Government regulators and offshore energy companies, many still reeling from the damage inflicted by the back-to-back storms last August and September, are working to mitigate possible supply disruptions during the 2007 hurricane season, which begins June 1.

"We're evaluating everything that we possibly can in preparation for hurricane season," MMS spokesperson Caryl Fagot told AFP.

Forecasters at the National Oceanic and Atmospheric Administration

this week predicted another unusually active North Atlantic hurricane season, with as many as 16 named tropical storms, four to six of them rising to Category 3 hurricane strength or higher.

On average, six North Atlantic tropical storms become hurricanes every year. In 2005, there were a record-setting 28 named storms and 15 hurricanes.

Katrina and Rita, which devastated the central Gulf Coast, caused between 18 and 31 million dollars in damage to the region's energy infrastructure, according to a
Congressional Budget Office estimate.

"There were significant disruptions, and continue to be significant disruptions," said Michael Kearns, a spokesperson for the National Ocean Industry Association in Washington.

But the 113 offshore platforms destroyed by the storms represent a fraction of the 4,000 platforms in the Gulf, he said, and most of those wrecked were built before 1988, when stricter federal guidelines on platform construction went into effect.

Some newer deepwater platforms suffered extensive damage, however. Shell Exploration and Production Co.'s mammoth Mars platform, which accounts for about five percent of Gulf oil and gas production, resumed limited operations only this month. A company spokesperson said the rig is scheduled to be back to pre-Katrina production levels by the end of June.

Despite ongoing repairs, Kearns said, the offshore industry fared reasonably well last year, especially when compared to the damages coastal refineries sustained.

Flooding and widespread power outages slowed the resumption of business at many refineries, and hundreds of displaced employees are still dealing with housing issues.

"It was the onshore support infrastructure for offshore activity that took the hardest hit during the hurricanes last year," Kearns said.

"So while the platforms themselves may have survived, the people onshore who run them, and the facilities and supply boats and everything along those lines that's necessary to get production going again, took a significant beating last year."

Refinery operators have gone to great lengths to ensure their employees were able to come to work.

"We had a lot of comments saying, 'we never thought we'd have to operate a refinery like an offshore platform, finding housing for people, putting them on boats and in FEMA (Federal Emergency Management Authority) trailers and trying to find day care for their kids'," said refining manager Cindy Gordon of the American Petroleum Institute.

This season, companies are beefing up preparations by stockpiling food and medicine for employees, lining up temporary shelters, establishing multiple forms of communication and getting in place advance inspection teams to assess damage quickly, allowing production to resume sooner.

So far, the threat of a busy hurricane season has had little effect on the energy futures market, said Fadel Gheit, an oil and gas industry analyst with Oppenheimer and Co. A mild winter, coupled with near-record reserves, has kept prices steady, he said.

Gheit said it's impossible to predict how the storm season will affect supply and demand. But there may be more disruptions in production this year as companies throughout the industry, with the memory of Katrina and Rita still fresh, will be quicker to call for evacuations.

"Once you go through an experience of this magnitude like we had last year, I think people are going to be much more careful," he said.

On Tuesday's economic agenda are U.S. consumer confidence figures for May at 10 a.m. and Midwest manufacturing numbers at noon.

"It's going to be an important week in terms of getting a real temperature on the economic outlook," said Arthur Hogan, chief market analyst at Jefferies & Co. "If we get strong economic data throughout the week, I think the market continues its pullback."

S&P 500 futures were down 5 points, below fair value, a mathematical formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.

Dow Jones industrial average futures were down 39 points, and Nasdaq 100 futures were down 8.75 points.

The dollar declined after British newspaper The Times reported that Don Evans, a possible successor to U.S. Treasury Secretary John Snow, was likely to favor a weaker dollar. Evans, a former U.S. commerce secretary, is reportedly under consideration to succeed Snow.

The greenback pared losses after a Wall Street Journal report that President Bush was leaning toward naming Goldman Sachs Chief Executive Henry Paulson to succeed Snow.

In deal news, the chief executive of oil and gas pipeline operator Kinder Morgan, Inc. said that senior management and investors, including a unit of Goldman Sachs, have proposed buying the company for $100 a share and taking it private. Shares of Kinder Morgan rose 22 percent to $103.10 before the opening bell on the Inet electronic brokerage network.

U.S. catalyst maker Engelhard is expected to agree to be bought by German rival BASF, according to sources familiar with the situation.

