News and Finance

WestJet Airlines Ltd said on Monday it may launch a regional, short-haul airline as early as 2013, a move that would put it head to head with its main rival Air Canada on routes to smaller destinations in Canada.

WestJet, Canada

You don’t need to be able to find the Strait of Hormuz on a map to understand the global nature of the oil market, or that the price at the pump can swing wildly based on uprisings in countries such as Iran or Libya.

Less understood, however, is that the market for fuels produced from all that oil has grown increasingly international as well. Last year, U.S. refiners shipped millions more gallons of gasoline and diesel than they imported — the first time that’s happened since 1949.

The trend represents a huge shift in the trade of petroleum products, one that’s being driven by the same forces that have turned other commodity markets upside down in recent years: Energy-hungry economies in places like China and India.

The effect here can be seen most obviously in diesel fuel prices, which now regularly outpace the price of gasoline, a trend analysts expect to continue. Diesel retail prices have risen steadily since early 2009 and currently average about $3.60 a gallon in the city of St. Louis, according to AAA’s Fuel Gauge Report.

That’s bad news for those who drive trucks, trains, tractors and construction equipment. School districts, too, are feeling a pinch.

St. Louis Public Schools, for instance, spent $106,500 on diesel for its 276 school buses in November compared with $61,600 the same month a year earlier, said Deanna Anderson, executive director of transportation. And that at a time when the district faces other budget pressures.

“We’re between a rock and a hard place,” she said. “Kids have to get to school. And in our district, there aren’t many schools within walking distance of where they live.”

Rising diesel prices here tie directly to rising demand for U.S. fuel exports overseas. The United States imported 2.5 million barrels of fuel than it exported as recently as 2005. Last year, so-called net fuel exports averaged 380,000 barrels a day — a swing of almost 3 million barrels a day, according to data from the U.S. Energy Information Administration, the statistical arm of the Department of Energy.

The increase in U.S. exports has been driven mainly by demand for diesel used to power trucks, off-road equipment and trains.

“Diesel demand worldwide is growing, in some areas considerably faster than here,” such as China, India and Brazil, said Neil Gamson, an EIA analyst. “Their economies are booming and they’re moving a lot of things back and forth.”

U.S. refiners export relatively little fuel directly to places like China. Much of it is sent to countries in Europe and South America that either don’t have enough refining capacity to keep up with demand or have seen supplies diverted to other markets.

WEAK GAS DEMAND

The boom in exports also stems from weaker gasoline demand in the U.S., owing to a still-sputtering economy and increasingly fuel efficient cars.

Weak demand might not be evident at the pump, where gasoline prices for this time of year are at record levels — due to higher crude oil prices. But U.S. drivers are consuming less of the fuel than they have in years. In the first week of the new year, gasoline demand totaled 8.18 million barrels a day, the lowest level since February 2003, according to the Energy Department.

Analysts say the corresponding lift in world diesel prices provides strong incentives for refiners to maximize diesel production at the expense of gas.

“There’s been a higher percentage of diesel coming out of our refineries over the last few years, especially because of the high foreign demand and the opportunity to sell it into those markets at a higher profit than you could if you were just selling it into the U.S.,” said James L cheap credit report. Williams, an energy analyst at WTRG Economics in London, Ark.

DIESEL PROPS UP REFINERIES

The international diesel market has been a godsend for refiners, some of whom — especially on the Gulf Coast — have struggled to make money in recent months.

Just Wednesday, Chevron Corp., the second-largest U.S. oil company, said its refining operations would be “near breakeven” in the fourth quarter because of lower refining margins — the difference between what a refiner pays for crude oil and the price of gasoline and other products it makes.

Analysts said diesel has become a profit center for refiners and helped them continue to operate through a sluggish gasoline market.

“It has enabled some refiners to survive or prosper when they might otherwise have fallen victim,” said Tom Kloza, chief oil analyst at the Oil Price Information Service. “A refiner couldn’t make it selling just gasoline right now.”

