Wall Street edges up on energy, financials

Wall Street, Investing

Wall Street edged higher on Wednesday after a sharp rise in oil prices boosted energy shares, while encouraging data on the labor market helped financial stocks.

U.S. oil prices jumped more than 3 percent to $40.84 a barrel, rising for the first time in six days, after a larger-than-expected gasoline draw offset a surprise build in U.S. crude stockpiles. WTI crude had fallen below $40 for the first time since April earlier in the week.

The S&P energy index was up 1 percent as the best performing of the 10 major S&P groups.

"If (oil) does break $40 and goes to $35, the energy stocks are going to get clocked once again," said Ken Polcari, Director of the NYSE floor division at O’Neil Securities in New York.

"If it holds here at $40 then people may breathe a sigh a relief and say the worst is over."

Data showed the U.S. private sector added 179,000 jobs in July, beating estimates of 170,000. The report comes ahead of the more comprehensive national payrolls report on Friday.

If the labor market is able to build on its recent strength, it could make the case for the Federal Reserve to raise benchmark U.S. interest rates later this year.

Chicago Federal Reserve Bank President Charles Evans said on Wednesday that one rate hike may be appropriate this year, despite his worry that inflation is still undershooting the U.S. central bank's 2 percent target.

The possibility of a rate hike this year helped support financial stocks, along with a 7.2 percent jump in American International Group after the largest commercial insurer in the United States and Canada reported an operating profit that beat analysts' estimate.

The S&P financial sector rose 0.8 percent.

Healthcare shares were lower, weighed down by a 3.5 percent drop in Biogen. Reuters reported the company has not received any formal expressions of interest from potential acquirers a day after buyout reports sent the stock up more than 9 percent.

The Dow Jones industrial average rose 3.94 points, or 0.02 percent, to 18,317.71, the S&P 500  gained 1.47 points, or 0.07 percent, to 2,158.5 and the Nasdaq Composite added 9.72 points, or 0.19 percent, to 5,147.45.

Tesla and Twenty-First Century Fox are scheduled to report after the bell.

Advancing issues outnumbered declining ones on the NYSE by a 1.66-to-1 ratio; on Nasdaq, a 1.56-to-1 ratio favored advancers.

The S&P 500 posted 10 new 52-week highs and one new low; the Nasdaq Composite recorded 59 new highs and 35 new lows.

Source by Reuters

Apple reports progress in workforce diversity

Business, Technology

Apple Inc on Wednesday reported improvements in gender and ethnic diversity in June as the U.S. technology company stayed ahead of fellow Silicon Valley power houses Google and Facebook Inc in hiring minorities.

Apple also said in its annual diversity and inclusion report that it had closed pay gaps over the last year by analyzing salaries, bonuses and annual stock grants. It had also opened up its annual stock grants program to retail employees for the first time.

As of June, Apple's overall U.S. workforce was 56 percent white (up 2 percent from a year ago), 19 percent Asian (down 1 percent) 12 percent Hispanic (up 1 percent), and 9 percent black (up 1 percent).

Apple's workforce includes a pool of retail employees that Google and Facebook do not have. In Apple stores, blacks and Hispanics respectively comprised 12 percent and 17 percent of general employees, and 5 percent and 10 percent of the leadership.

At Alphabet Inc's Google unit, blacks and Hispanics respectively made up 2 and 3 percent of the overall workforce and 1 and 3 percent of its tech employees, little changed from last year.

At Facebook, blacks and Hispanics were respectively 2 and 4 percent of the workforce and 1 and 3 percent of tech employees.

Apple's global workforce was 32 percent women, up 1 percent from the end of June 2015. Women held 23 percent of technical positions, up 1 percent from a year ago, and 28 percent of leadership positions, unchanged from June last year.

Reverend Jesse Jackson, who confronted Apple Chief Executive Tim Cook in 2014 about the company's lack of diversity and unfair compensation, applauded its efforts to connect with engineers of color through partnerships with historically black colleges and universities and scholarship organizations.

