Energy Sector Roundup: Fed Cut Bumps Oil

Following is a summary of top stories in the energy sector Tuesday afternoon.

Fed Cuts Rates, Boosts Oil

Oil prices headed higher after the Federal Reserve cut interest rates three-quarters of a percentage point and a rally on Wall Street raised energy investors' hopes for the economy.

Light, sweet crude for April delivery rose $3.74 to settle at $109.42 a barrel on the New York Mercantile Exchange.

In the past several months, rate cuts have fed oil price rallies as investors bought crude futures to hedge against inflation and the falling dollar. Also, oil futures are priced in dollars, which makes them cheaper for foreign investors as the greenback falls.

"The Fed continues its eight-month trend of loosening credit which will, in turn, continue the downtrend in the value of the dollar," said Platts chief economist Larry G. Chorn. "If recent history is a guide, the 75-basis-point rate reduction by the Fed could result in oil prices rising to the $112 to $115 range over the course of the next weeks."

Also on the Nymex, April heating oil futures rose 6.95 cents to settle at $3.1379 a gallon, while gasoline futures rose 15.58 cents to settle at $2.66 a gallon. April natural-gas futures jumped 31.4 cents to settle at $9.414 per 1,000 cubic feet.

Oil: Back to the Future?

As the latest Fed rate cut helped push oil prices higher, some have a sense of deja vu as crude weighs heavier on the global economy.

"Oil has become the 'new gold' _ a financial asset in which investors seek refuge as inflation rises and the dollar weakens," said Daniel Yergin, chairman of Cambridge Energy Research Associates in a new report. "The credit crisis has been fueling the flight to oil and other commodities, and that will last until the dollar strengthens or the recession becomes more pronounced."

"Today, the falling demand for dollars is just as important as the rising demand for oil in determining the oil price," said Yergin. "However, when looking back to 1980, today's high prices also have a 'back to the future' quality. Many similar elements that have contributed to the rise in price from $70 last summer to over $100 today were also in play in 1980: high inflation, a rush by financial markets to invest in commodities _ gold's all-time high was in 1980 _ and tension between the United States and Iran."

Gasoline Demand Down From Last Year Despite Weekly Rise

Gasoline demand at the pump increased 1.5 percent compared with the previous week, according to a survey by MasterCard SpendingPulse. Weekly demand is lower than the comparable week from last year for the eighth straight week.

"That's the longest streak since 2005 and is consistent with higher prices and lower economic activity," said study author Michael McNamara.

The survey found the national average price for a gallon of regular gasoline last week rose 8 cents, or 2.5 percent, from the week before. At $3.26 per gallon, the average price is up 28.9 percent over the comparable week in 2007.

"The next couple of weeks will see a lot of volatility in demand," said McNamara. He said demand could be relatively higher because of two factors. The Easter holiday on March 23 comes earlier this year than in 2007, and less gas is usually pumped then.

Also, the Midwest, mid-Atlantic and Northeast were hit by a snowstorm around St. Patrick's Day last year, reducing pumping. That too could skew this year's demand numbers.

SpendingPulse is a macroeconomic indicator of national retail sales based on aggregate sales activity in the MasterCard payments network, together with estimates for all other payment forms, including cash and check. MasterCard SpendingPulse does not represent MasterCard financial performance.

U.K. Judge Drops $12 Billion Venezuela Asset Freeze

A British judge tossed out an order to freeze $12 billion in assets belonging to Venezuela's state oil company in a case that stemmed from the nationalization of Exxon Mobil projects in the country last year.

Exxon Mobil and the Venezuelan government have been sparring over the asset freeze since a U.K. judge first ordered it last month. The Chavez government retaliated by cutting off crude oil shipments to Exxon Mobil, a move most analysts agreed had more impact on Venezuela than on the oil company.

The judge said he would make public the reasons for his judgment on Thursday. During the court case, the judge signaled he agreed that Petroleos de Venezuela SA (PdVSA) has no connection to England _ a key point in Exxon Mobil's argument to freeze the assets.

Energy Transfer Partners to Pay $10 Million Fine

A Dallas-based energy company and three of its subsidiaries agreed to pay the federal government a $10 million civil penalty to settle charges they tried to manipulate natural gas prices.

Energy Transfer Partners LP, and its subsidiaries _ Energy Transfer Company of San Antonio and Houston; Houston Pipeline Company, of Houston; and ETC Marketing Ltd. of San Antonio and Houston _ entered into a consent order with the Commodity Futures Trading Commission to settle the case.

The CFTC said companies attempted to manipulate the price of natural gas delivered to the Houston Ship Channel, one of the principal gateways for gas destined for markets in Texas, the Midwest and Northeast.

Commission officials said company employees from September 2005 to early December 2005 tried to push down the price of natural gas by flooding the market with gas.

Morgan Keegan analyst John Edwards said the outcome is positive for the company "Energy Transfer Partners (ETP) settling with the CFTC accomplishes two things: (1) It ends the dispute between ETP and the CFTC for a reasonable amount and (2) We believe this weakens the Federal Energy Regulatory Commission's negotiating position in their ongoing dispute with ETP over the same matter."

Renewable Energy Pulls IPO

Biodiesel producer Renewable Energy Group Inc. will not go ahead with a planned initial public offering because of current market conditions, according to a filing with the Securities and Exchange Commission.

The Ames, Iowa-based company filed a preliminary prospectus with the SEC in July but had yet to set terms for the offering.

The company planned to use proceeds from the IPO to finance some of the construction costs of three new biodiesel production facilities, to pay dividends on its preferred stock and possibly for acquisitions or investments.

Thumbs Up from State for Florida Nuclear Plan

State regulators say Florida Power & Light can go ahead with plans to build two new nuclear generators at its Turkey Point facility south of Miami.

Florida's largest electric utility currently operates two nuclear units, as well as gas-oil and natural gas plants at Turkey Point. The two new generators would come online in 2018 and 2020.

The company still must get approval from the federal Nuclear Regulatory Commission and the Florida Power Plant Siting Board, which includes the governor and cabinet members.

If all the hurdles are cleared, FPL customers will see increases in their power bills to pay for construction, probably next year.

--Compiled by AP Business Writer Greg Stec. Questions or comments can be directed to gstec@ap.org.