Wednesday, October 1, 2008

Daily Sources 10/1

1. Craig Whitlock, Mary Jordan, Edward Cody, Emily Wax, Shannon Smiley, and Karla Adam at the Washington Post report that Central Bankers around the world are becoming increasingly nervous as an American bailout plan continues to be delayed. Very nice survey article. Evidently the European response has been fragmented. So far they are unable to design a unified response. To paraphrase an old banker's saying: If you lend someone $1 million, he'd better watch out, if you lend him $1 billion, you'd better watch out. Andreas Scholz and Gabi Thesing at Bloomberg report that the head of the European Central Bank, Jean-Claude Trichet, said in an interview that US lawmakers must pass a bailout package. He refused to answer any questions about the rate meeting the ECB was holding tomorrow. Chris Giles at the Financial Times had a story yesterday on the various efforts foreign central bankers are taking to try and stem the fallout from the crisis. Also, Yves Smith at Naked Capitalism has an interesting analysis of the decision by the EU to impose more capital requirements on member banks shortly. She argues that imposing an requirement increase during the crisis would be counterproductive.

2. Jeff Fick at Dow Jones reports that Brazil announced two more offshore oil finds today. Petrobras and Anadarko both made the finds in the Campos Basin in the past 24 to 48 hours.

3. Jaspal Singh at the New Strait Times reports that seafood prices are surging in Malaysia due to fuel shortages. Catches have dropped by 60% since August 22nd as a shortage of subsidized diesel idled the fishing fleet. "Seafood prices are expected to rise by at least 20 per cent next week, with fears that prices could rise further if the fuel shortage persists."

4. Kim Graham of Sun Media Corp reports that Cameco is planning a $6 million expansion to their Blind River uranium refinery in Ontario, Canada. The refinery converts raw uranium ore into UO3, not quite yellowcake or U3O8 if I understand correctly, but still requiring further upgrading before it becomes nuclear fuel either way. The outlook for nuclear power is pretty good worldwide, considering the alternatives. But electricity demand may not jump as quickly as expected if growth in the export-model economies is essentially limited by oil prices. In that vein, Kaori Kaneko at Reuters reported today that the Northwest Airlines CEO said that the airline could be profitable at $100/b. Possibly, but I suspect the bar is lower for the continued profitability of the export-economies.

5. Jason Leopold at the Intelligence Daily reports that Secretary of State Rice gave a statement to the Senate Armed Service Committee which said she led high-level discussions about subjecting al-Qaeda detainees to torture techniques. (h/t informed comment) This gives the lie to statements by President Bush, Cheney, and others that the torture was done by a few bad apples and went forward without the OK of higher-ups. Well, at least the truth is finally out there.

6. Securing America's Future Energy, a program led by the Energy Security Leadership Council, has released a "National Strategy for Energy Strategy." I have not had time to actually read it, but it is likely to be influential. Its membership includes Maurice R. Greenberg (yes, that Greenberg), Edgar M. Bronfman (yes, that Bonfman), the current CEOs of Southwest Airlines (whose success with oil hedging has become famous), FedEx, the International Continental Exchange (ICE ... on which the basic Brent contract is traded and which was targeted in part by the commodities anti-speculation bill that recently passed the House), and Waste Management, Inc., among others. It also includes a rather illustrious roster of former generals and admirals.

7. Brian Burnsed at Businessweek reports that the gasoline shortage in the Southeast continues unabated. Remember the US decided not to ask for emergency gasoline supplies from the International Energy Agency (IEA), so presumably they expect this problem to resolve itself before the supplies would have arrived. The Energy Information Administration reported today that only one refinery in the Gulf (which is where the South East gets a substantial portion of their product from) remains shut down. However, they also report that "742,000 barrels per day of the original crude oil outage of 1.3 million barrels per day [remains] shut in."

8. Chris Frank at KAKE News reports that the Kansas Energy Council is considering lowering the speed limit in that state from 70 to 65 mph. "There is a seven to 23 percent increase in fuel consumption with each five mile per hour increase over 60." Welcome news as it seems our federal representatives do not have the guts to do something so straightforward (and in doing so making American security a priority). I believe the numbers are that if the US made 55 mph the national speed limit, then the country would consume 2 mb/d less. That would represent fully 10% of our current demand. It would represent about 2.3% of world demand. That could theoretically mean a 40% reduction in price--though it would be silly to promise that and I am suspicious of the supply elasticity numbers that have been thrown around by the petroleum economics community.

9. The US Department of Transportation announced today that Americans drove
"3.6 percent less, or 9.6 billion miles fewer, in July 2008 than July 2007. Since last November, Americans have driven 62.6 billion miles less than they did over the same nine-month period last year. Meanwhile, she said, transit ridership is up 11 percent, and in July, Amtrak carried more passengers than in any single month in its history."
In June, Americans drove 4.7% less than they did in June 2007. The Summer is the driving season in the United States, so it is too soon to see if the demand reduction will pass through the Fall, but the fact that prices are at the very least reducing "disposable" driving is a sign that this price environment erodes the largest and richest export market for oil--the US. If it can be extrapolated to Europe, the second largest, that suggests considerable demand destruction going forward. We know that in India and China the price environment is forcing the governments there to scale back subsidies of transportation fuels as much as is politically possible.

10. The EIA published This Week in Petroleum reporting a 0.9 million barrel increase in American gasoline stocks today. Analysts were expecting a 1-3 million decline, but stocks are still at historically (read lowest in 40 years or so) low levels. Crude stocks were up 4.3 million barrels, which put them in the middle range of historical levels, and were against a range of analyst expectations. Distillate stocks fell 2.3 million barrels to near the bottom of average holdings and consistent with analyst projections. Propane stocks grew 2.4 million barrels, but are slightly below the average historical range. This news should put downward pressure on crude prices.

11. Greg Robb at Marketwatch reports that the Institute for Supply Management's manufacturing index for September indicates that manufacturers cut down on production to 43.5% from 49.9% in August. "This is the lowest level since October 2001. ... This is the biggest drop in the index since 1984. The drop surprised economists." On the other hand, the Automatic Data Processing employment report released today shows that jobs "only" fell by 8,000 in September, which is less than expected, as per Real Time Economics. Jennifer Waters at Market Watch also has the story that credit card debt is "on the brink of imploding.

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