flexibility of U.S. companies to easily add and shed workers, and other factors also have contributed to the efficiency improvements.

And U.S. workers -- from auto mechanics and factory workers to scientists and engineers -- have done their part by, among other things, learning how to use new technologies that sharpen their productivity.

"Few jobs or occupations have not been affected in some way by the technological changes of recent years, a trend that will certainly continue," Bernanke said.

To make sure that good productivity gains are logged in the future, it is crucial that "we have a work force that is comfortable with and adaptable to new technologies," he said. That's why workers need to be mindful of freshening their skills and education, Bernanke added.

Productivity -- the amount an employee producers for every hour on the job -- is a key ingredient to the economy's long-term vitality. Efficiency gains can be a blunting force against inflation. Companies can pay workers more without boosting prices, which would eat into those wage gains.

In the April-to-June quarter, though, productivity growth slowed sharply. And, companies' compensation to workers shot up.

Productivity grew at an annual rate of just 1.1 percent in the second quarter, down from a 4.3 percent pace in the first quarter.

As a result, unit labor costs, a measure of how much companies pay workers for every unit of output they produce, advanced at a rate of 4.2 percent in the second quarter -- much faster than the 2.5 percent pace logged in the first quarter. Economists keep close tabs on unit labor costs for clues about inflation.

Bernanke did not discuss the future course of interest rates in his speech or during a brief question and answer session afterward that focused mostly on the local economic climate.

The Fed chief also talked about the importance of monitoring "core" inflation, which excludes food and energy prices. That gives policymakers a better sense of how prices of many other goods and services are behaving. But the Fed pays close attention to the overall inflation rate, too, he said.

"In the long run, what we would like to control is (overall) headline inflation because, after all, that is what is determining the value of money and that is what people need for their planning," he said after his speech.

As far as dealing with surging energy prices, Bernanke acknowledged that can be a challenge. "Generally speaking, it's very difficult to eliminate the inflationary impact" of the immediate effects of energy price increases," he said. With the economy slowing, the Federal Reserve on Aug. 8 halted a more than two-year long string of rate increases. The pause gives policymakers time to assess the toll their previous rates hikes have taken on economic activity.

Economists have mixed opinions about what the Fed will do next. Some believe the Fed will leave rates alone again at its next meeting, Sept. 20. Others, however, predict a rate increase is in store to fend off inflation.

Editor's Note:

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3. Unemployment Falls as Payrolls Climb

The unemployment rate fell a tenth of a percentage point to 4.7 percent in August, reports the Labor Department. Employers added a more-than-expected 128,000 jobs to the payrolls last month, up from a revised 121,000 in July.

The employment figures are good, but not good enough to scare the Federal Reserve into action. In the first quarter of 2006, payrolls were on pace to bring in 157,250 jobs each month for a gain of 1.89 million for the year. But second quarter payrolls have averaged gains of 120,750 jobs, or an increase of 1.45 million payrolls in 2006.

The drop mirrors the decline in economic activity from the first quarter to the second quarter of 2006. The nation's gross domestic product fell from a 5.6 percent increase in the first quarter to a 2.9 percent increase in the second quarter. The slowdown in economic activity is thought to stave off inflation, thereby taking pressure off of the Fed.

"All in all, it's a very inflation-friendly and Fed-friendly report," said Richard Yamarone, chief economist at Argus Research in New York. "It doesn't suggest any economic frailty, but it supports a sidelined Fed." Jobs in the service industry were the most abundant last month. Employers added 118,000 payrolls last month. On the other hand, the manufacturing industry send the most employees packing.

Productivity (see Bernanke article) dipped to 33.8 hours last month. Incomes increased 0.1 percent in August.

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4. Venezuela-China Oil Pact to Hurt U.S.?

During a trip to China last week, Venezuela's President Hugo Chavez announced plans to bolster his country's oil trade with the Asian nation, which is the second-largest oil consumer in the world behind the U.S.

"... Chavez announced several deals, including plans to export 500,000 barrels of oil per day within five years to China and the creation of joint ventures with two state-owned oil companies to produce and export crude from Venezuela's oil-rich Orinoco River basin, according to China Daily," said MarketWatch.

The news service cites Anthony Sabino, a professor specializing in oil and gas law, who describes this development as a potential "marriage made in hell" for American oil interests.

An Oxford Analytica article says that as the global oil market tightens further, relationships between the world's major hydrocarbon exporters become more and more significant.

"Venezuela needs foreign investment to develop its vast hydrocarbon resources. High oil prices and global competition to access material hydrocarbon resources allow Venezuela to be selective in prioritizing foreign investors to develop these attractive resources," says Oxford.

"It has chosen to look beyond the international oil companies and state oil companies who are established foreign investors. President Hugo Chavez's recent visits to Russia, Iran and China reflect this strategy."

Meanwhile, the China Daily also reports that China has plans to sink $5 billion into oil exploration and production projects over the next six years, according to the Venezuelan oil minister. MarketWatch says that Chavez is making claims that his country will achieve a capacity of 5.8 million barrels per day within six years, doubling current output.

The news service cites one economist who talks about exactly what China is offering the South American nation. He notes "the $5 billion Chinese investment, 18 oil tankers, planned exports to China of 500,000 barrels per day and refinery upgrading are remarkably consistent" and, should Chavez remain in power for another four years, he will probably "achieve his goals with regard to China."

And all this could cost America dearly, as Venezuela is the fourth-largest oil supplier to the U.S.

Experts analyze the situation this way: While China is a U.S. trading partner, it will do whatever is necessary to maintain a steady supply of oil – including doing business with one of the most anti-American governments in the world.

"China gains oil resources to the detriment of the U.S., makes a trading partner in the Western Hemisphere, putting a political thorn in the U.S.'s side by boosting Chavez," Sabino tells MarketWatch, and "Chavez makes nice with an up-and-coming world power, has a ravenous consumer for his nation's oil and gets to flaunt it all in the face of the U.S."

Editor's Note:

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Editor's Notes:

In April 2004, the Financial Intelligence Report (FIR) 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. Find out the top 5 ways you can profit from the coming Oil Bust. It's already begun! Go here now.
Bernanke's blunder could be the biggest opportunity of the last decade for savvy investors. Go here now.
Three steps to success! Discover how you can multiply your profits and cut risk down to size in three easy steps. Go here now.
Beat the S&P every time. Learn how to invest in sectors the smart way. Go here now.
Did you know that U.S. drinking water contains more than 2,100 toxic chemicals that can cause cancer, yet the EPA has established enforceable safety standards for only 87? Go here now.