Economists in a Reuters survey expect a median reading for consumer confidence of 101.1 compared with 109.6 in April. They forecast Chicago Fed Midwest Manufacturing Index for April at 112.2 versus 114.9 in the prior month.

Deutsche Bank lowered its rating on General Motors Corp., according to a MarketWatch report.

On Friday, U.S. stocks rose, ending the week higher after a two-week rout, and the Nasdaq returned to positive territory for the year.

Deals such as the buyout of Aztar Corp. by closely held Columbia Sussex Corp. for more than $1.9 billion and the acquisition of Hard Rock Hotel & Casino by Morgans Hotel Group Co. for $770 million sent shivers down the spines of other companies hoping to enter Las Vegas.

Aztar, which owns 34 acres of land on the Las Vegas Strip, saw a fierce two-month bidding war that involved as many as four suitors.

Columbia won. But it could be paying more than $30 million an acre just for the land, the highest price ever for a parcel of that size in Las Vegas, according to Deutsche Bank analyst Marc Falcone.

"The costs are getting to be prohibitive," Penn National Gaming Inc. Chief Executive Peter Carlino said in a recent interview.

"The numbers are out of control over there," Carlino said, referring to the Hard Rock deal. "They are paying way too much for that for our taste."

REAL ESTATE BOOM

A limited amount of available real estate on the Strip, coupled with the ever increasing popularity of the gambling mecca, is helping boost prices.

"Land is not available in that area," said Peter Dunay, chief investment strategist at Leeb Group. "So it is very competitive and very tough."

Things have gotten worse as private companies with deep pockets turn to the gaming industry, which offers stable cash flows and high returns.

"There's a lot of money around right now ... looking for a place to land, and gaming seems to be one of the places they want to go," Perry said.

When shareholders in companies that own casinos in Las Vegas see other deals, they too want more.

Last month, when casino operator Riviera Holdings Corp. agreed to go private in a $211.5 million buyout, one large shareholder opposed the deal, saying it undervalued the company's land on the Las Vegas Strip.

But there is a limit to how much public companies are willing to pay for a piece of the action.

Pinnacle Entertainment Inc., which started the bidding war over Aztar with an initial offer of $38 per share, bowed out of the contest when Columbia bid $54 per share. Ameristar Casinos Inc., another bidder, quit when offers started pushing $50 per share.

VEGAS BECKONS

Still, the lure of Las Vegas is too powerful for companies to completely ignore.

The city offers a stable regulatory environment and its fame as an entertainment destination is so widespread that it affects competition even in regional markets, Calyon Securities analyst Smedes Rose said.

Harrah's Entertainment Inc., the world's largest gaming operator by revenue, promotes its casinos in smaller markets through offers such as discounts at its Las Vegas properties -- a competitive edge that companies such as Pinnacle want.

Having a casino in Las Vegas also boosts the value of a company's brand, Dunay said. "It's a prestige thing to say that I own a casino on the Strip."

Pinnacle, Trump and Penn National all continue to look for ways to get into Las Vegas.

Trump's Perry said he would be open to talking with Morgans Hotel, which would like a partner to run the casino, as well as any other opportunity that may arise.

Penn's Carlino said his company would also continue to look for a point of entry, such as a joint venture.

But he added, "That's going to be tough."

He praised Snow for showing "strong leadership" at Treasury.

Snow, the former head of railroad giant CSX Corp. who has a Ph.D. in economics, has been Treasury secretary since February 2003. His departure has been rumored for more than a year.

Paulson has been chairman of Goldman Sachs for about eight years. It is considered one of the premier financial firms on Wall Street and has sent a number of its top executives to high positions in Washington.

Robert Rubin, one of Paulson's predecessors, served as Treasury secretary in the Clinton administration, and Jon Corzine, another Goldman Sachs chairman, served as a U.S. senator from New Jersey and is now governor of that state.

Sen. Chuck Schumer, D-N.Y., a member of the Senate Finance Committee, said he talked to Paulson on Tuesday morning and praised Bush's selection to be the new Treasury secretary.

"His experience, intelligence and deep understanding of national and global economic issues make him the best pick America could have hoped for," Schumer said. The senator said he would support the nomination.

Speculation that Paulson would take over from Snow increased after Bush shook up his White House staff earlier this year, replacing Andrew Card as his chief of staff with Joshua Bolten, a former Goldman Sachs executive who had worked with Paulson.

