Oil steady below $44 as investors eye OPEC cuts

Oil prices were steady below $44 a barrel Tuesday in Asia as investors anticipated that OPEC will announce a big production cut next week to stabilize crude prices that have fallen about 70 percent in five months.

Light, sweet crude for January delivery edged down 19 cents to $43.52 a barrel on the New York Mercantile Exchange by late afternoon in Singapore. The contract fell overnight $2.90 to settle at $43.71.

Prices fell last week to an intraday low of $40.50, the lowest since December 2004.

"Oil should find support around $40 a barrel and should form a bottom there," said Aaron Smith, who helps manage about $1.7 billion as managing director at Superfund Financial in Singapore.

Smith, who uses technical analysis to help guide his investment decisions, has recently reduced bets that the price of oil will go down, known as shorting.

"We've reduced the size of our short positions in oil dramatically over the last couple months," said Smith, who invests half his fund in commodity futures contracts. "But if it breaches that $40-$41 level, it could really keep moving."

Investors are watching for signs of how much the Organization of Petroleum Exporting Countries may reduce output quotas at the group's meeting next week in Algeria.

OPEC President Chakib Khelil said Saturday the group could announce a "severe" production cut and suggested the cartel could seek to surprise the market with the size of the reduction in a bid to bolster prices.

OPEC, which controls about 40 percent of world crude supplies, announced a production cut of 1.5 million barrels a day in October and 500,000 barrels in September, moves investors brushed off as a global economic slowdown worsened.

OPEC will have to adhere to any promised output cut if it hopes to help reverse the fall in oil prices, said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

"I think OPEC will need to make a cut of at least 2 million barrels a day," Shum said. "I think pricing going down to $40 last week will galvanize OPEC to make a substantial cut and comply better with their targets."

"But you can announce all the cuts you want. Compliance is the key."

Investors were also encouraged by news that President-elect Barack Obama plans to implement a major infrastructure program to help boost employment in the weakening U.S. economy.

"With all the stimulus packages and output cuts by OPEC, we may see the oil price stabilizing," Shum said.

In other Nymex trading, gasoline futures was little changed at 96.25 cents a gallon. Heating oil gained 1.03 cent to $1.5007 a gallon while natural gas for January delivery rose 8.6 cents to 5.65 per 1,000 cubic feet.

In London, January Brent crude dipped 20 cents to $43.22 on the ICE Futures exchange.

US publisher in bankruptcy move

US media group Tribune has filed for bankruptcy protection as it struggles with $13bn (£8.7bn) of debt.

The owner of the Chicago Tribune and Los Angeles Times has been hit by the industry-wide slump in newspaper advertising revenues throughout 2008.

Tribune is owned by real estate billionaire Sam Zell, who borrowed heavily to buy the firm in June 2007.

Under US Chapter 11 bankruptcy protection law a firm can keep trading while it aims to sort out its finances.

Baseball team

Tribune is also the owner of the Chicago Cubs baseball team and the club's famous Wrigley Field stadium, although neither are included in the bankruptcy protection move.

It is continuing efforts to sell both.

Tribune said the firm's newspapers and TV stations would continue to operate as normal.

Analysts say that most of the debt was created by Mr Zell's purchase of the company.

While the next major interest payment is not said to be due until June 2009, Tribune is said to be at risk of missing certain financial targets set by the banks.

Tribune said its main creditors included JP Morgan Chase and Merrill Lynch.

"This restructuring focuses on our debt, not on our operations," said Mr Zell.

"We believe that this restructuring will bring the level of our debt in line with current economic realities, and will take pressure off our operations."

Tribune is America's third-largest newspaper group by circulation.

It also runs 23 television stations.

Global oil demand could contract in 2009: IEA

The head of the International Energy Agency says the global demand for oil could shrink next year if the economies of China, India or the Middle East slow down fast.

Agency's head Nobuo Tanaka says that if current economic conditions continue he expects only slight growth in oil demand in 2009.

But he says a total global decline remains a possibility if a slump hits the economies of China, India or the Middle East.

Tanaka was speaking Monday at UN climate talks in the western Polish city of Poznan.

The Paris-based agency recently slashed its global oil demand forecasts for the period to 2013.

It said the world oil market had been shaken by high prices earlier this year followed by the global economic slowdown.

Daimler cuts Mercedes-Benz output

Daimler is reducing the working week at its largest Mercedes-Benz factory, as it becomes the latest carmaker to trim output in the face of falling sales.

The firm's Sindelfingen factory near Stuttgart in Germany will adopt a four-day working week from 12 January until at least 31 March, said the company.

It added that there may also be some three-day weeks.

German rival BMW has already announced a longer Christmas break at its main production facility in Munich.

'Serious slump'

Daimler added that it was also considering shortening hours at its other plants in Berlin, Bremen and Dusseldorf.

Its announcement comes after the German Association of the Automotive Industry said last week that new car sales in 2009 were expected to be the worst since the country's reunification in 1990.

Fellow German carmakers Porsche and Volkswagen (VW) have also warned of a tough sales environment.

Porsche recently said it was delaying its takeover of VW due to signs of a "serious slump" in global demand.

