Stores See Shoppers in Retreat (NYTimes, 11/09/07)

November 9, 2007
Stores See Shoppers in Retreat
By MICHAEL BARBARO
Consumers have rendered a verdict on the coming holiday season: grim.
From discounters like Wal-Mart to luxury emporiums like Nordstrom, the nation’s biggest chains reported the weakest October in 12 years yesterday.
The stores cited two main forces for the troubles: deepening economic jitters and unseasonably warm weather across the country, which left few consumers in the mood to buy.
The performance has set the stage for deep discounts in November and December as stores scramble to clear out unsold racks of clothing and electronics.
Sales at stores open at least a year, a crucial yardstick in retailing, rose just 1.6 percent last month, the slowest growth since October 1995, according to the International Council of Shopping Centers. The poor results — on the heels of a dismal September — have made this one of the worst fall shopping seasons in decades.
“Retailers are running from this fall like it was the plague,” said John D. Morris, a senior retail analyst at Wachovia Securities.
Wal-Mart Stores, the nation’s largest retailer and a bellwether for the industry, said sales rose a meager 0.7 percent last month, even after the company lowered prices on toys and electronics to drum up business.
Anticipating a consumer spending slowdown, the company has now introduced steep doorbuster discounts — like a $400 laptop — every weekend until Thanksgiving.
Even so, Wal-Mart predicted sales growth could be flat for November.
Midprice department stores did not fare much better last month. Sales fell 1.8 percent at J. C. Penney and 3.8 percent at Kohl’s, two chains that have produced strong performances all year.
In a sign of things to come, both Kohl’s and Penney’s held storewide sales last weekend, with discounts of up to 50 percent.
Even higher-end stores struggled in October. Sales fell 1.5 percent at Macy’s and 2.4 percent at Nordstrom and 7 percent at Dillard’s.
“There is big-time trading down going on,” said Bill Dreher of Deutsche Bank Securities, referring to the phenomenon of consumers’ turning to lower-priced stores because of financial insecurity.
“Nordstrom customers are trading down to Macy’s, and the Macy’s customer is trading down to Target,” he said.
That may account for strong sales at stores known for cheap chic — fashionable clothing and home décor at steep discounts. For example, sales rose 4.1 percent at Target and 3 percent at TJX, the parent company of TJMaxx and Marshall’s.
Luxury chains remained largely immune to the slowdown, with sales at Saks rising 10.6 percent.
The warm weather throughout October appears to have tamped down demand for clothing at the mall. Sales fell 3 percent at American Eagle Outfitters, 6 percent at Limited, 8 percent at Gap and 10.6 percent at Chico’s FAS, the adult women’s clothing chain.
Mr. Morris, who covers mall-based clothing chains, said several had begun cutting back on orders for the holidays, lest they become stuck with racks of unsold sweaters and coats.
The chains said that as the weather grew cooler, business was likely to improve, perhaps sharply this month. But an industry trade group, the National Retail Federation, is still predicting holiday season sales will rise 4 percent, the slowest in five years.
With oil prices soaring, the housing market slumping and the stock market in flux, there is little optimism that this will be a stellar season.
“Our customers are clearly facing headwinds that are impacting both sentiment and discretionary spending levels,” said the chief executive of J. C. Penney, Myron E. Ullman III.
And he does not expect the conditions to improve anytime soon. “We expect the challenging retail environment to continue for the foreseeable future,” Mr. Ullman said.

Rising Demand for Oil Provokes New Energy Crisis (NYTimes, 11/09/07)

