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Despite Hurricane Gustav’s threat to infrastructure in the Gulf of Mexico, oil prices fell from an earlier rally Friday as the dollar gained traction against the euro.

U.S. crude for October delivery fell 13 cents to settle at $115.46 a barrel. Prices were higher earlier as investors braced for the storm, which is expected to make landfall in the U.S. on Tuesday morning.

Oil rose as high as $118.76 during Friday trading as Gustav bore down on the Gulf, but then pulled back as the dollar gained strength against the 15-nation euro.

Dollar rises: The dollar gained against the euro after a Chicago Purchasing Managers Index report showed an unexpected increase in manufacturing activity around the Chicago area.

A University of Michigan report also showed a better than expected rise in consumer sentiment.

The two reports lessened the impact of a reported decline in personal income, which signaled that the effects of the government’s $90 billion stimulus program were drawing to an end.

The decline in personal income also indicates that consumers may not have money to pay for a lot of expensive petroleum-based fuel, which pulled oil down as well.

Additionally, oil is traded in dollars, so a stronger dollar makes oil more expensive for foreign investors. As the dollar rises, many who purchase commodities as a hedge against inflation transfer their money into other markets.

The dollar rose against euro Friday, but fell against the Japanese yen.

Gustav bears down: Oil prices lost traction despite projections that Hurricane Gustav will to enter the Gulf on Sunday. Some models show the storm could reach Category 4 strength before it reaches Cuba, according to the National Hurricane Center.

Royal Dutch Shell (RDS), ExxonMobil (XOM, Fortune 500) and ConocoPhillips (COP, Fortune 500) were among the oil companies prepared to evacuate major offshore rigs Friday.

Facilities in the Gulf account for about 25% of U.S. oil production. Offshore platforms and pipelines buried in the sea bed are vulnerable to extreme storms such as hurricanes.

Just three years ago, hurricanes Katrina and Rita devastated oil facilities before battering the Louisiana coast. The storms, which reached Category 5 strength before making landfall, destroyed 113 offshore oil and natural gas platforms and damaged 457 pipelines in 2005.

Oil companies are shutting down production and oil traders are hedging their bets ahead of the weekend, according to Karen Matusic, spokeswoman for the American Petroleum Institute.

"Even if the storm doesn’t hit, you’re going to get companies evacuating the rigs for precautionary reasons," she said.

Storm upgrades: Oil companies have tried to improve the storm resistance of offshore rigs and pipelines since Katrina and Rita.

Drilling rigs and production platforms moored to the sea floor in the Gulf had been attached with eight lines, and are now required to be moored with 12 to 16 lines cashadvance. Pipelines are now required to be buried deeper beneath the sea floor.

"That’s one reason the response to this storm has been somewhat muted so far," said Jim Ritterbusch, president of oil advisory firm Ritterbusch and Associates.

The new safety measures should make facilities much more resistant to storm damage, but Gustav would be their first real-world test.

"There’s concern for the offshore platforms," said Michael Lynch, president of Strategic Energy & Economic Research, Inc. But the biggest concern is "power loss at some facilities," he said.

If the storm disrupts electricity, the platforms may be unable to operate. However, facilities are generally better equipped to handle power outages now than they were in 2005, according to Lynch.

"The biggest risk is that you get the major loss of a natural gas processing facility," said Lynch. Fluctuations in natural gas prices can also affect crude oil, since both are used in similar applications such as home heating.

On Thursday, Gustav sent crude prices as high as $120.50, although prices later fell in part because of a report that there was a large increase in natural gas supplies.

If the storm does make a direct hit on Gulf facilities, the Energy Department said Thursday it was prepared to release supplies from the government’s 700 million barrel Strategic Petroleum Reserve to cushion the blow. 

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You can’t walk within shouting distance of the Pepsi Center here without sighting Ben Affleck, Eva Longoria, Stephen Spielberg or Melissa Etheridge creditscore.

After Hillary Clinton’s speech Tuesday, reporters lurched after passed canap

The Supreme Court on Wednesday reduced a $2.5 billion punitive damages award against energy giant Exxon for its role in an infamous 1989 maritime oil spill off the coast of Alaska.

