Oil wellOil prices on the world market have risen steadily during the past two months, going above $70 a barrel and causing concern that high energy costs could slow the economic recovery from recession. Slowing production has contributed to the price increase, but weakness in the U.S. dollar may be the main cause.At the beginning of this year, energy analysts say consumers in the United States were paying $600 million a day to fuel their vehicles. Today, they are paying around $1 billion a day.  That is still better than the $1.5 billion a day they were paying a year ago, when the price of oil was around $147 a barrel, but many people are worried that the price may return to that level in the weeks ahead.Economist and energy analyst Ken Medlock at Rice University's Baker Institute believes that is unlikely. He says prices have been going up in part because market traders are overreacting to any sign of increasing demand. "The International Energy Agency last week issued a report that projected 2009 demand to be down by 2.47-million barrels a day, rather than 2.56," Medlock said. "The oil market rallied by something on the order of $2 when that news hit the wires." Medlock says much of the price rise has been caused by the U.S. dollar's slide in value. Crude oil prices on the world market are set in dollars. Medlock says the fundamentals in the market do not justify much more of an increase in oil prices. "There is a lot of supply being withheld from the market right now. OPEC spare capacity is very high right now," Medlock said. "Demand has not recovered, it is still down, and yet we have seen the price rise by $20 to $25 in the past couple of months." What could be a problem, Medlock says, is inflation, which would weaken the dollar further and cause the price of oil to go much higher just as the economy is struggling to improve. "I think that is a really important one to watch, especially in light of the massive amount of spending being done by the U.S. government. Because, at the end of the day, absent some really radical adjustment by the Fed, I think that is going to have to be inflationary," Medlock said. "That does not bode well for the strength of the dollar on international currency markets or the price of oil." Production cutbacks by the Organization of Petroleum Exporting Countries have helped move the crude price higher, according to Ken Medlock, but the Rice University economist says demand remains much lower than it was a year ago. As for predictions that there may be oil shortages ahead, Medlock is skeptical, but, even if there is a crunch, he says the United States can deal with it as it has in the past. "One thing we have learned through the history of humankind is that we are very innovative when we need to be," Medlock said. "That is something that has happened since the first and second oil price shocks of the early 1970s and 1980s. We have actually become much more productive from a given quantity of oil and I think that will continue to happen, both from efficiency gains and just simple innovation." Medlock and other energy analysts note that Americans are not driving as much as they did last year at this time, keeping demand for fuel in check. They say it may be some time before the worldwide economy has revived enough to push up demand and thereby drive another spike in energy prices.

Oil Prices Rise as Dollar Weakens

LONDON (MarketWatch) -- European shares edged lower on Tuesday, extending sharp losses from the previous session, as investors pulled out of firms perceived as more exposed to economic trends such as banks.

The pan-European Dow Jones Stoxx 600 index edged down 0.2% to 208.66, after ending Monday's session with a 2.5% drop.

European shares have risen sharply since March, led by commodity-price-sensitive firms and financials as investors picked up on signs that the economic backdrop could be stabilizing.

On Monday, oil producers and mineral extractors fell and on Tuesday financial stocks declined notably, with German insurance giant Allianz down 1.5% and French bank BNP Paribas down 1.6%.

Investors in the financial sector were likely still weighing news out Monday afternoon from the European Central Bank which warned that the stability of the euro-zone's financial sector remains under threat. See full story.

A downgrade by Moody's of the financial-strength ratings of 30 Spanish lenders after the market close on Monday wouldn't have helped sentiment much although the agency said that the many of the downgrades were "moderate."

Moody's also said that it could lower credit ratings for Swiss bank UBS , down 2.6%.

Still, Santander shares advanced after Goldman Sachs upgraded the lender to buy from neutral to reflect near-term profit potential stemming from a repricing of its U.K. loan book.

The lender's "ability to accommodate deteriorating credit is among the more resilient in the sector," the broker said.

On a regional basis, the U.K. FTSE 100 index climbed 0.5% to 4,344.51, the German DAX 30 index rose 0.1% to 4,892.65 while the French CAC-40 index rose 0.1% to 3,224.18.

U.S. futures were also lower, with Dow Jones Industrial Average futures down 14 points. Asian stocks were also lower. Read Asia Markets.

Investors were buying up stocks that are perceived to be less sensitive to economic trends on Tuesday, with drugmaker Sanofi-Aventis up 1.1%. Rival GlaxoSmithKline advanced 1.1%.

Tobacco firms and telecoms such as Vodafone Group , up 1%, were also higher.