November 9, 2007
Rising Demand for Oil Provokes New Energy Crisis
By JAD MOUAWAD
With oil prices approaching the symbolic threshold of $100 a barrel, the world is headed toward its third energy shock in a generation. But today’s surge is fundamentally different from the previous oil crises, with broad and longer-lasting global implications.
Just as in the energy crises of the 1970s and ’80s, today’s high prices are causing anxiety and pain for consumers, and igniting wider fears about the impact on the economy.
Unlike past oil shocks, which were caused by sudden interruptions in exports from the Middle East, this time prices have been rising steadily as demand for gasoline grows in developed countries, as hundreds of millions of Chinese and Indians climb out of poverty and as other developing economies grow at a sizzling pace.
“This is the world’s first demand-led energy shock,” said Lawrence Goldstein, an economist at the Energy Policy Research Foundation of Washington.
Forecasts of future oil prices range widely. Some analysts see them falling next year to $75, or even lower, while a few project $120 oil. Virtually no one foresees a return to the $20 oil of a decade ago, meaning consumers should brace for an era of significantly higher fuel costs.
At the root of the stunning rise in the price of oil, up 56 percent this year and 365 percent in a decade, is a positive development: an unprecedented boom in the world economy.
Demand from China and India alone is expected to double in the next two decades as their economies continue to expand, with people there buying more cars and moving to cities to seek a way of life long taken for granted in the West.
But as prices rise, the global economy is entering uncharted territory. The increase so far does not appear to be hurting economic growth, but many economists wonder how long that will last. “These prices are too high and will end up hurting everybody, producers and consumers alike,” said Fatih Birol, chief economist at the International Energy Agency.
Oil futures closed at $95.46 on the New York Mercantile Exchange yesterday, down nearly 1 percent from the day before. But the price has become volatile, and many analysts expect the psychologically important $100-a-barrel threshold to be breached sometime in the next few weeks.
“Today’s markets feel like the crowds standing up in the final minutes of a football game shouting: ‘Go! Go! Go!,’” said Daniel Yergin, an oil historian and the chairman of Cambridge Energy Research Associates, a consulting firm. “People seem almost more relaxed about $100 than they were about $60 or $70 oil.”
Oil is not far from its historic inflation-adjusted high, reached in April 1980 in the aftermath of the Iranian revolution. At the time, oil jumped to the equivalent of $101.70 a barrel in today’s money.
For most of the 20th century, as it transformed the modern world, oil was cheap and abundant. Throughout the 1990s, for example, oil prices averaged $20 a barrel. Even at today’s highs, oil is cheaper than imported bottled water, which would cost $180 a barrel, or milk, at $150 a barrel.
“The concern today is over how will the energy sector meet the anticipated growth in demand over the longer term,” said Linda Z. Cook, a board member of Royal Dutch Shell, the big oil company. “Energy demand is increasing at a rate we’ve not seen before. On the supply side, we’re seeing it is struggling to keep up. That’s the energy challenge.”
More than any other country, China represents the scope of that challenge. As it turned into a global economic behemoth over the last decade, China also became a major energy user. Its economy has grown at a furious pace of about 10 percent a year since the 1990s, lifting nearly 300 million people out of poverty. But rapid industrialization has come at a price: oil demand has more than tripled since 1980, turning a country that was once self-sufficient into a net oil importer.
India and China are home to about a third of humanity. People there are demanding access to electricity, cars, and consumer goods and can increasingly afford to compete with the West for access to resources. In doing so, the two Asian giants are profoundly transforming the world’s energy balance.
Today, China consumes only a third as much oil as the United States, which burns a quarter of the world’s oil each day. By 2030, India and China together will import as much oil as the United States and Japan do today.
While demand is growing fastest abroad, Americans’ appetite for big cars and large houses has pushed up oil demand steadily in this country, too. Europe has managed to rein in oil consumption through a combination of high gasoline taxes, small cars and efficient public transportation, but Americans have not. Oil consumption in the United States, where gasoline is far cheaper than in Europe, has jumped to 21 million barrels a day this year, from about 17 million barrels in the early 1990s.
If the Chinese and Indians consumed as much oil for each person as Americans do, the world’s oil consumption would be more than 200 million barrels a day, instead of the 85 million barrels it is today. No expert regards that level of production as conceivable.
More realistically, global demand is expected to rise to about 115 million barrels a day by 2030, a level that is likely to tax the world’s ability to pump more oil out of the ground. Already, the world is running on a limited cushion of spare capacity; any interruption in supplies, whether from hurricanes or armed conflict, causes prices to spike.
“We don’t have any shock absorbers,” Mr. Goldstein said.
For oil companies, high prices have set off a frenzied search for new sources around the world. After a long lull in investments through most of the 1990s because of low prices, major oil companies have invested billions of dollars to bring in more supplies.
The trouble is that these big new developments take a long time, and companies have been hobbled by higher costs. The cost of drilling rigs, for example, the basic tool of the trade, has doubled in recent years. Analysts say it will take time, but new supplies will eventually work their way to market.
Supplies have also been hampered by political tension in the Persian Gulf, the war in Iraq, devastating hurricanes in the oil-producing Gulf of Mexico, production difficulties in Venezuela and violence in Nigeria’s oil-rich province. Many of these geopolitical factors have contributed to a political risk premium variously estimated at $25 to $50 a barrel. Recently, in just nine weeks, oil jumped from $75 to $95 a barrel for little apparent reason.
“Fifty-dollar-a-barrel oil seems so far away at this point,” said Thomas Bentz, a senior energy analyst at BNP Paribas in New York, citing a figure that seemed an impossibly high price for oil only a few years ago. “Oil will stop rising when we see demand destruction. We haven’t seen that yet.”
When will it happen? Veterans of the oil business, having lived through booms and busts, say no one should count on oil rising forever. Economic slowdowns in China or the United States — or especially, in both — would probably send prices tumbling.
It happened a mere decade ago, after the Asian financial crisis sent economies there into a tailspin. Global oil prices fell by half, from $20 a barrel to $10, in months.
“It would be a big mistake to think the laws of supply and demand have been abolished,” Mr. Yergin said.