U.S. refineries are more technologically advanced than in many other parts of the world, meaning they can make a wider range of fuel products from lower grades of crude oil. But there’s still only so much diesel they can squeeze out of each barrel of oil they process, meaning they also produce lots of gasoline in the process, along with kerosene and other fuel products.

“If refiners could stop making gasoline right now and make only diesel, they would,” Kloza said.

TRUCKERS AND FARMERS

While the surge in fuel exports has given rise to criticism that it’s helping keep gasoline prices high, analysts disagree.

John Felmy, chief economist for the American Petroleum Institute, the oil industry’s main lobby, bristles at those who blame fuel exports for helping keep pump prices high. Tapping international demand to keep plants running is no different than a U.S. auto manufacturer or food maker finding new markets overseas.

It’s also worth noting that global energy trade goes both ways. The U.S. long relied on imports of gasoline from Europe to satisfy growing demand. That was especially true in the summer of 2005, when pump prices spiked following hurricanes Katrina and Rita, which knocked out Gulf Coast refining capacity.

Looking ahead, the United States continues to import more than 9 million barrels of crude oil a day — about half of what the country consumes. And while the foreign oil addiction has eased slightly in recent years, there’s no signs of it ending.

And diesel is expected to continue to fetch a premium to gasoline for the foreseeable future. Nationally, EIA projects diesel prices will average $3.85 and $3.93 a gallon this year and next, respectively — a premium of almost 40 cents a gallon to regular gasoline.

That’s not what truckers — easily the biggest users of diesel in the United States — want to hear as the economy struggles to get back to full strength, said Tom Crawford, president of the Jefferson City-based Missouri Trucking Association, which represents more than 725 trucking firms.

High fuel costs remain a struggle for the industry, though less of a problem than in early 2008, when average diesel prices shot up more than a dollar a gallon in a matter of months, he said.

But Crawford maintains a sense of humor about a aspect of the trucking business over which he has no control.

“Truckers and diesel prices is like farmers and the weather,” he said. “We’re never happy.”

Elisa Crouch of the Post-Dispatch contributed to this story.

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OTTAWA

Stock indexes are ending mixed as Europe edges closer to a recession that would hurt corporate profits in the U.S.

The Dow Jones industrial average dropped 13 points, or 0.1 percent, to close at 12,449.

Germany reported that its economy, the largest in Europe, shrank at the end of last year. The European Union cut its estimate of economic growth to its slowest pace in two years.

The S&P 500 added less than a point to 1,292. The Nasdaq rose 8, or 0 low fee payday loans.3 percent, to 2,710.

Supervalu, a grocery store operator, plunged after reporting a loss because of high food prices and costs related to a turnaround plan.

Roughly four stocks rose for every three that fell on the New York Stock Exchange. Trading volume was weak at 3.9 billion.

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Hungary

German factory orders dropped the most in almost three years in November as the euro region economy edged toward a recession and global demand weakened.

Orders (GRIORTMM), adjusted for seasonal swings and inflation, slipped 4.8 percent from October, when they surged a revised 5 percent, the Economy Ministry in Berlin said in a statement today. That

Many retailers are reporting solid sales gains for December, capping a decent holiday season.

But merchants relied on heavy discounting to get shoppers to buy in a challenging economy, raising concern about what it will take to get them to spend again in coming months.

As retailers reported their results Thursday, Limited Brands Inc., Macy’s Inc. and teen retailer The Buckle posted strong revenue gains that beat analysts’ estimates.

Among the laggards were Target Corp instant personal loans guaranteed., which cut its earnings outlook after slim sales gain that was below expectations.

The revenue figures are based on revenue at stores opened at least a year. That is considered a key indicator of a retailer’s health because it excludes results from stores recently opened or closed.

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Asian stock markets were mostly higher Wednesday after Wall Street opened the year with a bang following the release of positive U.S. economic data.

Japan’s Nikkei 225 index gained 1.1 percent to 8,550.93, while Australia’s S&P ASX 200 jumped 2.1 percent to 4,185.70. Benchmarks in Singapore, Taiwan, Indonesia and the Philippines also rose.