"They are clearly setting the pace, making measurable progress for three consecutive years. They've acted with intention, not just aspiration," Jackson said in a statement.

Amazon Inc, which employs a large number of workers at distribution centers, reported late last year that its ethnic diversity exceeded the U.S. average, with a global workforce that was 21 percent black, 13 percent Hispanic, 11 percent Asian and 5 percent other ethnicities.

In management positions at Amazon, however, representation dropped to 4 percent for blacks and Hispanics, 3 percent for other races, and climbed to 20 percent for Asians.

Source by Reuters

U.S. crude bounces from 14-week low, amid unexpected gas inventory draw

Commodities

U.S. Crude futures bounced from 14-week lows on Wednesday, as an unexpected draw in gasoline inventories last week helped temporarily ease some concerns related to the prolonged supply glut in global energy markets.

On the New York Mercantile Exchange, WTI crude for September delivery traded between $39.33 and $41.03 a barrel before closing at $40.80, up 1.29 or 3.26% on the session. It came one day after WTI closed below $40 for the first time since mid-April when crude futures took a hit following the collapse of a closely watched Doha Agreement among major producers, including Saudi Arabia and Russia. On the Intercontinental Exchange (ICE), brent crude for October delivery wavered between $41.58 and $43.28 a barrel, before settling at $43.03, up 1.22 or 2.92% on the day.

Since hitting 2016 yearly highs of $51 a barrel in early-June, U.S. crude futures have slumped by nearly 20% over the last several weeks.

On Wednesday morning, U.S. Energy Information Administration (EIA) said in its Weekly Petroleum Status Report that Gasoline Inventories declined by 3.3 million barrels for the week ending on July 29, considerably more than analysts' expectations for a modest 0.2 million draw. Of the declines, stocks in the PADD 1 district covering the majority of the East Coast, fell by 1.2 million barrels for the week. The PADD 1 district, which has been beset by rising stockpiles in recent weeks, has still seen gasoline inventories soar by 11.5 million barrels over the last year.

The drawdown could help assuage some fears of long-term oversupply among gasoline inventories worldwide. According to analysts from Citigroup Inc (NYSE:C), gasoline inventories have soared to a near-record high of 500 million barrels throughout the world, as refineries churn out product at a rapid pace amid low crude prices. Despite last week's draw, total petroleum inventories have spiked by approximately 25 million over the last nine weeks, according to Ion Energy Group analyst Kyle Cooper.

Overall, U.S. commercial crude inventories increased by 1.4 million barrels for the period in comparison with the week ending on July 22. At 522.5 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Analysts expected to see a decline of 1.4 million barrels, one day after the American Petroleum Institute reported a draw of 1.3 million barrels. At the Cushing Oil Hub in Oklahoma, inventories fell by 1.12 million barrels on the week. Cushing, the main delivery point for NYMEX oil, is the largest crude storage facility in the U.S.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose by more than 0.40% to an intraday high 95.35, bouncing off five-week lows. On Tuesday the index slipped below 95 for the first time since June 24. Before Wednesday's rebound, the Dollar had fallen sharply since hitting four-month highs at 97.62 early last week.

Dollar-denominated commodities such as Crude become more expensive for foreign purchasers when the dollar appreciates.

Source by Investing.com

Pokemon no-go: New Jersey resident sues over trespassing players

Technology

A New Jersey man has a message for the millions of players obsessed with the mobile game Pokemon Go: "Get off my lawn!"

Jeffrey Marder of West Orange has filed a federal class action against the companies behind the game, Nintendo Co Ltd, Niantic Inc and Pokemon Company International, claiming it has brought unwanted trespassers to his house and countless other private properties.

Using mobile devices, players search for and capture virtual characters that appear on their screens in real-life locations such as offices and restaurants.

The immensely popular game has prompted numerous safety concerns and complaints. Within days of its launch, four Missouri teenagers used it to lure unsuspecting victims into armed robberies, according to police; the game was blamed for an illegal border crossing from Canada into the United States last month by two young players who lost track of their surroundings.