Rising Demand for Oil Provokes New Energy Crisis (NYTimes, 11/09/07)

November 9, 2007
Rising Demand for Oil Provokes New Energy Crisis
By JAD MOUAWAD
With oil prices approaching the symbolic threshold of $100 a barrel, the world is headed toward its third energy shock in a generation. But today’s surge is fundamentally different from the previous oil crises, with broad and longer-lasting global implications.
Just as in the energy crises of the 1970s and ’80s, today’s high prices are causing anxiety and pain for consumers, and igniting wider fears about the impact on the economy.
Unlike past oil shocks, which were caused by sudden interruptions in exports from the Middle East, this time prices have been rising steadily as demand for gasoline grows in developed countries, as hundreds of millions of Chinese and Indians climb out of poverty and as other developing economies grow at a sizzling pace.
“This is the world’s first demand-led energy shock,” said Lawrence Goldstein, an economist at the Energy Policy Research Foundation of Washington.
Forecasts of future oil prices range widely. Some analysts see them falling next year to $75, or even lower, while a few project $120 oil. Virtually no one foresees a return to the $20 oil of a decade ago, meaning consumers should brace for an era of significantly higher fuel costs.
At the root of the stunning rise in the price of oil, up 56 percent this year and 365 percent in a decade, is a positive development: an unprecedented boom in the world economy.
Demand from China and India alone is expected to double in the next two decades as their economies continue to expand, with people there buying more cars and moving to cities to seek a way of life long taken for granted in the West.
But as prices rise, the global economy is entering uncharted territory. The increase so far does not appear to be hurting economic growth, but many economists wonder how long that will last. “These prices are too high and will end up hurting everybody, producers and consumers alike,” said Fatih Birol, chief economist at the International Energy Agency.
Oil futures closed at $95.46 on the New York Mercantile Exchange yesterday, down nearly 1 percent from the day before. But the price has become volatile, and many analysts expect the psychologically important $100-a-barrel threshold to be breached sometime in the next few weeks.
“Today’s markets feel like the crowds standing up in the final minutes of a football game shouting: ‘Go! Go! Go!,’” said Daniel Yergin, an oil historian and the chairman of Cambridge Energy Research Associates, a consulting firm. “People seem almost more relaxed about $100 than they were about $60 or $70 oil.”
Oil is not far from its historic inflation-adjusted high, reached in April 1980 in the aftermath of the Iranian revolution. At the time, oil jumped to the equivalent of $101.70 a barrel in today’s money.
For most of the 20th century, as it transformed the modern world, oil was cheap and abundant. Throughout the 1990s, for example, oil prices averaged $20 a barrel. Even at today’s highs, oil is cheaper than imported bottled water, which would cost $180 a barrel, or milk, at $150 a barrel.
“The concern today is over how will the energy sector meet the anticipated growth in demand over the longer term,” said Linda Z. Cook, a board member of Royal Dutch Shell, the big oil company. “Energy demand is increasing at a rate we’ve not seen before. On the supply side, we’re seeing it is struggling to keep up. That’s the energy challenge.”
More than any other country, China represents the scope of that challenge. As it turned into a global economic behemoth over the last decade, China also became a major energy user. Its economy has grown at a furious pace of about 10 percent a year since the 1990s, lifting nearly 300 million people out of poverty. But rapid industrialization has come at a price: oil demand has more than tripled since 1980, turning a country that was once self-sufficient into a net oil importer.
