Friday, October 10, 2008

Daily Sources 10/10

1. Mark Landler and Edmund L. Andrews at the New York Times report that leaders worldwide, which will be in Washington for the IMF and World Bank meetings this weekend, are beginning to consider a wholeheartedly international approach to the financial crisis. The G7 meet today.

2. Nigel Lowry at LLoyd's List reports that industry representatives at a shipping conference last week acknowledged that they might not be able to meet their financial obligations to their creditors in a timely fashion. They urged the banks to be patient. In laymen's terms I believe that means they urged the banks not to foreclose. This comes on the news yesterday which send shockwaves through the shipping community that a bulk carrier booked a cargo from India to China at cost of fuel and docking fees. Sandra Tsui at Lloyds List reports that brokers expect more deals like this in coming months. That's a pretty big sign that demand for shipping--and thus exports--have dropped precipitously of late. Indeed, the AP reported that the US trade deficit was slightly down in August on the back of lower oil prices.

3. Alex Nicholson and Torrey Clark at Bloomberg report that Russia will expand its bailout to not only take equity in it banking system, but in other domestically based corporations.

4. Peter Finn at the Washington Post reports that Secretary Gates reached a compromised with NATO defense ministers which would allow NATO forces to target opium production in Afghanistan. Gates believes the industry needs to be targeted in order to break the back of the Taliban in that country. On the face of it that makes sense. As Cicero pointed out in the Philippics, "Endless money forms the sinews of war." The compromise allows some NATO members to opt out of the strategy. The compromise also requires a strike on a particular production area to be requested by the Afghan government.

5. Elaine Sciolino at the New York Times reports that the IAEA are investigating whether a rogue Russian scientist has assisted Iran with nuclear detonation technology which has no use consistent with conventional arms. The agency's suspicions were stoked by a document they recently acquired.
"The original, Farsi document is described by officials familiar with it as a detailed narrative of experiments aimed at creating a perfectly timed implosion of nuclear material. According to experts, the most difficult challenges in developing nuclear weapons are creating the bomb fuel and figuring out how to compress and detonate it."
The article makes clear that the scientist was not operating at the behest of Moscow.

6. In the midst of the avalanche of news, I missed the important news caught by ZAMIN on October 6th, that Iran's Ayatollah Yazdi met with Iraq's Ayatollah Sistani this week. Ayatollah Yazdi is considered a mentor of Iranian President Ahmadinejad, with strong ties, therefore, to the Iranian Revolutionary Guard. He is also on the Assembly of Experts, the organization in Iran which more or less vets candidates for the post of Leader of the Revolution aka Supreme Leader. Ayatollah Mohammad Taghi Mesbah Yazdi is possibly one of the most important clerics in Qom--the most important religious center in Iran. Ayatollah Sistani is the most important cleric in Iraq, based in Najaf, the most important religious center in Iraq and historically the base of Islamic clerics--like Ayatollah Khomeini--criticizing the regime in Tehran. Sistani has been critical of the Iranian theocratic model of the role of the "supreme jurisprudent;" Yazdi is one of the most important religious authorities which supported Khomeini's model during the course of the Iranian Revolution. It looks as if sovereignty in Iraq is in the process of being transferred to the local authorities--in this case the Shia parties. But the differences between the various Shia parties in Iraq and the government in Iran are many. I cannot speculate as to the actual substance of the conversation the two clerics might have had, but I think it is fair to conclude it was official government talks from the perspective of Tehran. It is fair to conclude that Tehran has something to fear from Sistani (I gave an analysis of this dynamic in an earlier post), who could present a politically potent rallying point against the regime there.

In a related piece of news, Barry Schweid at the Associated Press reports that formers Bush officials on Tuesday gave a summary of the strong support Tehran gave the US in its response to 9/11.
Iran was "comprehensively helpful" in the aftermath of the 9/11 attack in working to overthrow the Taliban and collaborating with the United States in installing the Karzai government in Kabul.
These remarks were made at the forum hosted by the New America Foundation. The notion of a "grand bargain" with Iran was aired again at the conference.

In a follow-up story to my snarky--I admit--commentary on the comments by the Managing Director of Qeshm Energy in Amsterdam yesterday, Roshanak Taghavi at Dow Jones reports that Iran has struck a deal with Crescent Petroleum of the Sharjah Emirate in the UAE to pipe gas there at the price of $5/MMBTU. At 5.8 MMBTU per barrel of crude, on a BTU basis that comes to about $29/b which may seem like a huge discrepancy but actually is a pretty high price for a natural gas deal of this sort. "The price offered by Crescent is almost four times what the U.A.E. pays for gas from Qatar. And it is more than five times the average weighted regional gas price for the Middle East and North Africa." (As a side note, just now the front month price for delivery of natural gas at Henry Hub--the delivery point for pricing on the NYMEX--is $6.825/MMBTU.) Corruption charges by Ahmadinejad in September might still scuttle the deal, but he has indicated that he would endorse it if it was at regional prices. Given that this deal is much better than seen elsewhere in the region, there is a chance it will go forward. First exports could begin in a few months.

7. David Jolly at the New York Times reports that the IEA (Paris-based International Energy Agency) has reduced its forecast for world demand in 2008 by 240 kb/d 86.5 mb/d, or an 0.5% increase from 2007. It also cut its demand forecast for 2009 by 440 kb/d to 87.2 mb/d or 0.9% demand growth from 2008. The EIA (US Energy Information Agency) on Tuesday released its new Short-Term Energy Outlook which forecast a 300 kb/d growth in energy demand in 2008, a reduction of their previous month's forecast by fully 350 kb/d. The forecast is now for 86.1 mb/d in 2008 and 86.9 mb/d in 2009. The EIA warned that:
"However, unless the global economy is weaker than anticipated, EIA expects that the call on Organization of the Petroleum Exporting Countries’ (OPEC) crude oil will exceed OPEC crude oil production over the next 6 months."
Still, taken in isolation, the new forecasts should put downward pressure on the price of oil. So far it looks like the front month light sweet NYMEX contract is down $9/b. On the other hand, in terms of future production, Martyn Wingrove at Lloyd's List has the story that offshore support vessel charter rates--rates for ships assisting offshore drilling operations, essentially--have shot up to their highest level this year in the North Sea to £160,000 ($272,500) a day. If prices remain stratospheric for non-OPEC production, it will, of course, simply stop. Interestingly, the IEA report also suggests that the reduction in supply from the Baku-Ceyan pipeline has been about equal in volume to the amount shut in by Hurricanes Ike and Gustav, as per Alexander Kwiatkowski of Bloomberg. That would seem to suggest that the run up was completely out of whack with fundamentals. Well, either that or that the current precipitous slide is completely out of whack with the fundamentals. Perhaps we ought to go with the Goldilocks theorum, ie, that the truth is a bit of both.

8. Platts reports that the Department of Agriculture on Friday reduced the amount of corn they forecast would be used for ethanol production in 2009 by 100 million bushels. The change is based on the reduction in gasoline demand.

No comments: