Daily Sources 9/5

1. Yves Smith at Naked Capitalism has an extremely interesting piece on the Bank of China being short of capital. Brad Setser at Follow the Money has some thoughts on the issue as well. Keith Bradsher's article in the New York Times on the subject.

2. Dorothy Kosich at Mineweb writes that China is considering developing a strategic coal reserve, along the lines of their strategic petroleum reserve. This follows on news of the suspension of all but two Coal-to-Liquids projects in China recently and a continuing supply shortfall in coal, which accounts for about 70% of Chinese power generation. A Xinhua story has it that a UNCTAD official has said that the PRC government is likely to begin a process of restructuring the economy in order to guard against surging oil costs. Strange story, but it is a government organ, thus perhaps a signal.

3. Following on news of 8/29 that Germany is considering a strategic gas reserve, Bruno Waterfield at The Telegraph reports that the European Union as a whole is now considering the possibility, with legislation in the works for October or November. Evidently, the International Energy Agency in Paris released a report yesterday arguing that the lack of a strategic gas reserve represents a "strategic weakness." This also follows news on Wednesday (linked below) that certain EU officials are becoming concerned about Russian energy cooperation ventures in African nations that export oil, and more significantly, gas.

4. Barbara Lewis and Simon Webb at Reuters write that OPEC is likely to begin unofficially cutting production after next week's meeting. In another Reuters article, Iran OPEC Governor Mohammad Ali Khatibi is reported as saying that $100/b is an "appropriate" price for oil in this economic climate. Goldman Sachs Group Inc. Chief Economist Jim O'Neill said that OPEC is unlikely to cut production in the upcoming meeting due to the ongoing hurricane season, as per Stephen Cunningham at Bloomberg. Which wouldn't necessarily contradict the notion that the organization will unofficially begin to cut back on production. Of course, one might think OPEC might view the hurricanes slightly differently, given no real disruption in the Gulf, but the idling of 12% of US total refining capacity. Refineries take a little while to start up again; not just the matter of a switch. Jad Mouawad at the New York Times has a piece on the analysis of OPEC's upcoming decision which more or less demonstrates that no one but the actual participants are sure, but that the consensus is more or less that they will publicly leave the production quotas alone this round, but will likely begin privately curtailing production some. It really all depends on the Saudis, because no one is going to cut just to hand them market share.

5. Jeb Blount and Juan Pablo Spinetto at Bloomberg report that the State Secretary of the State of Rio de Janeiro said that the Tupi salt fields in the Santos Basin contain between 30 and 70 billion barrels of oil. To put that in perspective, that is between 1 and 2 1/3 years of world wide consumption at current rates. It represents between 4.1 and 9.6 years of American consumption at current rates. It would represent between about 8.2 and 19 years of American net oil import requirement at current rates. That's a lot of oil.

6. US unemployment rate climbs to 6.1% as per Shobhana Chandra at Bloomberg. Credit Suisse has issued a report arguing that housing will bottom in the US at the end of 2009.