India and China are home to about a third of humanity. People there are demanding access to electricity, cars, and consumer goods and can increasingly afford to compete with the West for access to resources. In doing so, the two Asian giants are profoundly transforming the world’s energy balance.
Today, China consumes only a third as much oil as the United States, which burns a quarter of the world’s oil each day. By 2030, India and China together will import as much oil as the United States and Japan do today.
While demand is growing fastest abroad, Americans’ appetite for big cars and large houses has pushed up oil demand steadily in this country, too. Europe has managed to rein in oil consumption through a combination of high gasoline taxes, small cars and efficient public transportation, but Americans have not. Oil consumption in the United States, where gasoline is far cheaper than in Europe, has jumped to 21 million barrels a day this year, from about 17 million barrels in the early 1990s.
If the Chinese and Indians consumed as much oil for each person as Americans do, the world’s oil consumption would be more than 200 million barrels a day, instead of the 85 million barrels it is today. No expert regards that level of production as conceivable.
More realistically, global demand is expected to rise to about 115 million barrels a day by 2030, a level that is likely to tax the world’s ability to pump more oil out of the ground. Already, the world is running on a limited cushion of spare capacity; any interruption in supplies, whether from hurricanes or armed conflict, causes prices to spike.
“We don’t have any shock absorbers,” Mr. Goldstein said.
For oil companies, high prices have set off a frenzied search for new sources around the world. After a long lull in investments through most of the 1990s because of low prices, major oil companies have invested billions of dollars to bring in more supplies.
The trouble is that these big new developments take a long time, and companies have been hobbled by higher costs. The cost of drilling rigs, for example, the basic tool of the trade, has doubled in recent years. Analysts say it will take time, but new supplies will eventually work their way to market.
Supplies have also been hampered by political tension in the Persian Gulf, the war in Iraq, devastating hurricanes in the oil-producing Gulf of Mexico, production difficulties in Venezuela and violence in Nigeria’s oil-rich province. Many of these geopolitical factors have contributed to a political risk premium variously estimated at $25 to $50 a barrel. Recently, in just nine weeks, oil jumped from $75 to $95 a barrel for little apparent reason.
“Fifty-dollar-a-barrel oil seems so far away at this point,” said Thomas Bentz, a senior energy analyst at BNP Paribas in New York, citing a figure that seemed an impossibly high price for oil only a few years ago. “Oil will stop rising when we see demand destruction. We haven’t seen that yet.”
When will it happen? Veterans of the oil business, having lived through booms and busts, say no one should count on oil rising forever. Economic slowdowns in China or the United States — or especially, in both — would probably send prices tumbling.
It happened a mere decade ago, after the Asian financial crisis sent economies there into a tailspin. Global oil prices fell by half, from $20 a barrel to $10, in months.
“It would be a big mistake to think the laws of supply and demand have been abolished,” Mr. Yergin said.

High-Priced Oil Adds Volatility to Power Scramble (NYTimes, 11/07/07)

November 7, 2007
High-Priced Oil Adds Volatility to Power Scramble
By MARK LANDLER
As the price of oil surges toward a symbolic milestone of $100 a barrel — hitting $96.70 yesterday — it is creating new winners and losers across the globe.