The U.S. Holocaust Museum asked players not to use the game on its premises, calling it "extremely inappropriate."

Some places have been designated by the game's designers as "Pokestops" and "gyms," where players can earn valuable items or engage other users in battles.

Many of those sites are either on or adjacent to private property, according to Marder's lawsuit, which was filed in federal court in Oakland, California, near the San Francisco headquarters of Niantic.

"Plaintiff discovered as much when, during the week of Pokemon Go's release, strangers began lingering outside of his home with their phones in hand," the lawsuit said, adding that five people knocked on Marder's door seeking access to his backyard to capture creatures in his yard.

The lawsuit, which seeks class-action status for all people who own property that is either designated as a Pokemon site or is adjacent to such a location, appears to be the first of its kind since the game launched in July.

Representatives for Pokemon Go did not immediately respond to a request for comment. Nintendo holds a 32 percent stake in Pokemon Company, which developed the game jointly with Niantic.

The game has increased Nintendo's market value by 50 percent since its debut.

Source by Reuters

EU banking watchdog backs keeping broad capital measure unchanged

Economy

Business

The European Union's banking watchdog has backed maintaining a broad capital adequacy measure known as the leverage ratio unchanged at the current level for most lenders, saying it keeps them stable and does not harm the flow of credit to the economy.

The ratio is a measure of capital to a bank's assets on a non-risk weighted basis, and is meant to be a backstop to a lender's core capital ratio, which takes risk into account.

The European Banking Authority said on Wednesday that a leverage ratio of 3 percent was generally consistent with the objective of a backstop measure.

"The potential impact of introducing a leverage ratio requirement of 3 percent on the provision of financing by credit institutions would be relatively moderate," it said in a 265-page report.

The 3 percent minimum level was temporarily set in the aftermath of the 2007-09 financial crisis by the Basel Committee of banking supervisors from the world's main financial centers.

Critics say it should be set at a far higher level to rein in bank balance sheets, but the EBA's stance is a further sign of how regulators have become less hawkish as policymakers put more emphasis on economic growth.

In January this year in a non legally binding decision, Basel's oversight body also recommended that a ratio of 3 percent was sufficient for the vast majority of lenders, though a higher level was needed for the world's 30 biggest banks.

Basel is looking to decide by year end how much higher the ratio should be for top lenders, and the EBA said a higher ratio may be warranted.

The European Union will take into account the EBA's view as it puts the leverage ratio requirement into law, although many lenders already have a ratio of 4 percent or above to reassure investors they are financially sound.

The EBA also recommended that clearing and settlement houses for securities be exempt from having a leverage ratio, but found no reason to exempt the smallest banks.

Banks have said the leverage ratio was making it more costly for them to provide trading services at all times for investors.

But the bloc's European Systemic Risk Board, made up of central bankers from EU states, said in an annex to the EBA report that no firm conclusion could be reached on this assertion.

Source by Reuters

Time Warner takes stake in Hulu, lifts profit forecast

Business, Investing

Stock market

Time Warner Inc disclosed a 10 percent stake in video streaming site Hulu on Wednesday, setting its sights on the web TV market, and it raised its 2016 forecast on expectations of sustained growth in its traditional media business.

Time Warner also reported a higher-than-expected quarterly profit as it signed up more viewers to its premium Home Box Office network. Its shares were up 3.5 percent at $78.40 in afternoon trading.

The company, which also owns the Warner Bros movie studio, is paying $583 million for the Hulu stake, executives said on a conference call. Other Hulu owners are Comcast Corp,  Walt Disney Co and Twenty-First Century Fox Inc.

Time Warner has been trying to woo younger viewers and push into the online video market dominated by services such as Netflix Inc and Amazon Prime. Last year it introduced its own streaming service, "HBO Now," and made its content accessible on Dish Network Corp's Sling TV streaming service, which offers a small bundle of channels.