The high court concluded that punitive damages should roughly match actual damages from the environmental disaster, which were about $507 million. Lower courts were asked to reassess the jury verdict, extending the years-long litigation in the case.

"The award here should be limited to an amount equal to compensatory damages," wrote Justice David Souter.

Justices Ruth Bader Ginsburg, John Paul Stevens and Stephen Breyer agreed in part and disagreed in part with the majority ruling. In such cases, it is left open to interpretation whether their dissent is strong enough to be considered a vote against the majority.

In the incident, commonly known as the Exxon Valdez spill, 11 million gallons of crude oil spilled in pristine waters off the southern end of the state when a supertanker - the Exxon Valdez - ran aground on an offshore reef. Petroleum soaked some 1,200 miles of coastline, killing countless birds and marine life.

Much of the initial blame for the accident was placed on Capt. Joseph Hazelwood, who was cited by various courts for relapsed alcoholism that contributed to mistakes, leaving his vessel helplessly stuck on Bligh Reef.

Witnesses said he had been drinking heavily before the Exxon Valdez left port that night, and had left the ship’s bridge when it left the normal shipping channels to avoid ice. Both actions violated Coast Guard and company policies.

A class-action lawsuit was brought against Exxon by nearly 33,000 plaintiffs - including fishermen, landowners, local governments and Native Americans - who claimed private economic harm from the spill.

The company, now known as Exxon Mobil (XOM, Fortune 500), has already paid $3.4 billion in cleanup costs and millions in government fines and it argues it should not be forced to continue to pay for the spill.

A jury in 1994 awarded $5 billion in the class-action suit. A federal court later cut that amount in half, but it was still believed to be the largest punitive-damages judgment of its kind in U.S. courts. Punitive damages are designed to punish a wrongdoer, while compensatory damages compensate a wronged party for the loss they suffered.

The issue before the justices was whether the judgment was too high, based on past high court precedents limiting punitive awards.

Lawyers for the plaintiffs claimed the company has deep financial pockets, and noted in their appeal that even a multibillion-dollar judgment amounts only to "barely more than three weeks of Exxon’s net profits."

Alaska residents who attended oral arguments in April held signs noting the Texas-based company reported an annual profit last year of $40.6 billion, a record for a U.S faxless payday advance. firm.

Exxon Mobil claimed the federal Clean Water Act does not allow for punitive damages for oil spills and other open-water environmental incidents similar to the Exxon Valdez. And they said federal maritime law prevents company owners from being held liable for personally negligent conduct by the captain or crew.

Souter wrote, "The common sense of justice would surely bar penalties that reasonable people would think excessive for the harm caused in the circumstances."

The ruling was applauded by organizations such as the U.S. Chamber of Commerce, the world’s largest business federation.

"This is good news for companies concerned about reining in excessive punitive damages," said Tom Donohue, the chamber’s president and CEO, in a written statement. "For years, the chamber has argued that punitive damages are too unpredictable and unfair, and today the court agreed."

The high court has generally tried to limit punitive damages that are deemed "excessive." Last term, it threw out a $79 million award to an Oregon smoker’s family who claimed tobacco giant Philip Morris contributed to his death by cancer. The justices, in their divided ruling in that case, said punitive damages almost always should match "actual," or compensatory, damages.

Justice Samuel Alito withdrew from deciding the case. Although no reason was given, financial disclosure reports indicated the newest justice had owned substantial amounts of Exxon stock.

Meanwhile, the long-running case has made it hard for residents of the community to move on, Travis Vlasoff, a native Chugach fisherman from Tatitlek, told CNN after oral arguments in the case. Vlasoff said the long legal fight has taken a financial and emotional toll among his family and friends.

"It’s very difficult to advance the healing process without any sort of finality," he said. "Each turn has reopened long, deep wounds within the community and with individuals."

The case is Exxon Shipping Co. v. Baker (07-219). 

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Toyota may scale back its ambitious target of selling more vehicles in the United States this year than it did in 2007, as damage from an economic slowdown and soaring oil prices becomes more fully known.

Surpassing the 2.62 million vehicles the company sold last year in the U.S. - its biggest market - would be difficult, Executive Vice President Tokuichi Uranishi told a shareholders meeting Tuesday, according to Toyota spokesman Paul Nolasco.

