Roller-coaster Ride Continues; Oil Jumps $3.80 per Barrel
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All in all it was a good week in the market. The Dow Jones Industrial Average gained 166.34 points, or 1.3% for the week, leaving it down 1.6% for the year. Since its March 10 low, the Dow has gained 11.2%.
But just when it looked like the price of oil was beginning to come down, wham, crude jumped $3.80 a barrel, or 3.4%, to $116.32, This was largely due to a better-than-expected jobs report, which came in showing 20,000 nonfarm jobs lost in April - much less than the 78,000 anticipated. The economy lost an average of 80,000 jobs per month in the first quarter of the year. The unemployment rate inched down to 5.0% from 5.1%. Thus it looks like the labor market did not continue to deteriorate in April. That is a positive, but for every action there is an opposite reaction, and the increase in the price of oil was that reaction.
Where the price of oil will go before it falls on a sustained basis, no one knows. As reported before, some look at $180 - $200 a barrel. Of course those who have invested looking for a price increase have been pleased over the last year, but perversely enough, on Thursday they were disappointed in Exxon's first-quarter profit report of $10.89 billion. After the report, the stock took its largest one-day plunge since January, finishing the day on Thursday at $89.70, down $3.37, or 3.6%. The $10.89 billion profit ranks as one of the biggest hauls in U.S. corporate history, and was up 17.3% from the like period a year ago.
But what worries investors are a series of factors that have caused the number of barrels pumped to fall by 9.9% from a year earlier. New finds are rare and the best of those are in countries that limit Western investors. The critics contend that unless the oil companies focus more on the future, the record profits could dry up. Add to this, that as gasoline prices climb towards $4 a gallon, there is a gathering storm on Capitol Hill. Some see an inevitable increase in taxes on oil company profits. Democratic presidential contender Hillary Clinton wants a windfall profit tax on oil companies to be used to pay for a gasoline tax holiday.
Other legislators want tax changes that will push oil companies to invest more in fossil-fuel alternatives. Devin Nunes (R, Calif.) a member of the House Ways and Means Committee, said in an interview that the U.S. should open up new areas for drilling, including offshore and the Arctic National Wildlife Refuge and then "take all the tax revenue from drilling there and put it into renewable fuels and advanced energy technology."
Whatever course of action is taken, it will not change the problem of high energy costs overnight. And now we are also encountering the problem of high food prices. To what extent the interest rate cuts and stimulus checks (the checks are in the mail, so says the president) will ameliorate these high prices, we will have to wait and see. Most of the stimulus money ($108 billion) will more than likely be spent quickly and therefore we could see a pretty good bounce in retail sales.
We have to wait and see if the seven interest rate cuts that have taken the Fed Funds rate down to 2% will have ended the crisis in the financial markets and stopped it from taking down the U.S. economy. We shall know in the fullness of time (probably late this year or into 2009) so in the meantime remember to keep your risk within your tolerance and keep ahead of inflation. I invite your questions.
Or Contact Jerry Cole at:
509 Center Ave, Suite #102, Bay City, MI
(989) 892-5055
(The opinions expressed are solely those of the author and not Gen worth Financial Securities Corporation.)509 Center Ave, Suite #102, Bay City, MI
(989) 892-5055
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