Daily Sources 9/30

1. Ethan Bronner at the New York Times has the story that the former Prime Minister of Israel, Ehud Olmert, said in an interview that Israel must withdraw from the West Bank and East Jerusalem if it wants peace with the Palestinians. He also rejected as “megalomania” the notion that Israel would or even should attack Iran on its own in order to disrupt its nuclear program.

2. AFP has the story that France and India have signed a major nuclear deal by which France would eventually be able to sell nuclear reactors to Delhi. Looks like the American-led deal is making progress with other members of the Nuclear Suppliers Group.

3. Archana Chaudhary at Bloomberg reports that the Indian Oil Company has predicted that their oil import costs will grow to $45 billion this year. India's Oil Secretary R.S. Pandey said in an interview September 25 that Indian Oil and its state-run counterparts may lose $37 billion in 2008 from the selling fuels at prices fixed by the government in order to reduce the pain to consumers. The company is paying for the outlay via short term foreign currency loans.

4. Edward Cody and Mary Jordan at the Washington Post report that the financial crisis is spreading across the world's markets. Markets in Asia continued to fall after they opened Tuesday morning. The European Central Bank President met with several European finance ministers on Sunday to discuss relaxing the rules governing bank lending in the EU. Latin America is expected to suffer from credit shortages soon, given that "Foreign banks account for 80% of the financial system in Mexico, 51% in Peru, 29% in Chile and 22% in Brazil." "Nicolas Véron, a research fellow at the Bruegel center in Brussels, said concern has risen about strains in the banking system spreading to the Baltic countries and Eastern Europe, where several nations also have experienced property bubbles." Useful survey of the situation. The two journalists also have the story on the French and Belgian authorities have stepping in to rescue Dexia today, a Franco-Belgian bank. The two governments injected $9.2 billion into the bank, which was facing a run on its assets as its stock collapsed by 30% yesterday. (Much of the analysis is identical to the first article linked.)

5. Wolfgang Reuter and Thomas Tuma at Spiegel published an interview with German Finance Minister Peer Steinbrück yesterday which carries more details on the remarks reported on earlier. Among other revelations, the G7 evidently discussed the possibility of world wide market meltdown should AIG fail, and prevailed upon American fiscal authorities to save them.

SPIEGEL: The German government is unwilling to participate in America's $700 billion bailout package. Is this your final word?
Steinbrück: I see neither the need for nor the possibility of taking on the responsibility for American banks. Besides, our situation is more robust.

Prisoner's dilemma anyone?

6. Blaine Harden at the Washington Post reports that Japan has fallen into a recession. The Nikkei stock average fell 4.12% and unemployment rose to a two-year high of 4.2%. Car shipments to the US are down 30%. As I noted yesterday, Japan reported a trade deficit in the second quarter. More evidence: Takeo Kumagai at Platts reports that Japanese gasoline demand was down 14% in August year over year. August gasoline consumption in Japan was 4,689,280 kl or 1.29 mb/d, down from about 1.5 mb/d in August 2007.

7. Ariana Eunjung Cha at the Washington Post reports that the Chinese are anxiously watching the American response as they watch their orders shrink drastically. One anecdote has orders from the US to a shipping company dropping by 40%.

"In the U.S., the workers at the gold-chip companies are carrying out their desks in boxes," Xiong [Ming, a marketing manager at Dragontrade Logistics, said. "But in China, the jobs are still here because they are more protected."

8. Dave Ernsberger at Platts blog The Barrel speaks of the erosion of faith in the oil futures markets: "You can see that people are losing faith in the ability of free markets to deliver what we all look to the markets to give: a clear and rational valuation." And people would be right to be skeptical, but I do not think we should blame the futures markets for the extremely opaque, fragmented, and politically distorted nature of the business underlying the contract. Getting rid of the futures markets wouldn't change the fact that traders must guess at all and sundry variables given the opaque nature of national oil companies producing more than 70% of the resource. Of course, the end of the futures markets would be a boon to Platts, returning to them the role of price discovery.

9. The Associated Press published excerpts of an interview with Iraqi Prime Minster Nouri al-Maliki Monday, where he said that Iraq wanted to assert more of its sovereignty going forward (h/t informed comment). In particular, he wants American servicemen who are not specifically acting under orders and not inside official US military encampments to be subject to the jurisdiction of the Iraqi courts. He also argued that the most effective way that Iraq can help with the American financial crisis is to bear more of the burden of policing the country.

10. Platts has the story that Eni will give Gazprom a stake in Libya's Elephant field in return for Eni and Gazprom jointly developing Arcticgaz, a former Yukos subsidiary. By Eni taking a piece of a former Yukos property they put another barrier in the way of any eventual recovery of its assets by its former shareholders, much less Michal Khodorovsky. The Elephant field produced about 140 kb/d last year.

11. Topnews has the story that the Pakistani government has hiked the minimum purchase price of wheat by 45% in an attempt to boost domestic production there. Pakistan has been wracked by food riots in the last year due to the soaring inflation in basic food commodities. The government's actions also were designed to ensure an ample supply of urea and fertilizers as well as fuel for generators given frequent brownouts which shut down electric water pumps.

12. Erin Voegele at Ethanol Producer Magazine reported that a bill designed to increase energy cooperation in the Western Hemisphere and in particular between Brazil and the United States was approved by the Senate Foreign Relations Committee on September 23. The bill was sponsored by Richard Lugar (R-IN) and directs the Secretary of State to work with Brazil and other nations to accelerate the development of biofuels production, research, and infrastructure.

13. The Chicago Climate Exchange (CCX) on September 25 announced the opening of the Tainjin Climate Exchange (TCX) not far from Beijing. TCX is a joint venture of a subsidiary of the China National Petroleum Corporation (CNPC), CCX, and the city of Tainjin. TCX will design carbon trading instruments by which the Chinese government hopes to reduce sulphur oxide emissions and water pollutants as per the 11th Five Year Plan.