The world’s No. 2 automaker announced in December that it was hoping to sell 2.64 million vehicles in the U.S. in 2008 and predicted a 5% jump in global sales to 9.85 million vehicles because of strong sales in emerging markets such as China and Russia.

Toyota Motor Corp. will review its sales targets in July, as it does every year.

Through the first half of June, total auto sales in the U.S. were running at an annualized rate of about 12.5 million vehicles, according to J.D. Power & Associates. It was the lowest level for June in decades and a huge drop from the year-earlier rate of 16.3 million vehicles.

Uranishi projected that total U.S. auto sales could slip under 15 million vehicles this year, Nolasco said.

Last week, Ford Motor Co. (F, Fortune 500) said industrywide sales could drop as low as 14.4 million for the year, which would be the lowest level in 13 years, according to Ward’s AutoInfoBank.

With buyers fleeing to smaller, more fuel-efficient cars, demand has soared for Toyota’s gas-electric hybrid models no teletrak payday loans. Still, their popularity has been unable to fully insulate the Japanese carmaker from a drop-off in sales of larger vehicles.

Toyota announced recently a slowdown in large pickup truck and SUV production at plants in Texas and Indiana.

But the shift in consumer preference has hit Toyota’s U.S. rivals especially hard.

General Motors Corp. (GM, Fortune 500) said Monday that it would further cut SUV and pickup truck production, on top of its announcement earlier this month that it will close four North American plants by 2010. It also plans to offer zero-interest financing to clear out inventories of some 2008 pickup truck and SUV models.

Ford announced cuts Friday at seven pickup truck and SUV factories for the remainder of the year, including the idling of a pickup truck factory in Dearborn for most of the third quarter and the temporary closure of a Wayne pickup truck factory for nine weeks during the summer.

It now plans to produce 475,000 vehicles in the third quarter, 25% fewer than in the same period last year.

Toyota (TM) shares fell 1.51% to $48.63 Tuesday, compared with a 0.6% drop in the Nikkei 225 Stock Average. 

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Hewlett-Packard announced Tuesday it is buying Electronic Data Systems for about $13.9 billion in cash, as it aims to step up competition for the computer services business with rival IBM.

HP (HPQ, Fortune 500) is paying $25 a share for EDS (EDS, Fortune 500), a narrow 4% premium to Monday’s close but a nearly one-third premium over Friday’s closing price of $18.86 a share before reports of a possible deal lifted EDS shares 27% in Monday trading.

The $13.9 billion price is the enterprise value of the transaction; the cost of the deal for HP is $12.8 billion when comparing the price to EDS shares outstanding.

Shares of HP fell 1.5% in premarket trading, while EDS shares gained another 0.9%.

It is the largest purchase for HP since its controversial purchase of Compaq Computer in 2002. It should also allow HP to close much of the gap in lucrative computer consulting business with IBM (IBM, Fortune 500).

EDS is the largest independent systems management and services provider in the nation, and is second in the business only to IBM. It was founded by Ross Perot in 1962, and remained independent until General Motors (GM, Fortune 500) bought it in 1984, a combination that lasted until a 1996 spin-off.

HP said it plans to establish a new business group, to be branded EDS — an HP company, which will be headquartered at EDS’s existing executive offices in Plano, Texas. EDS CEO Ronald A. Rittenmeyer is to stay with the company to run the new unit.

HP also reported preliminary results for its fiscal second quarter, saying that it earned 87 cents a share excluding special items, up from 70 cents on that basis a year earlier cash advance. That’s better than the 84-cent-a-share forecast of analysts surveyed by earnings tracker Thomson First Call.

Including special items, primarily the accounting for the purchase of some intangible assets, the company earned 80 cents a share in the quarter, up from 65 cents a share. Revenue rose to $28.3 billion compared with $25.5 billion, which also edged past the First Call forecast of about $28 billion.

The company said its purchase of EDS is expected to close in the second half of this year and that it should add to earnings per share, excluding special items, in the fiscal year that ends in October 2009.

HP also raised its revenue target for the fiscal year that ends this October to between $114.2 billion to $114.4 billion, up from $113.5 billion to $114 billion. It projected that earnings per share excluding special items this year should be between $3.54 to $3.58, up from its earlier guidance of $3.50 to $3.54, and better than First Call’s forecast of $3.52 a share.