Hong Kong’s Hang Seng Index slipped 0.5 percent to 18,787.77 while South Korea’s Kospi fell 0.2 percent to 1,872.40.

On Wall Street, stocks rose sharply Tuesday after investors returned from the holiday and found encouraging economic reports.

The Institute for Supply Management’s manufacturing index for December showed a rise to 53.9 from 52.7 in November, with readings above 50 indicating expansion. Factories hired more workers in December, saw the most growth in new orders since April and ramped up production.

Other data showed the struggling construction industry on firmer footing, with U.S. builders spending more in November on single-family homes, apartments and remodeling projects.

The strong reports correspond with other positive signs for the economy, including rising consumer confidence and a drop in unemployment benefit applications.

“The US continues to grow fairly earnestly in spite of turmoil in Europe. Yesterday’s ISM report was especially encouraging,” analysts at DBS Bank Ltd. in Singapore said in a research note.

The Dow Jones industrial average gained 1.4 percent to 12,397 electronic check payday advance.38, its highest close in more than five months.

The Standard & Poor’s 500 index, a broader gauge than the Dow, finished up almost 20 points at 1,277. The S&P finished 2011 was virtually unchanged.

There was also hope from Europe’s largest economy, Germany, which reported that the average number of people unemployed there last year was the lowest in two decades. Germany has an unemployment rate of 6.6 percent, compared with 8.6 percent in the United States.

Meanwhile, China’s manufacturing index rose in December, reversing a November slide and raising hopes that the country’s economic slowdown is under control.

A jump in commodity prices, which often follow stock prices, helped metals and mining shares. In Australia, OZ Minerals and Fortescue Metals Group both rose 4.1 percent. Uranium miner Paladin Energy gained 2.9 percent. BHP Billiton, the world’s largest mining company, soared 4 percent.

Benchmark crude for February delivery fell 31 cents to $102.67 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $4.13 to finish at $102.96 per barrel on the Nymex on Tuesday.

In currency trading, the euro fell to $1.3030 from $1.3056 late Tuesday in New York. The dollar fell slightly to 76.65 yen from 76.67 yen.

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South Korea

Spain’s deficit for 2011 could be even higher than the larger-than-forecast 8 percent of GDP it announced last week, the finance minister of the new conservative government said Monday.

Luis de Guindos said in a radio interview that the government, which took power just before Christmas, found out only early last week how bad the numbers were and had no choice but to act quickly by increasing income and property taxes, despite an election campaign pledge not to raise taxes.

The conservative Popular Party swept to victory in Nov. 20 general elections, winning a comfortable majority in Parliament as voters enduring 21.5 unemployment and a stagnant economy dumped the incumbent Socialists.

De Guindos said the 8 percent figure _ up from a 6 percent forecast by the outgoing government _ would have come out in a matter of weeks anyway and would have almost certainly led to a punishing rise in Spain’s borrowing costs.

So the government acted quickly by announcing Friday a package of tax rises and spending cuts _ totaling about euro15 billion ($19 billion) _ at the same time as it unveiled the new deficit estimate, so as to stay ahead of events, he said.

“It was an act of responsibility and political initiative to keep the Spanish economy from reaching a situation that would have been practically unsustainable,” de Guindos told Cadena Ser radio.

He said both the central government and Spain’s regional governments shared blame for the overspending.

As for the final 2011 deficit figure, he said: “It is possible that it will exceed 8 percent. Not by much, I certainly hope.”

He said Spain right now, with its economy a mess and the eurozone in a debt crisis, could not afford to announce its deficit will be two points higher than forecast without also quickly taking measures like raising taxes, as unpleasant as that might be.

“If we had not, others would have done it for us,” de Guindos said, suggesting the European Union would have stepped in somehow.

The deficit-reduction package is a first bitter taste of austerity for Spaniards under the new Popular Party government. It came as part of an extension of the 2011 budget because none for 2012 had been passed when the government changed hands.

More austerity is expected when a full-blown 2012 budget is approved in late March.

The government’s goal is to get the deficit down to 4.4 percent of GDP this year.

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