Daily Sources 9/23

1. Real Time Economics had the story that the Central Bank Governors and Finance Ministers of the G7 had a conference call yesterday and released a statement in support of the actions they had collectively taken to support the financial system. "We reaffirm our strong and shared commitment to protect the integrity of the international financial system and facilitate liquid, smooth functioning markets, which are essential for supporting the health of the world economy. We strongly welcome the extraordinary actions taken by the United States to enhance the stability of financial markets and address credit concerns, especially through its plan to implement a program to remove illiquid assets that are destabilizing financial institutions. We also strongly welcome the measures taken by other G-7 countries." The G-7 is comprised of Canada, France, Germany, Italy, Japan, United Kingdom, and United States of America. Nota bene: Russia was not included, as that would be the G-8. Is this as punishment for Georgia or a sign that the Russian government really no longer supports the financial system as is?

2. The AFP has the story that the Russian Foreign Ministry released a statement today stating that the country has no intention to unilaterally determine the borders of the Arctic--"Russia strictly abides by the norms and principles of international law and is firmly determined to act within existing international agreements and mechanisms."

3. Brian Baskin at Dow Jones has the story that refiners in the US are not facing cut backs in crude allocated to them by Riyadh. Given that refiners in Texas and Louisiana take two thirds of the crude Saudi Arabia exports to the US, and that Hurricanes Ike and Gustav have shut down most of the refineries in those two states, the remainder of that allocation has either not been, in fact, produced or sold to refiners in Europe or Asia or sold on the spot markets. "The U.S. is often the last to feel the impact of a cut in Saudi production as refiners rarely purchase the full amount they are allocated each month." If it is being produced, where is the demand coming from? Somewhere, evidently, as Stefano Ambrogi at Reuters reports that Lloyd's Marine Intelligence Unit said today that "oil shipments from 11 OPEC producers, including Iraq, rose to 23.644 million bpd from Aug. 17 to Sept. 7, versus 23.485 million bpd in the previous four weeks." Gustav made landfall on September 1st. OPEC's meeting which produced promise to more closely hone to quotas took place on the 9th.

4. I wrote a few posts ago that it looked as if there was a change in official policy in Iran to recognize that the holocaust happened, in response to remarks made in New York by the Ambassador to the UN and to remarks on Friday by President Ahmadinejad. However, on Friday, as noted yesterday, the Supreme Leader, Khamenei, made clear that he regarded the Isreali people as an enemy. And today, in the Los Angeles Times, Ahmadinejad reiterated a position of at best ambiguity, at worst denial, of the holocaust. To wit,

"If we agree and accept that certain events had occurred during World War II, well, where did they indeed happen? In Germany, in Poland and in Great Britain. Now, what does this exactly have to do with Palestine? Why is it that the Palestinian people should pay for it?"

The companion article to the interview included the context around this statement:

"'Who are these people? Where did they come from?' he asked in reference to Jews who founded the state of Israel in the wake of the Nazi slaughter in Europe during World War II. He spoke in Persian through an interpreter, whose translation of his next sentence began: 'We've agreed. . . .' before she was cut off and corrected by Ahmadinejad: 'If we agree and accept that certain events had occurred during World War II,' came the next sentence, 'well, where did they indeed happen?'"

This comes on top of the news reported by Thomas Erdbrink at the Washington Post that Ahmadinejad has dismissed the Governor of the Iranian Central Bank, Tahmasb Mazaheri.

"Mazaheri's departure clears the path for Ahmadinejad to change the economy the way he wants," said Mohammad Atrianfar, a journalist, politician and critic of Ahmadinejad. "Mazaheri, who was much more professional than the president, would delay or alter government plans. Now the president has a free hand."

This would apparently eliminate all obstacles to Ahmadinejad's plan to stop subsidizing basic goods generally, and instead distribute money to the poor directly via individual bank accounts. Inflation in August in Iran was 27.2%. If Ahmadinejad succeeds in implementing this plan and it corresponds to a strengthening in Iran's economic situation generally, it could hugely strengthen his hand. If not ...

5. Nick Tattersall at Reuters reports that MEND said today that the Nigerian air force had launched an air assault on their encampments today. MEND said they will continue to respect their unilateral cease fire nonetheless.

6. John Kingston at Platt's blog "The Barrel" notes that production at Mexico's largest field--Cantarell--dropped below 1 mb/d in August (to 998 kb/d). He writes, "There's nobody who thinks the Mexican problem is a weak reserve basis. It's simply a mismanaged approach toward developing those reserves." In point of fact, there are some who believe that mismanagement has little to do with it, specifically some at the Oil Drum, who note that the production profile of Mexico looks quite similar to peak production profiles of oil fields. They argue that management or mismanagement would do little to change the picture. Mexico is in the process of re-examining its oil laws to allow for the participation of foreign majors in the hopes of increasing production and efficiency at Pemex.

7. Emma Graham-Harrison at Reuters has the story that Chinese oil consumption grew by 7% year over year in the month of August to cover Olympics-driven demand, but points to analysts who think that inventories are full to the brim, and that demand is dropping. (Which would be consistent with yesterday's story regarding Sinopec's announcement that they will import 239 kb/d less from September through December, or a reduction of about 3% in Chinese consumption from August.)

8. The African Press Agency reports that the Kenyan Association of Manufacturers warned Monday that 80,000 Kenyans were at risk of losing their jobs because of the high energy price environment. Electricity costs have gone up by 600% in the past year. There are about 37.9 million people in Kenya (est. July 2008), 42% (15.2 million) of whom are 14 years old or under (2008 est.). The labor force is estimated to comprise about 11.85 million people (or ~ 31.2% of the population as per 2005 est.) and the unemployment rate is estimated--as of 2001--to be 40%, or 4.7 millions. 73% of Kenya's power generation is met via hydroelectric dams, which are affected by changes in the climate, and there are limits to new capacity. (On September 11, Sinohydro was chosen to build a new hydroelectric dam at Sang’oro, which is hoped to mitigate the risks of changes in the weather to the power supply.) Low rainfall in late 2007 and early 2008 have reduced electrical while demand has grown rapidly, which probably accounts for some of the price issues. A quick search hasn't yielded what feedstock accounts for the rest of Kenyan power generation, but, for example, if it is produced by coal and/or diesel / fuel oil, that also would account for increase in costs if those inputs are passed through to consumers.