Thursday, September 18, 2008

Daily Sources 9/18

1. AFP reported that Jacques Diouf, Director General of the UN Food and Agriculture Organization [FAO], told the Italian Parliament that the number of people in the world facing "acute hunger" by the end of 2008 is likely to exceed one billion. So far this year the number globally has risen to 925 million from 850 million. The World Bank estimates that 100 million people have been pushed below the poverty line by risign food prices. The rise in food prices globally are mostly attributed to the rise in oil prices, the dedication of arable land to biofuel production, and the increased consumption of land, food and energy intensive meat in the emerging economies. "Hunger hotspots" identified by the FAO include Ethiopia, Djibouti, Ghana, Guinea, Haiti, Liberia, Mauritania, Mozambique, Nepal, the occupied Palestinian territories, Pakistan, Senegal, Tajikistan, Uganda and Yemen.

2. Dow Jones Newswires reported that Abbas Naki, Secretary General of OAPEC (Organization of Arab Petroleum Exporting Countries), said that Middle Eastern oil producing countries are likely to shelve a number of production boosting projects should the price of oil drop below $80/b.

3. Lyubov Pronina and Greg Walters at Bloomberg report that Alexei Kudrin, Russian Finance Minister, announced today that Russia will reduce its duty on crude exports from $495.90 a tonne to $372 a tonne beginning October 1. (A metric ton of oil roughly equals 7.3 barrels assuming 33 ºAPI. Urals Blend is about 30.9 ºAPI. Various Urals crudes range from 26.69-33.61 ºAPI. i.e. ~ 6 - 7.3 barrels/tonne) The tarrif on light oil products will be cut to $263.10/tonne and the heavy products tarrif will be cut to $141.70/tonne. Light products generally include jet fuel, diesel, and gasoline. Heavy products usually refers to the various varieties of fuel oil, asphalt, etc.

4. Dow Jones reports that the Norwegian Foreign Minister Jonas Gahr Stoere told reporters today that all territorial claims in the Artic must fall, as it has so far, under the international Law of the Sea, following Russian call to formally establish the claims of all bordering countries.

5. Marcin Grajewski at Reuters reports that the European Commission has denied Lithuania's request to keep its Ignalina nuclear power plant open. The Baltic States hope to build a modern nuclear plant to handle energy generation requirements, but one will not be operational until 2015 at the earliest. Under its treaty to join the European Union, Lithuania was obliged to shutter the plant by the end of 2009. There is a question of how the Baltic states are to handle their energy requirements in the interim. Russia is considered especially suspect given Polish control of the Mazeikiai Refinery (in Lithuania and the only refinery in the Baltic) and rumors surrounding a fire that shut the complex down in 2006. Russia stopped all deliveries of crude oil to Lithuania via the Druzhba pipeline system in 2006, apparently in retaliation for selling the Yukos stake in the Mazeikiai to PKN Orlen instead of a Russian company. Druzhba is Russian for "friendship."

6. The Wall Street Journal has an editorial about the "Run on Russia." Though the crowing tone, probable mistaking of correlation with causation, and self-congratulatory bellicose tone is useless, the implied admission of the correlation of Russian interests with Western interests is, at least, useful.

7. Henry A. Kissinger and Martin Feldstein have an interesting op-ed in the Washington Post advocating the establishment of closer cooperation between oil consumers. I think this is a good idea, generally speaking, and have argued as much in the past. The devil is in the details, though. Making coal clean by any environmental standard, for example, would be a neat trick.

8. Chris Buckley at Reuters reported that on Wednesday the People's Daily called for a new world financial order that was not dependent upon the United States. (h/t Jesse's Cafe Americain) Still, Vice Premier Wang Qishan told U.S. trade officials in a meeting in the US on Tuesday, "The Chinese government is well aware of the fact that the United States, which is the world's largest developed country, and China, which is the world's largest developing country, should have constructive and cooperative economic and trade relations."

9. Dealbook writes that the rumor mill now floats the story that Goldman Sachs and Morgan Stanley, the two remaining investment banks, are not long for this earth. Yesterday, Morgan Stanley and Goldman Sachs were down 24% and 14%, respectively. Brad Setser's Follow the Money has a response to the news that the Chinese Investment Company is being asked if it would be interested in acquiring 49% of Morgan Stanley by executives there. I can only begin to imagine the political storm that would take place if that happened. Remember Unocal?

10. The Associated Press reported that the British Financial Authority has banned all short selling until January 16, 2009, as per Jesse's Cafe Americain.

11. The Global Director of Market Pricing at Platts, Jorge Montepeque, told a Standard & Poor's commodity investing conference today in London that oil companies are unwilling to trade with their banks, according to Chanyaporn Chanjaroen, Alaric Nightingale and Lars Paulsson at Bloomberg. Nonetheless, E.ON Energy Trading said the had not seen liquidity drying up in any of the energy markets.

12. Patricia Lui and Wes Goodman at Bloomberg report that central bankers in South Korea, the Philippines, India and Thailand are stopping using their currency reserves to defend their currencies for now, accepting lower rates versus the dollar. South Korea's cash reserves dropped 8% in the last five months to $243.2 billion. India's dropped 7.4% this quarter to $280 billion. Thailand's dropped 5% to $101 billion. "Barclays Plc, the third-biggest currency trader, predicts the won will fall to 1,200 by year-end, the baht to 37 and the rupiah to 9,450 and is now revising those forecasts lower."

13. Platts reports that the Nigerian government has been forced to use proceeds from crude export sales to pay for the subsidies on oil product imports, as the cost has exceeded the budgeted amount. The cost of subsidies this year are expected to exceed 1 trillion Naira, or about $8.6 billion.

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