BT Group shares climbed 3.5% after it was upgraded to overweight from equalweight at Morgan Stanley with the broker saying it believes free cash flow should rise.

Meanwhile, Britain's biggest supermarket group Tesco advanced 1% after it reported a 4.3% rise in its U.K. first-quarter comparable sales. The rise broadly met analyst forecasts.

Europe Markets: Banks offset gains for drugmakers in Europe

MOSCOW (Reuters) – The leaders of the world&&9;s biggest emerging markets -- Brazil, Russia, India and China -- meet next week for their first formal summit, seeking a louder voice on the global stage.

Leaders of the so-called BRIC nations will discuss ways to reshape the global financial system after the worst economic crisis for decades and ideas for a new reserve currency to reduce dependency on the U.S. dollar may be on the agenda.

"The good news is that rich countries are in crisis and that emerging countries are making a huge contribution to save the economy and, consequently, save the rich countries," Brazilian President Luiz Inacio Lula da Silva told Reuters on Wednesday.

"Wealthy countries are no longer the only ones that account for the world&&9;s production capacity and consumption," he added, saying the BRICs should work together to "change the political and trade geography of the world.

The BRIC term was coined by Goldman Sachs economist Jim O&&9;Neill in 2001 to describe the growing power of emerging market economies. The June 16 summit in the Russian Urals city of Yekaterinburg marks a step toward cooperation as a group.

BRIC countries account for 15 percent of the &&6;60.7 trillion global economy but Goldman Sachs predicts that in 20 years time, the four countries could together dwarf the G7 and China&&9;s economy will overtake the United States in total size.

"BRIC is a myth but a myth that is slowly becoming a reality," said Alexei Pushkov, a professor of international relations and a leading Russian journalist.

"This summit shows there is a tentative community taking root. The question is whether it can become a political institution or whether it will be dormant."

Behind the bluster, divisions abound.

Chinese President Hu Jintao brings as much GDP to the table in Yekaterinburg as the three other BRIC countries combined and Beijing is wary of being seen to confront the United States.

It is Russia and Brazil -- arguably the weakest BRIC members -- that have been most vocal about pushing for discussions on reducing dollar dependence.

China, the world&&9;s largest holder of U.S. Treasuries, says the dollar will retain its dominant role and analysts said there is unlikely to be substantial agreement on major issues at the summit.

"This meeting shows the growing influence and voice of the emerging world, something that the Obama administration is also paying attention to," said Qin Yaqing, vice president of China Foreign Affairs University in Beijing.

"But there are also big differences between them. So complete cooperation between them would be extremely difficult, but partial cooperation is possible, and a meeting like this will help amplify their shared voice," said Qin.

Russian President Dmitry Medvedev has made proposals on giving a greater role to the International Monetary Fund&&9;s Special Drawing Rights that echo ideas from Chinese central bank chief Zhou Xiaochuan.

Russia said it would reduce the share of U.S. Treasuries in its &&6;400 billion reserves and buy IMF bonds. China, Russia and Brazil have pledged to help capitalize the IMF as they seek more influence at the fund.

(Additional reporting by Chris Buckley in Beijing and Raymond Colitt in Brasilia; editing by Janet McBride)

BRIC seeks global voice at first summit

WASCO, Ore. &<51; For decades, most of the nation&S217;s renewable power has come from dams, which supplied cheap electricity without requiring fossil fuels. But the federal agencies running the dams often compiled woeful track records on other environmental issues.

Now, with the focus in Washington on clean power, some dam agencies are starting to go green, embracing wind power and energy conservation. The most aggressive is the Bonneville Power Administration, whose power lines carry much of the electricity in the Pacific Northwest. The agency also provides a third of the region&S217;s power supply, drawn mostly from generators inside big dams.

The amount of wind power on the Bonneville transmission system quadrupled in the last three years and is expected to double again in another two. The turbines are making an electricity system with low carbon emissions even greener &<51; already, in Seattle, more than 90 percent of the power comes from renewable sources.

Yet the shift of emphasis at the dam agencies is proving far from simple. It could end up pitting one environmental goal against another, a tension that is emerging in renewable-power projects across the country.

Environmental groups contend that the Bonneville Power Administration&S217;s shift to wind turbines buttresses their case for tearing down dams in the agency&S217;s territory, particularly four along the lower Snake River in Washington State that helped decimate one of North America&S217;s great runs of wild salmon.

