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Wednesday PM June 16th, 2010

BP begins oil burn; President Obama stands behind drilling moratorium…Congress continues wrangling with extending unemployment benefits… Home construction drops to lowest level since December…



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BP has started burning oil siphoned from a ruptured well in the Gulf of Mexico as part of its plans to more than triple the amount of crude it can stop from reaching the sea. BP said oil and gas from the well reached a drilling rig early this morning. The system uses lines to suck oil from a stack of pipes near the seafloor to a drilling rig on the ocean surface. Once the oil is aboard, it’s shot down a specialized boom, mixed with compressed air and ignited. BP says the burner could incinerate anywhere from 210,000 gallons of oil to 420,000 gallons of oil daily once it’s fully operational.

President Barack Obama says he understands the difficulties stemming from a six-month moratorium on new permits for deepwater drilling but tells the nation that he has to ensure the safety of those who work on the oil rigs at sea. Obama said he had proposed expanded offshore drilling a few months ago with the assurances it was absolutely safe. He says that was obviously not the case aboard the BP rig. In his first address from the Oval Office, Obama said he wants to hear a national panel’s recommendations to improve worker safety and environmental protections before the moratorium is lifted. He says he also wants to understand what led to the sinking of the Deepwater Horizon rig.

Senior administration officials tell the Associated Press that BP has agreed to finance a $20 billion fund to pay the claims of people whose jobs and way of life have been damaged by the devastating Gulf Coast oil spill. The independent fund will be led by lawyer Kenneth Feinberg, who oversaw payments to families of victims of the September 11th, 2001, terrorist attacks.

President Obama has selected a new leader for the troubled federal agency that oversees oil and gas development and has been accused of lax oversight and conflicts of interest. The White House has announced that a former assistant U.S. Attorney and Justice Department inspector general, Michael Bromwich, will lead a planned reorganization of the Minerals Management Service. The administration wants to break the mms into three separate entities to eliminate conflicts of interest. The White House says Bromwich will have a mandate to implement far-reaching changes and the resources to do it. Last month, Elizabeth Birnbaum stepped down as director of the MMS, a job she had held since July.

The Senate has killed an attempt to repeal lucrative tax breaks enjoyed by the oil and gas industry. The move by Vermont independent Bernie Sanders would have raised $35 billion over ten years by limiting the ability of oil companies to write off drilling expenses, eliminating a tax deduction for the capital costs of oil and gas wells and repealing a tax deduction for domestic production of oil and gas. But Sanders was on the losing end of a 61-35 vote, despite the industry’s current political problems caused by the spreading oil slick. Sanders wanted to devote $10 billion of the money to clean-energy projects and the rest to defraying the budget deficit.

Republicans and a dozen Democratic defectors in the Senate have dealt a defeat to President Barack Obama just days after he pressed Congress to renew pieces of last year’s economic bill. After coming out on the losing end of a 52-45 test vote, Obama’s Democratic allies have been forced back to the drawing board in their efforts to extend unemployment benefits for the long-term jobless and provide $24 billion in aid to cash-strapped state governments. Democrats seeking to reduce the measure’s deficit impact are looking at rolling back last year’s $25 a week increase in unemployment checks and giving doctors just a short reprieve from scheduled cuts in their Medicare payments.

The House has passed a package of tax breaks to encourage investment in small businesses as Congressional Democrats try to revive their jobs agenda and boost the economic recovery. The bill would exempt long-term investments in certain small businesses from capital gains taxes. It would also increase tax deductions for startup expenses by new small businesses. House Democrats plan to merge the bill with legislation creating a $30 billion fund to encourage community banks to increase lending to small businesses.

Home construction plunged last month to the lowest level since December as builders scaled back without a federal tax credit to lure buyers. Building permits also fell, a sign the construction industry won’t fuel the economic recovery. The Commerce Department says construction of new homes and apartments fell ten percent from a month earlier to a seasonally adjusted annual rate of 593,000. April’s figure was revised downward to 659,000. The results were driven by a 17 percent decline in the single-family market, which had benefited earlier in the year from federal tax credits of up to $8,000. Applications for new building permits, a sign of future activity, also fell. They sank 5.9 percent to an annual rate of 574,000, the lowest level in a year.