"They want to ensure that the Turner networks have the broadest possible distribution without really compromising the traditional cable, satellite and telco channels," said Wunderlich Securities analyst Matthew Harrigan.

The investment also gives Hulu additional funding as it prepares to roll out a new live-streaming service, which is slated for early next year. Turner's networks, including TBS, Cartoon Network and Turner Classic Movies, will be available live and on-demand on Hulu's new service, Time Warner Inc said on Wednesday.

The company raised its 2016 earnings forecast by 5 cents a share to a range of $5.35 to $5.45. Analysts on average were expecting $5.39, according to Thomson Reuters I/B/E/S.

Second-quarter revenue fell 5.3 percent to $6.95 billion from $7.35 billion, mainly due to a decline for the Warner Bros studio.

Revenue from the Turner division rose 6.5 percent during the quarter. Revenue at HBO, which hosts the hit show "Game of Thrones," was up 2 percent.

Time Warner's net income fell to $951 million, or $1.20 per share, from $971 million, or $1.16 per share, a year earlier.

Excluding special items, earnings of $1.29 per share beat the analysts' average estimate of $1.16.

Source by Reuters

Gold retreats from near 28-month highs, ahead of critical BOE meeting

Commodities, Investing

Gold retreated from near 28-month highs on Wednesday amid heavy short covering, as investors await a highly-anticipated meeting from the Bank of England where policymakers in the U.K. could approve their first interest rate cut in seven years.

On the Comex division of the New York Mercantile Exchange, Gold for December delivery traded between $1,360.65 and $1,373.20 an ounce before settling at $1,364.25, down 8.45 or 0.62% on the session. With the slight declines, Gold halted a six-day winning streak over the last week. Since opening the year near $1,075 an ounce, Gold has soared more than 28% over the last six months and is on pace for one of its strongest years in a decade.

Gold likely gained support at $1,337.50, the low from July 20 and was met with resistance at $1,391.40, the high from March 14, 2014.

On Thursday morning, the Bank of England is largely expected to slash its benchmark interest rate to a record-low of 0.25%, following a string of soft economic data in the weeks since last month's historic Brexit decision. When voters in the U.K. approved a referendum paving the way for Britain's departure from the European Union on June 24, BOE governor Mark Carney sent strong hints that the bank could reduce rates and introduce further easing measures at some point over the summer in order to help avert a significant economic downturn. Historically, interest rate cuts from the BOE have been associated with a sharp depreciation in the Pound. Over the last six weeks, GBP/USD has tumbled more than 10% following the surprising Brexit move.

Following the Bank of England's rate decision, market players will turn their attention to a closely-watched U.S. employment report for the month of July on Friday for a clearer picture on the state of the U.S. labor market. Ahead of the report, payroll solutions firm ADP said in its National Employment that the economy added 179,000 nonfarm payroll positions in July, above consensus estimates of 165,000. On Tuesday, Federal Reserve Bank of Atlanta president Dennis Lockhart said he will closely watch the next two monthly employment reports before the Fed meets again in September. In addition, Chicago Fed president Charles Evans told reporters on Wednesday afternoon that one rate hike this year could be appropriate if inflation continues to move closer to the Federal Reserve's 2% target.

Any rate hikes by the Fed this year are viewed as bearish for gold, which struggles to compete with high-yield bearing assets in periods of rising rate environments.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose by more than 0.40% to an intraday high 95.35, bouncing off five-week lows. On Tuesday the index slipped below 95 for the first time since June 24. Before Wednesday's rebound, the Dollar had fallen sharply since hitting four-month highs at 97.62 early last week.

Dollar-denominated commodities such as Gold become more expensive for foreign purchasers when the dollar appreciates.

Silver for September delivery fell 0.244 or 1.18% to 20.457 an ounce.

Copper for September delivery lost 0.011 or 0.50% to 2.198 a pound.