Meanwhile, VW said the current market situation was "very challenging indeed".

Across Europe, Toyota, Ford and Honda have all already announced a cut in working days.

State threatens Bank of America

The governor of Illinois has threatened to stop doing business with Bank of America if it does not help laid-off workers occupying a Chicago factory.

Rod Blagojevich said the bank would lose out on hundreds of millions of dollars in fees and commission.

About 200 workers have been occupying Republic Windows and Doors demanding severance pay since they were laid off with only three days notice.

Their employer blames Bank of America for cutting off their credit line.

The bank said it was "reaching out to the management and ownership of the company to see what they can do to help resolve the issue".

It added that it had provided the maximum amount of funding it could under the terms of its agreement with the company.

Plan rejected

Workers said they were entitled to be given 60 days notice of the closure of the plant and demanded pay for that period as well as any unused vacation time.

Republic Windows and Doors was a victim of the collapse in housebuilding in the US.

It said it had given its bankers a plan for an orderly wind-down that would have led to an end to production in January 2009.

But it said that the bank had rejected permission to give vacation pay to its employees.

It told workers last week that Bank of America had shut off its line of credit and refused to allow further expenditures.

Obama comments

Mr Blagojevich said it was time for Bank of America to spend some of its $15bn (£10bn) bail-out money.

"Take some of that federal tax money that they've received and invest it by providing the necessary credit to this company so these workers can keep their jobs," he said.

President-elect Barack Obama also expressed support for the workers occupying the plant and agreed that the money given to banks needs to benefit the rest of the economy.

"It's also important for us to make sure that the plans and programs that we design aren't just targeted at maintaining the solvency of banks, but they're designed also to get money out the door and to help people on Main Street," Mr Obama said.

Airlines 'to lose $5bn in 2008'

The global air industry is set to lose $5bn (£3.32bn) in 2008 and $2.5bn next year because of the global economic downturn, an industry body has said.

The International Air Transport Association (IATA) had forecasted bigger losses, but revised the figures down because of lower oil prices.

"We face the worst revenue environment in 50 years," said IATA director general Giovanni Bisignani.

IATA expects North America to be the only profitable region in 2009.

Mr Bisignani said that US airlines would benefit from cheaper fuel and cutbacks they had made this year.

The organisation thinks that passenger traffic will fall for the first time since 2001, dropping by 3% in 2009 compared with 2% growth in 2008.

Air cargo traffic is expected to continue its decline.

"The outlook is bleak. The chronic industry crisis will continue into 2009," said Mr Bisignani.

Sony to cut plants and 8,000 jobs

Sony has announced plans to cut 8,000 electronics jobs - 5% of the division - as well as shutting 10% of its manufacturing sites.

The company said the jobs would be cut by April 2010 but did not say in which countries the staff would go.

Sony said it had been trying to reduce production because of the downturn but warned it still had to do more.

The news came as Japan said its economy had shrunk between July and September by much more than initially estimated.

The Cabinet Office said the economy had shrunk at an annual rate of 1.8% in the quarter, compared with its original estimate of 0.4%.

Investment cut

Sony aims to generate cost savings of about 100bn yen ($1.1bn; £730m) by the end of the next financial year.

It will cut its investment in electronic operations by 30% and shut down about 10% of its 57 production facilities.

"The number sounds big, but this staff reduction won't be enough," said Katsuhiko Mori, a fund manager at Daiwa SB Investments.

"Sony doesn't have any core businesses that generate stable profits - the next thing we want to see is what is going to be the business that will drive the company."

Obama vows aid for car industry

US President-elect Barack Obama says he will not allow the country's car industry to collapse, but any state help must come with strict conditions.

The industry and its stakeholders would have to restructure, he told NBC television's Meet the Press.

Congress and the White House have been holding talks on a plan to rescue the beleaguered US car industry.

Mr Obama warned the economy would get worse before it improved, but any aid plan needed strong regulations.

He also named Japanese-American General Eric Shinseki as Veterans' Affairs chief.

He said Gen Shinseki was exactly the right person to honour returning soldiers.

The general left his former job as US Army chief of staff after disagreeing with the then Defence Secretary, Donald Rumsfeld, over the number of US troops needed to control Iraq after the invasion.

Financial controls

The country's struggling carmakers have asked for a $34bn (£23bn) rescue plan. Congress and the White House have been holding weekend talks to find a solution.

There had been disagreement over where the money should come from, with Congressional Democrats opposing President George Bush's proposal to modify a $25bn fund which was set up to promote fuel-efficient technologies.

But according to Congressional sources, House Speaker Nancy Pelosi, a Democrat, has suggested that the fund could be used under certain conditions.

The plan is a stop-gap measure intended to help the three firms survive until Mr Obama's administration takes over in January and can craft a longer-term solution, correspondents say.

In the NBC interview, Mr Obama avoided going into detail about the car industry rescue plan, but said letting major carmakers such as General Motors, Ford and Chrysler go bankrupt was not an option.

"That means we're going to have to figure out how to put the pressure in the same way a bankruptcy court would... but do so in a way that allows them to keep their factory doors open," he said.

