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Monday PM August 9th, 2010

BP resumes drilling relief well…Wave of people collecting social security benefits early contributing to trust shortfall…Gasoline prices on the rise after oil rally last week…


The government’s point man on the Gulf oil spill says BP has resumed drilling a relief well meant to intersect the blown-out well and seal it for good. Retired Coast Guard Admiral Thad Allen says that cement forced down from the top of the crippled well last week has hardened enough that workers could begin drilling the final 100 feet of the relief well. Engineers were drilling 20 or 30 feet at a time, then pausing to make sure they were still on the correct course to hit the broken well. It could be the end of the week before the wells intersect. The relief well will be used to pump more cement and mud into the busted well to permanently seal the source of the oil that spilled into the Gulf for nearly three months.

Officials working on the oil spill in the Gulf of Mexico are watching a cluster of storms over Florida that could develop into a tropical disturbance. The government point man on the oil spill, retired Coast Guard Admiral Thad Allen, says he is not currently planning to suspend cleanup work or drilling on a relief well meant to plug the busted well for good. The National Hurricane Center says the storms could move over the Gulf this week near where the Deepwater Horizon sank after an explosion in April. Forecasters say there is a small chance the system could become a tropical depression or tropical storm.

BP says its costs to respond to the massive oil spill in the Gulf of Mexico has risen to about $6.1 billion. That includes expenses for relief well drilling, the static kill and cementing procedure done on the blown out oil well, grants to Gulf coast states and claims paid to people who have lost income or profits because of the spill. BP says that as of Saturday, more than 145,000 claims had been submitted and more than 103,900 had been paid, totaling $319 million. An estimated 207 million gallons of oil spilled into the Gulf after the Deepwater Horizon rig exploded off Louisiana on April 20th. The explosion killed 11 workers and sent crude into delicate coastal marshes and tar balls washing on to beaches.

If a hurricane hits the Gulf coast this season, workers cleaning up the BP oil spill won’t be able to swoop immediately into action to fix the mess. According to a response plan obtained by the Associated Press, a new Obama administration edict requires that the oil be tested for its origin before it can be cleaned up. That’s supposed to make it easier for the government to get reimbursed from BP if a hurricane spreads oil from the Gulf into backyards, neighborhoods and wetlands. It could also cause frustrating delays and prevent residents from returning to their homes while the government figures out who pays.

The U.S. government’s point man overseeing BP’s response to the massive oil spill in the Gulf gives the company high marks for its engineering response, but low marks in dealing with people. Speaking Sunday on CNN’s State of the Union, retired Coast Guard Admiral Thad Allen said he isn’t sure any oil company could have done more to cap the spill once it happened. But Allen says BP was too big of a company to immediately deal with the problems the spill caused individuals along the coast. Crews were getting ready to resume drilling on a relief well to seal the leak permanently. Last week, BP hinted it might not use the relief well. But Allen told CBS’ Face the Nation he spoke directly to incoming CEO Bob Dudley and told him that it must be used.

The founder and head of Simmons International, Matt Simmons died Sunday at his home in Maine, according to the Houston Business Journal. He died of an apparent heart attack. Simmons recently formed a new company, Ocean Energy Institute. His 2006 book Twilight in the Desert introduced the term “peak oil,” as he made predictions on the future of energy.

House members are returning to Washington from their summer recess to quickly pass a jobs bill that Democrats say is crucial to the nation’s well-being. The unusual in-and-out session was called because the Senate waited until last Thursday to pass its $26 billion jobs bill. The legislation is designed to prevent tens of thousands of teachers and an equal number of other state and local government workers from losing their jobs. With the new school year just weeks away, election season fast approaching and the overall job picture still bleak, Democrats had no choice but to act quickly.

A wave of people opting to collect social security benefits early is contributing to the trust’s first-ever shortfall. More people filed for social security last year than ever in history, and there was a marked increase in the number receiving reduced benefits because they filed ahead of their full retirement age. Officials say part of the increase is due to the increase in the full social security retirement age last year from 65 to 66. But they say there’s no doubt some is also attributable to people cashing in early because they’ve lost their jobs. Adding to the strain on the trust are reduced tax collections sapped by the country’s high unemployment rate. In the annual report of the social security program released Thursday, the trustees said that pension and disability payments will exceed revenues for this year and 2011.