Source by Investing.com

Wal-Mart in talks to buy online retailer Jet.com: WSJ

Business, Technology

Wal-Mart Stores Inc is in talks to buy online retailer Jet.com, the Wall Street Journal reported on Wednesday, citing people familiar with the matter.

It was not clear how much Wal-Mart would pay, but Jet.com could be worth as much as $3 billion, the WSJ said. 

Wal-Mart declined to comment. Jet.com, considered a formidable competitor to Amazon.com Inc, was not available for comment.

Wal-Mart is investing heavily in its online business to take on Amazon, but it has struggled on that front.

The retailer's online business posted its slowest growth in a year in the latest quarter. Wal-Mart's online sales were $13.7 billion in 2015, according to research firm Internet Retailer.

Marc Lore launched Jet.com in July last year, promising big discounts in exchange for members placing large orders and paying an annual fee.

Lore in 2010 sold his diapers-to-soap e-commerce firm Quidsi to Amazon for $540 million.

Wal-Mart shares, which were marginally higher earlier, were off 0.2 percent at $72.96 in late morning trading.

Source by Reuters

Canadian dollar to weaken slightly as lower oil, sluggish growth weigh

Economy

The Canadian dollar is expected to weaken slightly against the U.S. dollar over the coming months, a Reuters poll found, with a sluggish domestic economy and lower oil prices seen weighing on the commodity-linked currency.

The poll of more than 50 foreign exchange strategists showed the currency will weaken to C$1.3200 in three months, down almost 1 percent from Tuesday's close of C$1.3102. That matches the 3-month forecast from last month's poll.

The currency has weakened nearly 5 percent since May 3 when it reached a 10-month high of C$1.2461 against its U.S. counterpart.

"We do see oil prices coming under continued pressure throughout Q3 so we think that is going to weigh on the Canadian dollar," said Ian Gordon, FX strategist at Bank of America Merrill Lynch (NYSE:BAC). Canada is a major oil exporter.

"A lot of the shock from the oil price decline that we saw from 2014 through to 2015 hasn't fully been felt yet ... the (Canadian) economy is going to continue to struggle particularly against a backdrop of a weakened export sector," he added.

Crude oil has tumbled more than 20 percent from its recent peak in June, dipping below $40 a barrel on Tuesday. It traded above $100 a barrel in mid-2014.

George Davis, chief technical strategist at RBC Capital Markets, also expects soft exports and lower oil prices to weigh on the Canadian dollar, as well as "fallout from the Alberta wildfires" in May and June.

The Bank of Canada has said the shutdown of oil sands production facilities and the evacuation of residents during the wildfires cut about 1.1 percentage points from annualized GDP in the second quarter.

"To the extent that firmer U.S. economic data may cause the market to price in the increased probability of a Fed hike by year end, it will also lend some support to the greenback," Davis said.

The U.S. Federal Reserve last month left interest rates unchanged but said near-term risks to the U.S. economic outlook had diminished, opening the door to a resumption of monetary policy tightening this year.

In contrast, the Bank of Canada is expected to keep rates unchanged for at least another year given the depressed price of oil and risks to global economic growth from Britain's shock June 23 vote to leave the European Union.

A return of risk aversion would be an additional headwind for Canada's risk-sensitive currency as Brexit materializes and investors realize the limits of central bank action, said Krishen Rangasamy, senior economist at National Bank Financial.

Still, forecasters expect the Canadian dollar to recover to C$1.305 in 12 months, almost matching the previous poll's forecast, helped by a better growth profile next year.

"We think that we will see stable consumer spending, an increase in business investment and better growth driven by announced government stimulus," RBC's Davis said.

Source by Reuters

U.S. stocks slightly higher on mixed data as WTI oil recovers $40

Investing, Stock market

Wall Street traded with slight gains on Wednesday on mixed economic reports and as U.S. crude inventory data sent oil surging 2%.

At 15:31GMT, or 11:31AM ET, the Dow 30 gained 24 points, or 0.13%, the S&P 500 rose 3 points, or 0.13%, while the tech-heavy Nasdaq Composite advanced 8 points or 0.16%.