It also upped its net income per share guidance to between $3.30 to $3.34, up from its previous estimate of $3.26 to $3.30. 

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NEW YORK – Gas prices jumped nearly three cents overnight to a new U.S. record of nearly $3.65 a gallon today, while oil prices paused from their own climb to record highs and succumbed to mild profit-taking.

At the pump, the average price of a gallon of regular gas nationwide rose 2.7 cents to a record $3.645, according to a survey of stations by AAA and the Oil Price Information Service. Diesel prices also rose, adding 0.9 cent to match a record national average of $4.251 a gallon.

Gas prices tend to lag oil futures, and with crude rising to a new record near US$124 a barrel Wednesday and likely headed higher, it’s widely expected the average U.S. price of gas will soon rise as high as $4. Motorists in many areas, including parts of California and Hawaii, are already paying that much, or more.

"If oil prices go the way that pundits are expecting, there’s no way we’ll stay under $4 a gallon," said Fadel Gheit, an analyst at Oppenheimer & Co. in New York.

Meanwhile, light, sweet crude for June delivery fell $1.16 to $122.37 a barrel on the New York Mercantile Exchange today. Prices rose as high as a record $123.93 on Wednesday.

Analysts said there was little in the way of news driving today’s oil moves. Investors occasionally sell a little during rallies to lock in profits, Gheit said. But bullish momentum – and expectations that the dollar will continue to weaken against foreign currencies including the euro – are likely to keep pushing oil to new records, he said.

Goldman Sachs analysts recently predicted prices will rise as high as $150 to $200 a barrel within two years. That forecast has driven much of oil’s gains in recent days.

Analysts at Goldman and firms such as Barclays Capital believe tight global supplies and growing demand from fast-growing economies in countries such as China and India are driving oil higher cash advance loans. But Gheit and analysts including Tim Evans at Citi Futures Perspective argue that supply and demand fundamentals don’t support such high prices.

"There is no reason why oil prices should be above $60," Gheit said, noting that domestic crude supplies are at average levels, and that refineries are cutting gasoline production as high prices cut consumers demand for fuel. "The physical supplies do not justify the price, it just doesn’t make sense."

Many analysts feel speculative investment driven by the dollar’s protracted decline is the real reason behind higher prices. The dollar fell against the euro today, attracting investors who view commodities such as oil as a hedge against inflation. Also, a weaker dollar makes oil cheaper to investors overseas.

Still, the market sometimes ignores the dollar, as it did Wednesday when oil surged to new records although the dollar advanced. Some analysts say that’s a sign that many investors are buying on pure momentum – believing prices will head higher regardless of negative data, news or dollar movements.

"There’s a lot of momentum driving the oil price up," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

In other Nymex trading, June gasoline futures fell 0.41 cent to $3.1141 a gallon and June heating oil futures rose 2.99 cents to $3.4772 a gallon. June natural gas futures fell 10.6 cents to $11.221 per 1,000 cubic feet. The Energy Department said natural gas inventories rose by 65 billion cubic feet last week, but remain slightly below the 5-year average.

In London, June Brent crude futures fell 63 cents to $121.69 a barrel on the ICE Futures exchange.

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The federal funds rate is low enough to boost economic growth as the lagged impact of previous interest rate cuts starts to kick in, Philadelphia Federal Reserve President Charles Plosser said on Friday.

Plosser, speaking at Drexel University in Philadelphia, warned against seeing rate cuts as “the solution to most, if not all, economic ills.”

The real fed funds rate, or the actual rate minus the expected rate of inflation, is negative for the first time since 2003-2004, Plosser said.

That “accommodative” level “should support the market forces that will bring economic growth back toward its long-term trend,” he said.

Despite his cautiously upbeat outlook, Plosser said that forecasting economic growth is harder given current turbulence, and that the credit crunch “has the potential to restrain economic growth going forward.”

Although some argue for lower rates as “insurance” in case financial turmoil impedes the transmission of rate cuts to the economy, “determining the appropriate level of such extra accommodation is difficult to quantify,” he said creditreports.