Card's departure was followed by a string of other personnel moves as Bush sought to reinvigorate his presidency, mired in the lowest approval ratings since he took office in 2001. Among other changes, Bush forced out CIA chief Porter Goss, trimmed the portfolio of political adviser Karl Rove and replaced press secretary Scott McClellan.

Snow has called Paulson "a very able executive, a friend of mine."

Paulson is also a millionaire many times over. Last year, the Goldman Sachs group said it paid Paulson $30 million in total compensation in 2004 - almost a 40 percent gain from the year before.

In tapping Paulson for the Treasury job, the administration is seeking a more effective spokesman to tout Bush's economic accomplishments of low unemployment and solid economic growth.

White House officials believed that a Wall Street executive with Paulson's talents could better make the case for the administration's economic program.

Paulson is leaving Goldman Sachs at a time when its stock is trading at historic highs and with his chosen successor, Lloyd C. Blankfein, ready to take over.

Paulson was known on Wall Street for his dedicated support of environmental causes. Earlier this year, he made a gift of $100 million in Goldman stock to a family foundation dedicated to conservation and environmental education. Even after that gift, Paulson has a net worth estimated at more than $500 million.

Paulson, who was known to favor bird-watching in New York's Central Park to playing golf, is chairman of the Nature Conservancy and the chairman emeritus of the Peregrine Fund.

Last year Goldman Sachs donated 680,000 acres in Chile to the Wildlife Conservation Society.

Snow has been Treasury secretary since February 2003. He took over for Paul O'Neill, who was forced to resign because of policy disagreements with the White House.

Snow has been a loyal proponent of the administration's economic policies, traveling the country as a salesman for
Social Security reform and an overhaul of the tax code. But his standing suffered as both proposals stalled.

Financial disclosure forms have put Snow's estimated worth at between $43 million and $128 million. Two years ago he acknowledged an error of more than $10 million in his investment portfolio that caused him to lose nearly half a million dollars.

OPEC President Edmund Daukoru told Reuters on Monday the cartel will probably keep output quotas unchanged at its ministerial meeting in Caracas on Thursday and keep pumping as much as it can to ease concern of a shortage.

Prices are responding to growing tensions between
Iran, OPEC's second largest producer, and the U.S. over Iran's nuclear work, he said. They are also jittery over the forthcoming hurricane season in the Gulf of Mexico and new environmental laws on motor fuels in the U.S., he added.

"These are all symptoms of a tight market where small disruptions have a disproportionate response," he said. "It's a crazy countercyclical situation."

Supply losses in Africa's top producer Nigeria and a flow of investor money into commodities are also helping to keep oil within sight of record highs above $75 a barrel hit last month.

Gold edged higher on Tuesday while other metals such as copper were steady.

BUBBLE?

The surge in commodities from aluminum to zinc this year is prompting some analysts to compare the rally with previous booms that ended in bust, such as the dotcom bull run.

"The comparison between the dynamic for commodities today and 2000's dotcom bubble shows numerous similarities," SG analysts Alain Bokobza and Frederic Lasserre said in a note.

"Now, the theme of a bubble does not yet seem dominant for commodities although the market does show more and more signs of nervousness going forward," the note said.

Oil has fallen from a record high of $75.35 reached in April partly on worries that high prices will accelerate inflation and slow growth in demand for oil.

But demand remains robust in China, the world's second largest consumer, calculations based on official data shows.

China's apparent demand climbed 10.8 percent in April from a year earlier, the highest rise since 2004, as a hike in state-set prices encouraged refiners to boost supplies.

OPEC has been pumping more or less flat out for more than a year, though militant attacks in Nigeria have cut back production there by around a quarter.

Concern that the stand-off between Iran and the West could lead to supply disruptions from the world's fourth biggest exporter is also underpinning prices.

Foreign ministers of six major powers are to meet on Thursday in a bid to resolve the crisis, the Chinese Foreign Ministry said on Tuesday.

The data point to an environment of slower economic growth and rising inflation expectations that confronts Federal Reserve policy makers as they debate whether to raise interest rates next month. The proportion of consumers expecting their incomes to increase in the next six months fell to the lowest in almost three years, today's survey showed.

The report is "still consistent with positive economic growth, but it suggests slower consumption,'' said Ian Morris, chief U.S. economist at HSBC Securities USA Inc. in New York, who forecast a 103.0 reading. "There's definitely some concern about gas prices and volatility in the stock market, and now there are some indications that the labor market might be weakening a bit.''