In southern China, high oil prices forced Wang Pui, a trucker, to wait in line 90 minutes the other day to fill up, just to be told he could pump only 25 gallons, as China faced spot shortages of gasoline and diesel fuel.

When Vladimir V. Putin was making Russia’s bid to be host of the 2014 Winter Olympics last July, he reached into the country’s deep pockets, bulging with oil profits, and pledged $12 billion to turn a Black Sea summer resort into a winter-sports paradise. Russia, which was nearly bankrupt a decade ago, won the Games.

The prospect of triple-digit oil prices has redrawn the economic and political map of the world, challenging some old notions of power. Oil-rich nations are enjoying historic gains and opportunities, while major importers — including China and India, home to a third of the world’s population — confront rising economic and social costs.

Managing this new order is fast becoming a central problem of global politics. Countries that need oil are clawing at each other to lock up scarce supplies, and are willing to deal with any government, no matter how unsavory, to do it.

In many poor nations with oil, the proceeds are being lost to corruption, depriving these countries of their best hope for development. And oil is fueling gargantuan investment funds run by foreign governments, which some in the West see as a new threat.

“Five months ago, readers would not have recognized S.W.F. as meaning sovereign wealth fund,” said Daniel Yergin, chairman of Cambridge Energy Research Associates, referring to the funds set up by Russia, Norway and others to invest their oil profits. “And yet now,” he said, “they’re recognized as one of the fundamental forces of the global economy.”

The basic calculus of expensive oil still holds: exporters enjoy a windfall and importers bear a heavier burden. But some unexpected countries are reaping benefits, as well as costs, from higher prices.

Consider Germany. Although it imports virtually all its oil, it has prospered from extensive trade with a booming Russia and the Middle East. German exports to Russia grew 128 percent from 2001 to 2006; exports to the United States grew just 15 percent.

Throughout Europe, the rise of the euro has acted as a hedge against fluctuations in the dollar-denominated oil market, while the heavy taxation of fuel has made rising oil prices less jarring to motorists.

“For Europeans,” said David Fyfe, a senior oil market analyst at the International Energy Agency in Paris, “$100 oil is mostly symbolic.”

Elsewhere, it is much more. For developing countries, oil can be a tool of national transformation — whether the goal is a middle-class standard of living or a utopian society.

In Venezuela, President Hugo Chávez is pouring oil proceeds into a socialist revolution, creating free health care, free education and cheap food; enabling heavy public spending that has helped fuel four years of economic growth.

The trouble, said Theresa Paiz, a Latin American director for the Fitch ratings agency, is that “it’s not really clear how the money is invested.” Mr. Chávez’s government is steering large chunks of money to development funds and state-owned companies not subject to audits.

Transparency International, an organization that tracks corruption, ranks countries from least to most corrupt, and in its 2007 index Venezuela was at 162 out of 179 countries.

Concerns about corruption are even more pronounced in Nigeria and Angola.

Oil-rich Angola is taking in two and a half times the cash it did three years ago. Hotels in the capital, Luanda, are booked months in advance, largely by foreign oil companies. Sales of luxury cars are booming, and the International Monetary Fund projects the economy will grow 24 percent this year, one of the world’s fastest rates. Yet analysts for the Catholic University of Angola’s research center say two in three Angolans live on $2 or less a day, the same ratio as in 2002, when the country’s decades-long civil war ended.

The government is eager to show that oil wealth is benefiting ordinary citizens. It has rebuilt 2,400 miles of roads, refurbished 4 airports, and laid 430 miles of new railroad track.

But many Angolans take it as a given that oil has enriched public officials most of all. In 2003, a newspaper in Luanda identified the 20 richest people in Angola: 12 were government officials; 5 were former officials. Angola’s growing muscle — it is now the biggest oil supplier to China and the sixth biggest to the United States — is leading it to rethink its global position. It recently joined the Organization of the Petroleum Exporting Countries and is limiting its cooperation with the I.M.F.

