Daily Sources 11/20

1. Brian Blackstone at Real Time Economics reports that the Labor Department released job claims data which shows there was another jump in claims for the week ended Nov. 15.

"In quarterly forecasts released Wednesday, the Federal Reserve said the central tendency of officials’ unemployment rate forecasts for the end of 2009 was 7.1% to 7.6%, though individual forecasts went as high as 8%."

Henry J. Pulizzi, also of Real Time Economics, reports that Dana Perino, White House Spokesman, has signaled that the Administration backs the extension of unemployment benefits, "Because of the tight job market, the President believes it would be appropriate to further extend unemployment benefits, and he would sign the legislation now pending in Congress."

2. The Economic Times reports that the European Commission is planning a €130 billion (~ $164.2 billion) stimulus plan according to a spokeswoman for the German economic ministry. That would equate to about 1% of GDP for each member state. (For Germany that means something along the lines of €25 billion.)

3. Maya Jackson Randall at Dow Jones reports that the minutes of the October 28-29 Federal Open Market Committee meeting demonstrate that they stand ready to cut the Federal Funds Rate further, should that prove necessary. The minutes also reveal that most Committee members expected the economy to contract in the second half of 2008 and the first half of 2009. In a related story, Jason Clenfield at Bloomberg reports that JP Morgan economist Jason Clenfield advised clients that he expected the Fed to cut the Federal Funds Rate by 50 basis points (0.5%) in each of the next two FOMC policy meetings on December 16 and January 28 to 0%. Paul Krugman argued the same on November 7. Neither, however, feel that that would mean that the Fed had emptied its economic tool kit. Arnold Kling at EconLog argues that zero isn't even necessarily the lower bound for interest rates, and that you might have negative interest rates. He is speaking theoretically, but it does make a kind of sense--in a deflationary environment, you could pay interest to be in dollars and make a return.

4. Sahar Ahmed at Reuters reports that Pakistan and the IMF have agreed upon terms for a $7.6 billion emergency loan to the country. "The interest rate on the credit facility would vary between 3.51 and 4.51 percent with changes according to market conditions, and would be payable between fiscal 2011/12 and 2015/16." Delphine Strauss at the Financial Times reports that Turkey is close to an agreement for a loan from the IMF in the region of $20-40 billion.

5. John Acher and Wojciech Moskwa at Reuters report that Norways Sovereign Wealth Fund has increased its holdings of European stocks from 0.77% of total European securities to 1.25% and on the lookout for purchases worldwide. The Norwegian finance ministry has given the fund permission to invest up to 5% of its assets in real estate. The fund's Executive Director, Yngve Slyngstad, says they have about $20 billion waiting to invest in real estate, but that they are not sure if they will enter the market in the first or second half of 2009.

6. Luke Pachymuthu at Reuters reports that Koch and Shell are renting oil tankers for use as storage.

"Koch has booked Very Large Crude Carrier (VLCC) the Dubai Titan, with capacity to hold over two million barrels, for storage in the U.S. Gulf Coast, ship brokers said on Thursday.

Koch has already taken two other VLCCs for storage in the U.S. Gulf, they said.
...
Oil major Royal Dutch Shell has booked a second supertanker to be used for storage, shipbrokers said on Thursday."

Although the container shipping market seems to have collapsed, anecdotal evidence suggests that oil tankers are still fetching profitable rates of around 70 world scale. That suggests to me that either land based storage is becoming scarce or that financing for floating storage is somehow easier to secure.

Either way, the contango in oil is so steep, that floating storage is a profitable proposition even though demand for oil tankers is fairly steady. (Yesterday, the differential between front month and the Dec '09 contract was $10.21/b or 19% of the front month price. The differential between front month and the Dec '16 contract was $32.86/b, or 61% of the front month price.)

Jamie Dale reports that Black Sea and Middle east shipping rates have doubled on piracy concerns. The Baltic Dry Index shows a very small uptick.



Alaric Nightingale and John Martens at Bloomberg report that with the announcement--telegraphed yesterday--today that Maersk will stop sailing ships through the Suez, and Euronav NV, TMT Co. Ltd., BW Shipping Managers Pte, and Frontline Ltd. are reviewing doing so themselves. Odfjell SE is the other shipping company that has official abandoned the Suez route. Combined the companies control 117 supertankers, 2.7 days of global demand or 229.5 million barrels of oil. Tony Gray at Lloyd's List reports that "Senior figures in the maritime industry are calling for a co-ordinated approach to dealing with the crisis in the shipping industry." That is, some are calling for the creation of a cartel to artificially take shipping supply off the markets and thus shore up price.

7. Gary Kasparov has an editorial in the Wall Street Journal saying that Obama has the chance to start fresh with Russia, and that he should do so by labeling Putin a dictator from the start.

8. Del Quentin Wilber at the Washington Post reports that US District Judge Richard J. Leon has ordered the release of five Algerian detainees held at Guantanamo. Leon was a Bush appointee. He took the extraordinary step of urging the government not to appeal, saying that 7 years was long enough for these people to face uncertainty in terms of their fate.

9. Juan Cole at informed comment has a long post on al-Qaeda leader Ayman al-Zawahiri's long anti-Obama video released onto the internet Tuesday. He spends a long time pointing out the inaccuracies in Zawahiri's characterizations of the facts which is just odd. The main thing to be learned, it seems to me, from the video is how weak al-Qaeda's--and in the Middle East generally--understanding of the West is. There is little point in debating the facts with the leadership of al-Qaeda--for them nothing is as it appears. This is not just true of radical groups, but also of leadership in important nations like Iran. The Bush Administration has only lent more credibility to this perspective over the last eight years, of course.

10. Henry Meyer and Lyubov Pronina at Bloomberg report that Vladimir Putin has pledged to a conference of the United Russia party--which he leads--to do everything in his power to prevent the financial collapse of the country. He announced measures to increase welfare payments and cut corporate taxes and promised to defend the ruble. He said, "We'll do everything we can to prevent a repeat in our country of the problems of past years, the collapse of past years."

11. Eric Watkins at the Oil & Gas Journal reports that the Indonesian government has ordered oil firms to keep funds for energy projects in domestic banks. Companies that do not do so will not be allowed to participate in the cost recovery scheme for the various projects.

"Djoko Harsono, BPMigas deputy for finance, said, 'This policy aims to help boost rupiah value against the dollar. We want contractors in energy projects to put all their US dollar funds in local banks, especially state-owned banks.'"

12. In another interesting article by Eric Watkins, Saudi Arabia announced that it has canceled its contract for the Manifa field with Snamprogetti, which would potentially have added 900 kb/d in capacity by 2011. The project to add the capacity is now under review.

13. Eric Watkins at the Oil & Gas Journal report that CNPC and Costa Rica's Recope are considering plans to build a 200 kb/d capacity refinery in that country. "As part of the Moin development, Recope announced plans in February to expand its storage capacity by 550,000 bbl to 3.95 million bbl by 2011."