Bonneville wants to keep all the dams, arguing that they not only provide cheap power but they also make an ideal complement to large-scale installation of wind power. When the wind slows and power production drops, the agency argues, it can compensate quickly by telling the Army Corps of Engineers and the Bureau of Reclamation, which operate the dams, to release more water from reservoirs to turn the huge generators. When the wind picks up, dam operations can be slowed.

The dams help alleviate a need for natural-gas-fired power plants, which are used in other regions as a backup power source when the wind stops blowing, but which release carbon dioxide that contributes to global warming.

By balancing wind power with hydropower, the Bonneville Power Administration says it believes it can limit the use of natural gas and coal plants across the West, even as the region&S217;s demand for electricity rises. Around the country, dams provide 6 percent of electricity generation &<51; double the amount from other renewable sources like wind, solar power and biomass &<51; and much of that is concentrated in the West.

The influx of wind on Bonneville&S217;s system has come as a result of renewable power goals set by governments in the Western states, which aim to reduce their output of greenhouse gases. Bonneville says that when the wind is blowing most strongly, 18 percent of the power in its control area now comes from wind, and that number may rise to 30 percent next year. (Not all of that is consumed in the Pacific Northwest; some is sold to California.)

The rise in wind power means that the dam agency has emerged as a national test case for how to integrate large amounts of intermittent wind power into a regional electric grid. &S220;I&S217;ve described this as a grand experiment,&S221; said Stephen J. Wright, the administrator of the 72-year-old Bonneville Power Administration.

The agency stresses the challenge it faces, making sure the lights stay on despite the ups and downs of the wind. Many new wind farms lie along the gusty Columbia River corridor, and their concentration means that changes in the wind can bring sudden dips and spikes in the power they generate.

&S220;We can have periods that go from full, maximum wind output to zero across an hour,&S221; Mr. Wright said.

Because of its erratic nature, wind power &<51; and the need for dams or other backup systems &<51; has become intertwined with the fate of salmon, perhaps the biggest environmental controversy in the Pacific Northwest.

For decades, environmentalists, fishermen and some local politicians, who want to save the endangered salmon, have fought Bonneville and the Army Corps of Engineers, which want to keep the lower Snake River dams. A federal judge overseeing the dispute has accused the federal agencies of not working hard enough to save the salmon and had raised the possibility of breaching those dams to aid the fish.

Wild salmon ride the river in two directions. They spawn far upstream, and the young fish swim downriver to the Pacific Ocean. They spend several years there, feeding and growing quite large, before swimming back upstream to spawn and die.

The large reservoirs created over the decades as the dams were built have slowed and complicated their journeys, and slashed survival rates. Fish ladders help on the way back upstream, but those salmon that get through in both directions end up traumatized and weakened, biologists say.

When it comes to helping salmon, Bonneville has &S220;been dragged kicking and screaming every inch of the way,&S221; said Bill Arthur, a Sierra Club representative in the Northwest. Mr. Arthur praised the agency&S217;s efforts to add wind power, but he argued that the four lower Snake River dams, which are far smaller than major dams like Grand Coulee, were not needed to back up wind power.

Instead, he proposed putting wind turbines in more places, to help balance power generation by ensuring that some are always in an area where the wind is blowing, or relying more on the Northwest&S217;s natural gas plants in combination with energy-saving measures. He also noted that if the dams came down, dismantling them could take six or more years, allowing plenty of time to plan the transition to new power sources.

Elliot Mainzer, vice president for corporate strategy at the Bonneville Power Administration, said that tearing down the Snake River dams would &S220;unequivocally&S221; hurt the ability of the agency to assimilate wind power into its system, because of the dams&S217; role in balancing up-and-down wind generation.

Even as the salmon controversy plays out, the agency is seeking to build more power lines to speed wind-farm development in remote, windy areas.

The economic stimulus package passed in February will help: it sharply increased the maximum amount that the agency can borrow from the United States Treasury to $7.7 billion, from $4.45 billion. (Another dam agency, the Western Area Power Administration, got a similar boost and also plans more transmission lines to aid wind and other renewables.)

Bonneville says that the stimulus injection will enable it to build a $246 million transmission project along the Columbia River, allowing developers to put up wind turbines in additional areas of eastern Oregon, and that more planned transmission lines will also help harness the wind

All of that is good news for the area&S217;s farmers, some of whom welcome a new source of income.

John Hildebrand, an animated 82-year-old wheat farmer, has allowed a Spanish developer, Iberdrola, to put wind turbines on his land in Wasco, not far from the Columbia River. Power from his turbines feeds into the Bonneville system.