Wholesale prices fell for a second straight month in May, the first time that has happened in a year, reflecting big declines in the cost of energy and food. The Labor Department says wholesale prices dropped 0.3 percent in May following a 0.1 percent decline in April. Core inflation, which excludes energy and food, posted a 0.2 percent increase. Core prices are up just 1.3 percent over the past 12 months. The continued absence of inflationary pressures means that the Federal Reserve, which meets next week, can keep interest rates low to provide support for the economic recovery.

Industrial production rose 1.2 percent in may as manufacturing remained a key engine of the economic recovery. The Federal Reserve says output at the nation’s factories, mines and utilities rose over April’s 0.7 percent increase. The industrial sector’s gains reflect the growing strength of the recovery. Factories–the single biggest contributor to industrial activity–ratcheted up production by a 0.9 percent. It was the third straight monthly increase. The gains were broad based, though mining output edged down by 0.2 percent. Production at utilities increased by 4.8 percent as warm weather created more demand for electricity. U.S. factories were operating at 74.7 percent of capacity.

Saudi Arabia’s state-run oil giant says its oil output dropped around a million barrels per day last year, but it boosted its natural gas reserves by over four percent. In its 2009 annual review posted on its Website, Saudi Aramco, which has a presence in Houston, said crude production fell to 7.9 million barrels per day in 2009. The slide reflected the country’s lead role in complying with a 4.2 million barrel per day cut in quotas implemented in 2008 by the Organization of the Petroleum Exporting Countries. The group was struggling then with crude prices battered by the global economic meltdown. Aramco said it added 12.2 trillion feet of non-associated natural gas reserves in 2009. The boost is key for the kingdom, whose economy and domestic energy demand is steadily growing.

Government-sponsored mortgage purchasers Fannie Mae and Freddie Mac plan to delist their shares from the New York Stock Exchange. The companies’ regulator, the Federal Housing Finance Agency, says that it expects Fannie Mae and Freddie Mac shares to trade on the Over-the-Counter Bulletin Board, an electronic quotation service. The move to delist the shares isn’t a surprise. The crash in the housing market has pounded Fannie Mae and Freddie Mac with heavy losses on mortgage debt since 2007. Fannie shares have been below the $1 average price level for 30 trading days. NYSE rules require a company to take action to boost its shares or delist.

Colleges would no longer be allowed to pay recruiters for students or engage in aggressive or misleading recruitment under proposed new federal regulations that target the practices of for-profit colleges. The proposed new Department of Education rules apply to all colleges but are of particular interest to the for-profit world, where some institutions have been accused of misleading students about the cost and value of their programs. The proposed rules are set to be published in the Federal Register on Friday and will be open to public comment until August 2nd. Final rules are scheduled to be announced in November and would go into effect in July 2011.

The Fort Worth City Council has approved $10.7 million in tax rebates to keep electronics retailer RadioShack from relocating. The vote came eight years after Fort Worth city leaders approved a RadioShack incentive package worth as much as $96 million. RadioShack, with 1,100 employees and a $94 million payroll, threatened to relocate last year. Under the new deal, RadioShack would have to repay some of the incentives if it leaves before 2016. RadioShack Chief Financial Officer James Gooch says the agreement is “very good news that allows us to stay in our current location.” RadioShack had net income of $205 million in the most recent fiscal year. Reports of a possible buyout began to circulate in March.

The Texas Department of Agriculture is hoping its first map detailing high-speed Internet access around the state will be a boost for unserved rural areas. Texas Agriculture Commissioner Todd Staples unveiled the map in Austin. The interactive map allows computer users to pinpoint availability in small areas, even down to a specific rural home. Staples says the tool could lead service providers to target future investment. Staples says 96 percent of Texas households have high-speed, or broadband, Internet access. But he says that doesn’t mean much to the roughly 250,000 homes without it. He says he wants to “bridge the digital divide for rural communities.” State officials are asking Texans to provide input to keep the map relevant.

Food safety advocates are pushing the U.S. government to step up efforts to monitor less common e. coli strains. The food industry and government regulators have focused for years on finding the most virulent strain, which has killed hundreds of people and sickened thousands every year. But they don’t regularly test for six less common strains that can cause illnesses equally as serious. Most recently, two dozen illnesses in four states were tied this spring to bagged romaine lettuce contaminated by an uncommon e. coli strain. Industry officials say tests aren’t available for widespread monitoring of those less common strains. But a Seattle law firm known for food-illness lawsuits has petitioned the USDA to list them as adulterants in meat, requiring regular screening.