In a report, payroll processing firm ADP said non-farm private employment rose by a seasonally adjusted 179,000 last month, surpassing expectations for an increase of 170,000.

While not viewed as a reliable guide for the government jobs report due on Friday, August 5, it does give guidance on private-sector hiring.

Service sector activity in the U.S. grew at a slower pace than expected in July, industry data showed on Wednesday.

In a report, the Institute of Supply Management (ISM) said its non-manufacturing purchasing manager's index (PMI) fell to 55.5 last month from 56.5 in June. Analysts had expected the index to drop to 56.0.

Still, the report noted that the majority of the respondents’ comments reflected stability and continued growth for their respective companies and a positive outlook on the economy.

After the data was released, the dollar held onto gains against the other major currencieson Wednesday.

Hand in hand with the stronger dollar, odds on the possibility of a rate hike this year also ticked higher.

The chances for an increase in September edged up to 18% after the release, compared to the prior reading of 12%, according to CME Group’s FedWatch tool.

Odds for a December hike rose to 41.5%, from just 38.5% before the report.

Even so, markets were not expecting an increase until June 2017 with a probability of 53.6%.

Elsewhere, oil prices shot up, with West Texas breaking above $40, after U.S. inventory data that despite showing a surprise build in crude stockpiles, also revealed a huge draw in gasoline inventories.

U.S. crude futures traded up 2.20% to $40.38 by 15:32GMT, or 11:32AM ET, while Brent oil gained 1.94% to $42.61.

In company news, AIG jumped more than 7% after profit beat estimates.

Time Warner was up 3% as quarterly profit was supported by an increase in subscribers to its Home Box Office network.

Also of note, despite mixed results, Office Depot jumped 5% on its announcement that it would explore strategic alternatives for its operations in Europe.

Source by Investing.com

Fed fines Goldman Sachs for unauthorized use of confidential data

Stock market

The U.S. Federal Reserve Board said on Wednesday it has ordered Goldman Sachs Group Inc (N:GS) to pay $36.3 million in fines for the unauthorized use and disclosure of confidential information.

The Fed Board also said it is seeking to impose a fine on former Goldman managing director, Joseph Jiampietro, and bar him from the industry.

The Fed Board also ordered Goldman to implement an enhanced program to ensure the proper use of confidential supervisory information.

Source by Reuters

Air freight demand picks up in June, grows 4.3 percent: IATA

Economy

Demand for air freight rose 4.3 percent in June, the fastest rate for 14 months, according to the International Air Transport Association.

Capacity rose faster than demand, at a rate of 4.9 percent, keeping yields under pressure, IATA said in its regular monthly update on Wednesday.

IATA cautioned against reading too much into June's performance, given the prolonged downturn in cargo markets, which has forced air cargo companies to cut back fleets and seek new products and partnerships.

"Global economic growth remains sluggish, world trade volumes continue to trend downwards and the industry faces heightened uncertainty in the aftermath of the Brexit vote," IATA head Tony Tyler said in a statement.

Source by Reuters

Delta's refinery sacrifices profits for lower fuel cost - memo

Stock market

Delta Air Lines Inc (NYSE:DAL) is flooding the New York market with jet fuel from its refinery, sacrificing refining profits in order to lower the carrier’s fuel costs, according to a company memo seen by Reuters.

   The memo, written by the head of Delta’s Monroe Energy subsidiary, says the refinery will act against its own financial interest to try to maintain lower jet fuel prices and save the nation’s second-largest airline money on fuel, its top operating expense.

    The unusual move, in a unique situation, adds to long-standing questions about Delta’s decision to purchase the Philadelphia refinery in 2012. Critics have argued that the entire industry benefits from lower jet fuel prices, giving Delta no advantage over its competitors for owning the refinery.

Jeff Warmann, who runs the refinery, told employees about the strategy in a July 27 memo. While weak jet fuel margins have hurt the refinery’s bottom line, they have also resulted in lower fuel costs for parent company Delta, Warmann argued.