The share of consumers who said jobs were plentiful in the Conference Board survey decreased to 28.6 percent in May from 29.4 percent. The percentage who said jobs are hard to find rose to 20.5, the highest this year. The share of people who expect better employment opportunities in the next six months fell to 14.6 percent from 15.4 percent.

The share of consumers planning to buy a home in the next six months fell to 2.8 percent in May, the lowest this year, from 3.1 percent. The proportion who said they plan to buy a car fell to 6 percent from 6.8 percent.

Buying Plans

The number of people who plan to buy a major appliance rose to 33.8 percent in May from 30.4 percent. The May figure matched March's as the highest in almost two years.

The confidence index was expected to fall to 100.9 from 109.6 reported last month, according to the median estimate in a Bloomberg News survey of 65 economists. Forecasts ranged from 95 to 107.

Optimism about consumers' present situation fell to 132.5 from 136.2 in the prior month. The gauge of expectations for the next six months fell to 83.7, the lowest since October, from 92.3.

The proportion of people surveyed who expect their incomes to rise was 16.6 percent, the lowest since July 2003. The Conference Board surveys 5,000 households, usually by the middle of each month.

Inflation Expectations

Inflation expectations are building as gasoline prices rise. The Conference Board's index of inflation expectations over the next 12 months rose to 5.6 percent in May from 5.3 percent. A year ago, consumers were expecting a 4.8 percent rise.

The benchmark 10-year Treasury note fell 1/8, pushing up the yield 2 basis points to 5.06 percent, at 10:37 a.m. in New York.

"There is some concern among Fed members that if inflation expectations continue to pick up, the rise in inflation could become a little bit more built into the economy, and it could be difficult for the Fed to pull inflation down,'' said Conrad DeQuadros, senior economist at Bear Stearns & Co. in New York.

The price of a gallon of regular-grade gasoline rose to $2.95 a gallon on May 15, according to Energy Department figures. That was the highest since September, when prices rose above $3 a gallon for the first time after Hurricane Katrina disabled energy production on the U.S. Gulf Coast.

Declines in the stock market are also sapping optimism, economists said. The Standard & Poor's 500 index has fallen almost 3 percent this month, after it had risen almost 5 percent this year through April.

Consumer Spending

Consumer spending after adjusting for inflation increased 0.1 percent for a second month in April, the smallest back-to- back gain since September-October, the Commerce Department said last week.

Consumer spending growth could be as low as 2 percent this quarter after an increase of 5.2 percent in the first three months of the year, according to Joel Naroff of Naroff Economic Advisors in Holland, Pennsylvania.

"Based on the uncertain macroeconomic environment, we are cautious about the second half of the year,'' said Kay Krill, chief executive officer of AnnTaylor Stores Corp., the New York- based women's clothing retailer. On a May 19 call with analysts, Kay cited the potential effect of higher gasoline prices and interest rates on consumer spending.

Gasoline prices are causing Americans to cut back on other purchases, according to a recent survey by the International Council of Shopping Centers and UBS Securities.

Housing Market

Rising mortgage rates are slowing home purchases and mortgage refinancing, a source of cash for consumers during the current expansion. The average rate on a 30-year fixed-rate mortgage rose to 6.62 percent last week, the highest in almost four years, Freddie Mac said.

A strong labor market is helping buoy consumers, tempering expectations for a decline in economic growth and spending. The unemployment rate in April was 4.7 percent, matching a four-year low.

"Employment and income trends remain strong, which will continue to provide support for nominal consumption, even if real consumption in the second quarter takes a hit on price gains,'' said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado.

United Parcel Service Inc., the world's largest package shipper, said May 17 it would spend at least $1 billion and add more than 5,000 jobs to handle growth in air shipments at a Kentucky hub.

Growth Forecast

Economists expect economic growth to slow from the first quarter's 5.3 percent rate as consumer spending and housing demand cool. The economy will grow at a 3.5 percent rate this quarter and at a 3 percent pace in the second half, according to the median estimate of economists surveyed by Bloomberg April 28 to May 8.

The University of Michigan said May 26 that its index of consumer sentiment fell to the lowest in seven months in May. Consumers expect the inflation rate to be 4 percent in a year, according to the May Michigan survey, compared with expectations for a 3.3 percent rate in the previous poll.