Plosser voted against the Federal Open Market Committee’s decision in March to lower the federal funds rate by 75 basis points.

Seeing rate cuts as a cure-all is “a dangerous misconception,” he said, adding that that assessment of what monetary policy can achieve “seems to have risen considerably over the years.” 

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There is a captivating logic about the Fed’s recent policy actions. The economy is teetering on the brink of recession. Financial markets are in disarray.

With such uneasiness over the economy’s condition, most observers think it a no-brainer that the Ben Bernanke-led Fed will lower interest rates. After all, isn’t this what everyone expects it to do if spending by consumers and businesses is going to improve?

Other than the fact that previous Fed Chairman Alan Greenspan followed the same policy, there are very compelling reasons why the current chairman should avoid the temptation to emulate his predecessor. The most compelling is something almost no one wants to mention: Money growth is picking up steam.

In the heyday of monetarism — the idea that changes in the growth of the money supply have important effects on the economy — Fed watchers anxiously anticipated the publication of monetary statistics. Over time, however, concern about the money supply waned.
Partly, this was because of uncertainties about the short-term link between money and the economy. Mostly, it was because the Fed reverted to its old ways of controlling short-term interest rates to achieve its policy goals. Isn’t it telling that the Fed abandoned measuring and reporting its M3 measure of money in early 2006?

The Fed relies on adjusting the federal funds rate up and down to fine-tune economic activity. Such blind reliance on interest rates as policy indicators can be problematic. While rates are being pushed lower, the money numbers tell a distinctly inflationary story. Just because the Fed ignores the money supply doesn’t mean that you should.

Over the last several years, the nation’s money supply has expanded at a worrisome rate. A narrow measure of money, known as MZM, increased at a rate less than 2.5 percent in 2005. By 2007, its rate of growth had spiked to almost 10 percent.

Growth of the broader M2 measure increased less dramatically, from about 4.5 percent in 2005 to nearly 6 percent in 2007, although so far in 2008 it has expanded at more than a 12 percent rate. MZM isn’t slowing down, either: During the first few months of 2008, narrow money is increasing at a rate of nearly 30 percent.

These monetary smoke signals should raise concern about future inflation. The noted economist and Nobel Prize winner Milton Friedman quipped that, "Inflation is always and everywhere a monetary phenomenon."

He did not mean that inflation can’t fluctuate in a given month or quarter even if money growth isn’t payday advance lender. After all, the rate of inflation fluctuates with changes in oil prices, food prices or any number of transitory events.

What Friedman had in mind was the kind of creeping inflation that starts at less than 2 percent, as in 1960, and ends up in double digits, as it did by 1980. It is inflation over horizons longer than a couple of months that worried Friedman. And it is why you should be concerned now.

Some argue that financial innovations and regulatory changes can and have disrupted the link between money and inflation so much that money is useless in setting policy. Indeed, Greenspan made this argument back in the 1990s when he jettisoned money supply numbers from policy deliberations.

But the inescapable fact, based on study after study of country after country, is that over time money growth and inflation remain inseparably linked. The inflationary record for the United States and most other developed countries consistently demonstrates this fact.

Is it coincidence that the Chinese government recently announced it was slowing money growth to rein in sharply rising inflation? Is it coincidence that the European Central Bank adopted and uses money growth as one of its policy guides? These policymakers, unlike those at the Fed, understand that money growth provides useful information about the future path of inflation.

The monetary induced inflation signals are flashing red. Sustaining the recent increases in money growth will put the Fed — and the economy — into a predicament: Will the Fed be willing to fight the rising inflation rates that its current policies are producing if the economy has not rebounded sufficiently?

R.W. HAFER IS DISTINGUISHED RESEARCH PROFESSOR AND CHAIR OF THE ECONOMICS DEPARTMENT AT SOUTHERN ILLINOIS UNIVERSITY EDWARDSVILLE. HE’S ALSO A SCHOLAR AT THE SHOW-ME INSTITUTE, A FISCALLY CONSERVATIVE THINK TANK BASED IN CLAYTON.

rhafer@siue.edu

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A Delaware Chancery Court judge on Wednesday decided to temporarily pause a lawsuit that sought to challenge JPMorgan Chase & Co’s (JPM.N: Quote, Profile, Research) planned takeover of Bear Stearns Cos Inc (BSC.N: Quote, Profile, Research) since a similar case was moving forward in New York.