“Normally with such low product prices, a merchant refiner would shift yields and production to other products. We plan to continue to produce jet fuel and pump it into the New York market, pressuring the price of jet fuel to even lower levels," Warmann wrote. "This negatively impacts our refinery economics, but greatly helps reduce Delta’s fuel cost.”

The 182,000 barrel-per-day (bpd) refinery based in Trainer, Pennsylvania - about 10 miles (16 km) southwest of Philadelphia - produces roughly 40,000 bpd of jet fuel, accounting for roughly 30 percent of the New York Harbor market, experts say. The memo does not say how long it plans on running with this strategy.

The New York Harbor market is the center of U.S. jet fuel trading.

SUBSIDIZING RIVALS?

Ed Hirs, an energy economist at the University of Houston and longtime critic of the airline’s decision to buy the refinery, said at those levels Delta could influence the prices of jet fuel, but noted that its competitors like Southwest Airlines Co and United Continental Holdings Inc enjoy the benefit of those lower costs too, without the burden of running a refinery.

"They are using shareholder money to subsidize the other airlines," said Hirs.

Warmann's memo said the strategy cost the refinery about $30 million in the second quarter, which left it with a $10 million loss for the period, but he said it saved Delta about $100 million.

To put that in perspective, Delta reported net profit of more than $1.5 billion in the quarter. Its overall adjusted fuel expense fell $408 million from the same quarter the year before, in spite of $614 million in losses on fuel hedges, a remnant of when prices were much higher. The airline has no fuel hedges for the rest of the year.

Three former commissioners of the U.S. Commodity Futures Trading Commission, or CFTC, said in interviews with Reuters that Warmann’s comments would likely catch the attention of regulators, but that it is not uncommon for energy companies to try to influence commodity prices. They said companies get into trouble when they manipulate commodity prices and take market positions intended to take advantage of their influence.

Delta said the action was legal, and not manipulation.

“Delta has always said that the refinery is part of an integrated strategy aimed at managing our jet fuel costs. Ensuring supply and lowering fuel costs isn’t manipulation, it’s a natural consequence of owning the business. We are comfortable that our strategy is fully compliant with the law,” a Delta spokesman said Tuesday.

PRODUCTION CUT

In recent weeks, the refinery has cut production by nearly 25 percent to help trim high product inventories and weak margins, but nearly all of the cuts have been to gasoline and have not affected jet fuel output, a source told Reuters on Tuesday.

East Coast inventories of jet fuel were at 9.2 million barrels last week, lower than at this time of year in the last five years, according to the U.S. Department of Energy. Refining margins have been hurt by high inventories, causing some refiners to cut runs to trim stockpiles and boost profits.

Spot jet fuel prices fell below $1 a gallon earlier this year, their lowest levels since 2009, according to the Energy Department.

An executive at a rival East Coast refinery said on Tuesday that Delta may not be putting pressure on jet fuel prices at all, arguing the rising costs of renewable fuel credits, known as RINs, have played a much more important role in pressuring costs. The executive asked not to be named as he is not authorized to speak publicly for the company.

CREDITS

Refiners earn credits by blending biofuels like ethanol into gasoline and diesel or buying them in the open market, but jet fuel is exempt from the requirements.

The credits averaged about 78 cents apiece in the second quarter of 2016, about 25 percent above the same period a year ago. Jet fuel has sold at a discount against the distillate benchmark price that is roughly equal to the credit price.

Jet fuel's discount would be higher than the cost of renewable credits if Delta's strategy was successful, the executive argued.

"The reason jet is cheap isn't because of Delta, it's because of RINs pricing," the executive said.

After profitable years in 2014 and 2015, Delta's refinery lost $10 million in the second quarter, following a loss of $18 million in the first quarter, and the company expects the refinery to lose money this year.

In the memo, Warmann said the combination of high product inventories and the disappearance of cheap domestic crude has conspired to make the third and fourth quarters "very challenging."

Source by Reuters