They’re bracing for Hurricane Gustav everywhere. In early trading Monday morning in Asia, oil prices rose more than $1 to $116.50 a barrel, the BBC reports, as traders braced for a storm more damaging than Katrina or Rita to oil rigs and refineries in the Gulf of Mexico. There’s a lot riding on Gustav’s eventual path. As the New York Times points out, with the Gulf Coast region accounting for 25 percent of domestic oil production and another 15 percent of natural gas, “severe damage to platforms and refineries could cause gasoline prices to spike for several weeks or more, as it did after Hurricanes Katrina and Rita in 2005.” Gustav is on a collision course with about 3,000 oil and natural gas refineries, the NYT says. The Wall Street Journal adds that if the storm remains on its present course, it would surely disrupt oil shipping in and out of the Louisiana Offshore Oil Port, which handles 10 percent of U.S. oil imports.
Gustav is widely seen as the first big test for the region’s energy industry since the devastating 2005 tandem of Katrina and Rita. Energy companies say they are better prepared this time around, the Houston Chronicle reports. One hundred ninety platforms in the Gulf were destroyed during the hurricane seasons of 2004 and 2005, the newspaper says, including the point when Katrina toppled Shell’s Mars platform about 130 miles south of New Orleans. Refiners have invested heavily in hurricane-proof designs and in storm forecasting; plus, they can now deploy ships to make repairs from sea more quickly. “The kind of damage we saw in those storms were a first for many in the industry,” a spokesman for Colonial Pipeline, which runs from Houston to New York, told the Houston Chronicle. “It’s put us in a much better position today.” “The production bounce-back time is going to be much faster than last time,” Amy Myers Jaffe, an oil expert at Rice University, told the NYT.
There’s a newly merged giant in German banking. Commerzbank AG agreed to acquire Dresdner Bank AG for $14.4 billion (or 9.8 billion euros) this weekend, a steep discount from the 24 billion euros that insurer Allianz SE splashed out in 2001 for the bank in its failed attempt “to form a multi-armed financial-services behemoth”, the WSJ reports. The newspaper is calling it the biggest deal in a decade for Germany’s notoriously fragmented banking sector, one that “could trigger further consolidation in a country blanketed with more than 2,000 financial institutions, or about five times as many as in the U.K. or Spain.” Michael Diekmann, CEO of Allianz, is convinced the deal will shake up the industry, calling it “ a milestone in the consolidation of the German banking sector,” the NYT reports.
Keeping Dresdner in German hands was not always a certainty. China Development Bank had expressed serious interest in Dresdner and even may have been prepared to offer a higher price than Commerzbank, the WSJ reports. But “talks with China Development Bank weren’t as advanced and the bid was conditioned on final approval by government officials in Beijing, who earlier this year squelched the bank’s plan to buy a minority stake in U.S.-based Citigroup Inc.,” says the WSJ. The merger is expected to trigger the loss of 9,000 jobs at the combined entity, including 1,200 in London, the Guardian reports.
Some welcome news for the Republican ticket (or at least for Todd Palin) on this Labor Day: His union, the United Steelworkers, this weekend agreed to a tentative four-year contract with ArcelorMittal, the world’s largest steel company, according to the Associated Press. The two sides had been in negotiations since April on a contract for more than 14,000 workers and tens of thousands of retirees. The union rank and file had OK’d strike action if a deal couldn’t be reached.
There’s far less labor harmony at Boeing, where the International Association of Machinists has rejected a new contract and where 7,000 members marched over the weekend, demanding strike action. The vote whether or not to stay on the job comes Wednesday. The union has cited a long list of grievances with the new contract, including “lack of job-security commitments, increases in medical-plan costs, and pay and pension increases that didn’t meet union members’ expectations,” writes the Seattle Times. Any strike action would further delay the much-delayed 787 Dreamliner program.
An update on American subprime woes: The WSJ cites a new report from the Bank for International Settlements (BIS) that says global banks have been “funneling more funds out of the U.S. than into it” over the last 12 months. The Swiss-based BIS, often referred to as the central bankers’ central bank, says that banks are voting with their feet and sending funds from U.S. branches to their offices abroad “as they turned to safer assets amid the global credit crunch,” Reuters reports. From 2000 through mid-2007, global banks sent more than $1 trillion more into the United States across their balance sheets than they took out. That all changed with the subprime crash; since then, banks have taken some $321 billion more out of the U.S. than they sent in.
Italy’s debt-ridden airline Alitalia has one chance left for survival. Details emerged over the weekend that it will file for bankruptcy protection. It will fire 5,000 employees and fly to fewer locations with fewer aircraft. How is this restructuring plan—dubbed Project Phoenix—going down in Italy, where taxpayers own nearly half the airline and would have to swallow more than 1.2 billion euros in bad debt? In the words of billionaire prime minister Silvio Berlusconi, “ we have won the bet,” the Guardian reports. “The only alternative was [corporate] failure.” Berlusconi hasn’t won yet. After two years of fruitless courting, Alitalia needs to find another, bigger European airline partner in order to survive, the WSJ reports.