In perhaps the most far-reaching change, China has become Angola’s financier, lending Luanda as much as $12 billion for the country’s reconstruction, in return for guaranteed oil supplies.

The contest among importers to secure access to oil supplies has become fierce.

China, a one-time oil exporter that now must import half its oil to lubricate its booming economy, is facing politically troublesome shortages of fuel from Shenzhen to Beijing, as Chinese refining companies refuse to supply diesel at unprofitable state-regulated prices. To head off a crisis, China raised retail prices for fuel nearly 10 percent on Nov. 1.

India is potentially even more vulnerable than China, some analysts say. Although it consumes a third as much oil as China, it imports 70 percent of its oil. It also has no strategic reserves, and demand is growing faster than in any other economy except China’s. Like China, India subsidizes fuel, particularly the kerosene used by lower- and middle-class families for cooking — a policy that costs it some $12 billion a year. If oil reaches $100 a barrel and stays there, analysts say, India will be forced to roll back those subsidies.

“Sooner or later, prices are going to bite,” said Subir Gokarn, Standard & Poor’s chief economist in Asia. “Clearly household budgets will be significantly affected.”

Without an increase in retail prices, officials at the Ministry of Petroleum and Natural Gas warned recently, they might no longer be able to buy adequate supplies of crude for India’s refineries. “Unless consumers are paying for what they consume,” said M. S. Srinivasan, the petroleum secretary, the ministry “is going to be left with a big hole in its pocket.”

But raising fuel prices could ignite even greater civil unrest in India than in China, where a man was killed recently after jumping a line to buy gas in the city of Xinyang, in Henan Province.

Even in developed countries like Canada, rising oil prices can cause dislocation. The region around the oil sands in northern Alberta is the closest thing the developed world has to a 19th-century boom town. The influx of workers has created a shortage of skilled labor in neighboring British Columbia, where construction is under way for the 2010 Winter Olympics.

In comparison, the problems faced by other oil producers seem almost benign. For them, the most burning question is what to do with all the money. Norway, the world’s 10th-largest oil producer, wants to guarantee every child a subsidized kindergarten spot by the end of 2008.

It has increased spending on kindergarten to $3.3 billion this year, from $2.75 billion, partly using money transferred from its $350 billion State Pension Fund, once known as the Petroleum Fund. Most of the fund is earmarked to pay the future pensions of Norway’s 4.6 million people.

“The discipline is structural,” said Johan Nic Vold, a consultant and former executive at Royal Dutch Shell. “Without it, the demands on politicians to use the oil revenue would be almost insatiable.”

Perched on the Persian Gulf, Dubai has taken a similarly long view. Treating its oil reserves as temporary, it used the proceeds to expand pell-mell into tourism, trade, real estate and construction. The oil sector now accounts for only 5 percent of Dubai’s gross domestic product.

But perhaps no country has reveled in its oil wealth like Russia. NetJets Europe, the private-jet company, plans to open an office in Russia because the traffic between Moscow and London has become so dense.

This month, Christie’s will stage what it expects to be a record-setting auction week dedicated to Russian art, including the auction of a Fabergé egg made for the Russian royal family.

Russians have kept London’s high-end real estate market buzzing. “There are a lot of Russian buyers around who are prepared to pay a vast amount of money,” said Michael Chetwode of the Home Search Bureau.

Back home, Russia’s oil wealth is trickling down. Mr. Putin is using it to finance “priority national projects,” like improved health care and education, and access to affordable housing.

Oil may also help Mr. Putin cling to power after he leaves the presidency, perhaps as prime minister. As he noted recently, “We all remember what state the country was in seven, eight years ago.”

Eight years ago, oil was trading at $16 a barrel.

Reporting was contributed by Ian Austen in Ottawa; Keith Bradsher in Shenzhen, China; Thanassis Cambanis in Dubai; Walter Gibbs in Oslo; Jens Erik Gould in Caracas, Venezuela; Sophia Kishkovsky in Moscow; Sharon LaFraniere in Angola; Heather Timmons in New Delhi; and Julia Werdigier in London.