The investment banks had argued that fighting simultaneous lawsuits in Delaware and New York would be wasteful and burdensome.

Vice Chancellor Donald Parsons said he granted the companies’ request to stay the case in Delaware for several reasons, including that a hearing had already been scheduled for May 8 in the New York case. A copy of Parsons’ decision, dated April 9, was obtained by Reuters.

The plaintiffs, the Police and Fire Retirement System of the City of Detroit and the Wayne County Employees’ Retirement System, are Bear Stearns shareholders.

The funds said Bear Stearns’ directors violated their fiduciary duties in agreeing to the JPMorgan deal and should be forced to look for higher offers.

JPMorgan initially agreed to buy Bear Stearns for $2 per share, but later raised the offer to $10 per share http://payday-faxless.com. The deal, currently valued at about $1.7 billion, was struck last month as Bear Stearns faced a cash crunch and the possibility of imminent collapse.

The judge said the Michigan funds had previously sought a temporary restraining order on JPMorgan’s purchase of 39.5 percent of Bear Stearns on April 8, but later abandoned that request. Instead, the funds sought a preliminary injunction preventing JPMorgan from voting any of those newly acquired shares, the judge said.

At a court hearing on March 31, the plaintiffs “focused most, if not all their attention on the (defendant’s) motion to stay” the case, Parson said. As a result, he addressed only the arguments for and against a stay. 

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new york — Stocks fell for the first time in three days on Wednesday after Federal Reserve Chairman Ben Bernanke acknowledged that the nation may be in a recession and higher fuel prices snuffed out a rally in retailers.

Microsoft Corp. and General Electric Co. led technology and industrial shares lower as a reduced growth forecast from the International Monetary Fund also added to concern that the world’s biggest economy is shrinking. Declines in Home Depot Inc. and Sears Holdings Corp. helped chain stores in the Standard & Poor’s 500 index erase most of a 2 percent rally after oil climbed more than $3 a barrel and gasoline rose to a record.

The S&P 500 decreased 2.65 points to 1,367.53. The Dow Jones industrial average lost 45.44 to 12,609.92. The Nasdaq composite index slipped 1.35 to 2,361.4.

GE dropped 41 cents to $38.02. Microsoft declined 34 cents to $29.16.
Home Depot, the biggest home-improvement retailer, retreated 33 cents to $29.16. Sears Holdings, the chain store being reorganized by hedge fund investor Edward Lampert, dropped $1.86 to $107.61.

Crude oil for May delivery rose 3.8 percent to $104.83 a barrel in New York, and gasoline jumped 5.1 percent to $2.7736 a gallon. The dollar fell against the euro for the first time in three days.

Best Buy shares added 47 cents to $43.94.

"Any time you see a retailer that has something good to say, you certainly have to stand up and notice," said Paul Kandel, a New York-based portfolio manager at Sentinel Asset Management, which oversees about $5 billion same day payday loans.

"But I think it’s a little early to draw a trend. The consumers are still struggling. They’re facing high prices at the pump, and the equity in their homes has been evaporating."

Bank of America Corp., the second-biggest U.S. lender by assets, lost 56 cents to $40.30. Wells Fargo & Co., the country’s fifth-largest bank, dropped 96 cents to $30.53.

Bank of New York Mellon Corp. dropped $2.13 to $42. Attorneys representing Russia said there is "consensus building among analysts and legal experts" that Russia’s lawsuit against the largest custodian of financial assets will stand up in courts outside the country. Bank of New York Mellon was accused by Russia’s customs service in May of helping transfer $7 billion out of the country in the 1990s.

The jump in fuel prices, along with gains in copper and gold, pushed energy and raw-materials producers to the top gains among 10 industry groups in the S&P 500. Exxon Mobil Corp., the biggest U.S. oil company, gained $1.50 to $88.52. Chevron, the second-largest, increased 77 cents to $87.51. Newmont Mining Corp., the world’s second-biggest gold producer by volume, added $1.48 to $46.28. Freeport-McMoRan Copper & Gold Inc., the largest publicly traded copper producer, advanced $2.10 to $99.73.

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