Government-controlled mortgage buyer Freddie Mac is asking for $1.8 billion in additional federal aid after posting a larger loss in the second quarter. Freddie Mac says it lost $6 billion, or $1.85 per share, in the April-to-June period. That takes into account $1.3 billion in dividends paid to the Treasury Department. It compares with a loss of $840 million in the second quarter a year ago. The government rescued McLean, Virginia-based Freddie Mac and sibling company Fannie Mae from the brink of failure nearly two years ago. The new request means they have needed $148.2 billion to stay afloat, about $63.1 billion of which is being used by Freddie Mac.

Gasoline prices have been on the rise after a rally in oil last week. But they aren’t expected to spike in the weeks ahead because of typical light trading in the oil market in August, still-ample supplies and fairly weak demand. The national average for a gallon of unleaded regular gasoline was $2.779 Friday, about 3.8 cents higher than a week ago, according to AAA, Wright Express and Oil Price Information Service. It’s also 16.9 cents more than motorists paid a year ago. Travelers in the west, Illinois and New York saw the highest prices, in a range between $2.891 a gallon and $3.554 a gallon. The lowest prices were in Texas, the Midwest and the Gulf Coast region. Retail gasoline prices in Houston has risen almost six cents in the past week, averaging $2.57 per gallon. Tom Kloza, publisher of the Oil Price Information Service, says unleaded regular gasoline prices should range between $2.75 a gallon and $2.85 a gallon until labor day, when a retreat is expected as demand falls.

A Texas gas company is giving $100,000 to first responders in a June explosion near Moundsville that injured seven workers. Union Drilling of Fort Worth, was sinking a well for Ohio-based AB Resources and Dallas-based Chief Oil & Natural Gas, when it struck and ignited methane in an abandoned coal mine. Chief spokeswoman Kristi Gittins says the blast was a first for her company, which wants to ensure local governments and taxpayers don’t have to foot the bill. Chief is reimbursing the Limestone and Moundsville volunteer departments for $45,000 in expenses. It’s also donating to agencies including the Salvation Army and the Marshall County Sheriff’s Office. Most of the recipients are local volunteer fire companies.

Chrysler says growing sales helped it narrow its second-quarter loss to $172 million, a year after emerging from bankruptcy protection The U.S. and Canada are Chrysler’s primary markets, and both have seen more demand for cars and trucks since a recession-related slump last year. Chrysler says revenues rose 8.2 percent to $10.5 billion compared with the first quarter, largely because of a 22 percent jump in sales. Chrysler has been run by Fiat since leaving bankruptcy protection in June 2009. This was the first time since 2007 that the company has released second-quarter results. Chrysler lost $197 million in the first quarter. Chrysler says it remains on track to break even or post an operating profit this year and may raise that forecast when it reports third-quarter results. Chrysler said it made an operating profit of $183 million in the second quarter.

Magazine newsstand sales in the U.S. slipped 5.6 percent in the first half of 2010. That’s from the latest figures released by industry auditors. Meanwhile, the Audit Bureau of Circulations says the number of magazine subscriptions fell two percent, making for an overall sales decline of 2.3 percent. Newsstand sales are an important gauge because publishers charge full cover price at retail outlets, while discounting subscriptions to boost the overall circulation they can promise advertisers. While the latest figures show newsstand sales are still dropping, the decline has eased since the worst of the recession. The 5.6 percent decline in the January-June period compares with a nine percent decline in the six months before that and a 12 percent decline in the same period a year ago.

Investors will be getting some new clues about the state of the economy this week. On Tuesday, the Federal Reserve will announce its decision on interest rates and the Commerce Department will report on wholesale trade inventories for June. On Wednesday, the Commerce Department releases international trade for June, the Labor Department releases a report on job openings and its labor turnover survey for June and Treasury releases the federal budget for July. Thursday brings the Labor Department’s weekly report on jobless claims. And on Friday, the Commerce Department releases retail sales figures for July and business inventories for June, while the Labor Department reports on the consumer price index for July.

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