The 2008 winner of the Nobel economics prize Paul Krugman said he doubted the US car sector would survive, but that it was worth supporting it in the short term.

"In the end these companies will probably disappear," the economics professor at Princeton University said.

Mr Obama said he also wanted to see tighter controls on the financial sector as a whole.

"As part of our economic recovery package what you will see coming out of my administration right at the centre is a strong set of financial regulations which banks, ratings agencies, mortgage brokers, a whole bunch of folks (will) start having to be much more accountable and behave much more responsibly."

UK car parts firm Wagon collapses

The UK arm of leading European car parts business, Wagon Automotive, is to go into administration after talks on a new funding deal with its banks failed.

Wagon Automotive employs 500 workers in the West Midlands and supplies parts to Ford, Honda, General Motors and Nissan.

The firm said it hoped some of its plants in other countries would be able to avoid going into administration.

Birmingham-based Wagon employs over 4,000 workers across Europe, and has struggled due to the car market slump.

Several of its customers have cut back production or temporarily shut plants in order to reduce their own costs.

The corporate restructuring group, Zolfo Cooper, is expected to act as Wagon's UK administrator.

In a statement the company said: "Decisions on the overseas group companies have not been made."

"It is anticipated that some may be able to continue to trade without needing insolvency protection," it said.

The firm has plants in Coventry and Walsall.

Funding problems

Shares in Wagon were suspended in October after it reported a "steep deterioration" in the European car market and said it was in funding talks with its lenders.

The firm - which is controlled by the American billionaire Wilbur Ross - failed to persuade its banks to led it more money.

The banks, led by the Royal Bank of Scotland and including Lloyds TSB, both of which are now largely controlled by the government, declined to contribute 12m euros (£10.3m; $15.2m) to a 50m-euro funding package.

Wagon's carmaking clients had put up 30m euros and Mr Ross was understood to have been prepared to contribute 10m euros through the purchase of one of its subsidiaries.

The funding package would have kept the firm running for another three months. The banks had already agreed loans totalling 155m euros during the summer.

The Chancellor, Alistair Darling, is set to chair the inaugural meeting of the Lending Panel later this week, which was set up in the pre-Budget report to monitor closely banks' lending practices to companies and individuals.

The company traces its roots back to Wagon Repairs, a business set up at the end of World War I to maintain railway rolling stock.

India unveils $4bn stimulus plan

India has announced $4bn (£2.72bn) in extra spending to boost its economy as the global financial crisis unfolds.

The government said it was also planning a substantial spending increase in next year's budget.

The move came as the Reserve Bank of India cut its key interest rate by one percentage point, from 7.5% to 6.5%, on Saturday to encourage spending.

It is the third time since October the central bank has cut rates, which are now at their lowest since June 2006.

As well as the global financial situation, business confidence in India has also fallen in the wake of the Mumbai attacks that left at least 170 dead.

Growth stimulus

Prime Minister Manmohan Singh's office said in a statement: "The government has decided to seek authorisation for additional planned expenditure of up to 200bn rupees ($4bn) in the current year."

The prime minister's office said the government was keeping a close watch on the economic situation and would take any additional needed to "maintain the pace of economic activity".

Under the plan, various categories of value-added tax will be cut by up to 4 percentage points to encourage consumer spending.

The package also includes measures to boost infrastructure spending, help businesses, and aid labour-intensive export sectors such as textiles and handicrafts.

Mr Singh, who recently took control of the finance ministry, last week forecast that India's economy would grow by 7.5% in the year to March 2009.

However, economists say growth could be as low as 6.8% this financial year, and 5.5% the following year.

Business leaders had hoped the government would do more.

Amit Mitra, secretary general of the Federation of Indian Chambers of Commerce and Industry, said the package was pointing in the right direction, but "could have done even more" to help boost growth.

India's rising budget deficit means it can do far less than a country like China - which last month announced a $586bn stimulus package - to spend its way out of economic problems.

Until now, India has focused on using monetary policy to counter the effects of the global slowdown.

Since mid-September, the Reserve Bank of India has injected $60.2bn into the financial system to boost liquidity.

Oil prices up on talk of Opec cut

Oil prices have rebounded from four-year lows after Opec's president said the oil cartel could announce a large reduction in oil production.

US light, sweet crude rose $2.55 to $43.36 a barrel and London's Brent crude went up $2.51 to $42.25 a barrel.

On Friday, oil prices fell to a low of $40.50 after weak US economic data.

Opec President Chakib Khelil said on Saturday the cartel could "surprise" markets with an output cut at its meeting on 17 December in Algeria.

He did not specify how big the cut could be, but said that some analysts were expecting a reduction of up to 2 million barrels per day.

"The possibility of Opec moving to tighten up the oil market is real," said David Moore at Commonwealth Bank of Australia.

A jump in stock markets and hopes for a stimulus plan for US carmakers also helped support oil prices.

Oil prices reached an all-time record of $147 a barrel in July.

Now analysts forecast much lower prices amid the worsening situation in the global economy.

Merrill Lynch said crude prices could fall to $25 a barrel if China is hit hard by the global recession.