He and his brother Gordon sat in the front row when Franklin D. Roosevelt dedicated the Bonneville Dam in 1937, before the region even had public power &<51; so they have seen the future of energy, twice.

&S220;All we had is sky out there,&S221; John Hildebrand said, looking out toward the tall structures twirling high above his rolling land. &S220;Now I&S217;ve got turbines.&S221;

As Wind Power Grows, a Push to Tear Down Dams

HSINCHU, Taiwan &<51; Taiwan Semiconductor Manufacturing, or TSMC, has seen the light and now wants to make some.

The world&S217;s largest for-hire chip maker could soon start manufacturing solar cells and LED lights. The company&S217;s entry into these nascent industries will catch the attention of existing makers, which could find themselves battling one of the most formidable manufacturers on the planet. Taiwan Semiconductor could drive down prices, as it did for computer chips. But the lower prices could also stimulate demand for what are now expensive technologies.

For the company, the move far afield from semiconductors signals a sweeping change and a need to find growth in less-mature markets. &S220;Their foundation that has been so successful over the last couple of decades is starting to slow,&S221; said Michael McConnell, an equities analyst with Pacific Crest Securities. &S220;It&S217;s natural for them to want to branch out.&S221;

Earlier this week, the company declared its new intentions with a bold gesture. It stripped Rick Tsai of his chief executive title and placed him in charge of a new unit created to look into fresh business opportunities. Morris Chang, the company&S217;s 78-year-old chairman and founder, has returned as chief executive.

In an interview ahead of the management shuffle at Taiwan Semiconductor&S217;s headquarters in Hsinchu, Mr. Tsai highlighted solar cells and LEDs as the most likely markets it would enter.

&S220;I would expect we will make some decision before the end of the year,&S221; Mr. Tsai said. &S220;We have people who are working pretty hard on those areas.&S221;

The manufacturer, with revenue of slightly more than $10 billion last year, hopes to make at least $2 billion in revenue a year from its new businesses by 2018. The company produces more chips than any other &S220;foundry,&S221; or contract chip manufacturer. It takes chip designs from companies like Nvidia and Qualcomm, both based in the United States, and turns them into the finished products that end up in personal computers and cellphones. This arrangement places the burden of building chip plants that cost $3 billion or more on Taiwan Semiconductor, while affording customers the chance to concentrate on engineering.

The foundry model has grown in popularity as fewer and fewer companies have been able to stomach the costs of building cutting-edge plants that can churn out chips using their latest technologies. Only a couple of giants remain, like Intel and Samsung, which are willing to design and produce their own processors for personal computers and cellphones.

TSMC&S217;s business model puts it under constant pressure to keep its factories humming at full capacity. With demand for computing products slowing down during the global economic downturn, its business has declined at unprecedented rates. Net income in its first quarter dropped 94.5 percent compared with the year-ago quarter as revenue dropped 54.8 percent. &S220;We have never seen this phenomenon before,&S221; Mr. Tsai said. &S220;It is more severe than any of the recessions or downturns or corrections before.&S221;

So chip makers are looking for other things to do. Intel has moved to counter slowing PC sales by building chips that can power cellphones and provide the brains in products like cars, televisions and set-top boxes. Its former executive Andrew S. Grove has also called on Intel to begin making batteries, suggesting that its manufacturing expertise could improve the technology. So far, Intel has rejected this idea.

Built to look like a dragon, Taiwan Semiconductor&S217;s sprawling main office located in one of Taiwan&S217;s many science parks stands as a testament to the country&S217;s rise as a technology powerhouse. The company has managed to outpace all of its rivals by building the most advanced chip plants, Mr. McConnell said.

&S220;Their main rivals have slipped,&S221; he said. &S220;TSMC will never publicly admit this, but they will be able to force their hand on the pricing side, and this will give them better leverage with their operating model.&S221;

With close to $7 billion in cash, the company can finance solar and LED projects that would tap into some of the manufacturing skills learned in the chip business. While there is considerable interest in green technologies, governments around the world have had to subsidize the purchase of solar cells and LED lights to stimulate demand. The costs of such devices are still not low enough to justify substituting them for existing technologies.

Pointedly, Mr. Tsai said its intentions in either area would be to create profitable businesses that could operate without government subsidies.

&S220;You have to get the costs down really fast,&S221; he said. &S220;You don&S217;t want to count on governments all the time for the viability of the business.&S221;

Chip Maker Wants to Expand to Solar Cells