Daily Sources 9/26

Irony row ...

1. John Heilprin of the Associated Press reports that Russia has come to a deal with the US to work on passing a new UN Iran resolution. This comes after Russia refused to attend a working meeting earlier this week on how to proceed on Iran after it was excluded from a meeting of the other developed powers (G-7 as opposed to G-8) on the ongoing financial crisis. The new resolution carries no new sanctions, but is worded to emphasize that Security Council resolutions are binding. Whatever you think of the impact of a new resolution so worded (and I don't think there will be much), this does signal to me continued understanding by US and Russian officials that mutual interests outweigh the differences, which is encouraging (to me, at least). It also seems to signal willingness to compromise on both sides--also encouraging to me. But it comes on top of the report by Jonathan Steele yesterday in the Guardian that in May Israeli Prime Minister Olmert asked Bush for a green light for an attack on Iran, and that Bush refused and also indicated that he was very unlikely to change his mind for the rest of his term.

2. Denis Maternovsky and William Mauldin at Bloomberg have the story that Moody's Investor Service has given the grade of "negative outlook" to Russia's banking system. Russia's markets have fallen further as a result--the MICEX index has fallen 43% in 2008.

3. Nadia Rodova at Platts reports that Russian President Medvedev and Hugo Chavez have met in Orenburg today to discuss a wide variety of cooperative projects. Apparently Russia has proposed to Venezuela that they set up a join energy consortium between PdVSA and the run of Russian oil concerns, including Gazprom Neft, Rosneft, Lukoil, Surgutneftegaz, and TNK-BP. "It's a colossus being born," said Chavez in televised remarks. It has also become news that Moscow has recently granted Venezuela a $1 billion loan in order to purchase Russian arms. In televised comments, Medvedev said, "The dynamic of our relationship has indicated how strong [our] ties are." The two can play that game point has been made, I think, in spades. Ultimately, the question has to be to what are our interests, on balance, in Georgia and Venezuela, and what are Russia's? I still haven't seen any statements, much less analysis, on this subject.

4. Rajesh Nair at Platts has the story that Hong Kong bunker fuel suppliers have turned to South America for bunker fuel as the Singapore market has tightened. (The spread between heavy and light products has tightened in Asia over all as new sophisticated refining capacity has come online over this year.) Freight rates have also come down, helping to make longer haul purchases economical. Most interestingly, though, is that ExxonMobil has been sourcing bunker fuel (high sulfur fuel oil) directly from Venezuela, or via PetroChina, which has been importing 500,000 tonnes of bunker fuel from PdVSA every month. At 6.5 barrels per tonne that comes to about 108 kb/d--a considerable portion of stated Venezuelan flows to China. The ExxonMobil bit is icing, no?

5. Zhao Yidi and Zhang Shidong at Bloomberg report that China's State Council, or Cabinet, signed off on a plan submitted by the Securities Regulatory Commission which would allow margin lending and short selling, in an attempt to bolster volumes on falling markets. In effect, the Communist Chinese are allowing short selling while we, as a palliative, ban it.

6. Blaine Harden at the Washington Post has the story that Japan posted a trade deficit on Friday.

7. John Bresnahan & Ryan Grim at Politico have the story on the House Republicans scuttling a deal on the bailout package yesterday. Whatever you think of the package, the following has to be sobering:

"According to one GOP lawmaker, some House Republicans are saying privately that they’d rather 'let the markets crash' than sign on to a massive bailout."

8. A good story in BusinessWeek by Stanley Reed which points out that Saudi interests tend to be closer to the consumer than to the other producers in OPEC. A useful antidote to some of the rhetoric out there. Ultimately, however, Riyadh decides. As the story notes, only they have the capacity to really overwhelm market direction in one way or the other. The rest of OPEC usually tends to produce absolutely as much as they can; if that's more than the OPEC quota, so be it. The worst offender, so to speak, in general? Iran. The problem remains the transparent signal of actual production numbers, which OPEC complicates even further.

9. Ross Sheil at the Jamaica Observer reports that Kingston is in the process of establishing a panel to determine the feasibility of nuclear power for the island nation.