Daily Sources 11/26

1. Stephen Castle and David Jolly at the New York Times report that the European Commission proposed today a stimulus package totaling €200 billion (~ $256 billion). However, of the €200 billion, only €30 billion would come from Brussels, and, as we noted yesterday, Germany's Chancellor Angela Merkel appears to be set against a coordinated response. Much of the monies included are packages that have already been announced by member nations, and the EC has very little ability to bend the national governments to their will. Some analysts see it as an effort to pressure member governments to coordinate their responses to the crisis.

2. Norma Cohen at the Financial Times reports that the services sector in the UK contracted by 0.4% in the third quarter, as per the Office for National Statistics (ONS). This was the largest drop seen in the sector since the ONS began keeping track. The ONS also confirmed that GDP fell by 0.5% in the third quarter as per earlier predictions.

3. Olesya Vartanyan and Ellen Barry at the New York Times reports that Erosi Kitsmarishvili, Georgia’s former ambassador to Moscow, testified before Parliament that Tblisi was responsible for the conflict in South Ossetia.

"A former confidant of President Mikheil Saakashvili, Mr. Kitsmarishvili said Georgian officials told him in April that they planned to start a war in Abkhazia, one of two breakaway regions at issue in the war, and had received a green light from the United States government to do so. He said the Georgian government later decided to start the war in South Ossetia, the other region, and continue into Abkhazia."

When Mr. Kitsmarishvili tried to confirm that a green light had been given with US diplomats in Tblisi who told him that there had been no go ahead. Meanwhile, the New York Times' Judy Dempsey reports that US diplomats began an effort to have the Ukraine and Georgia admitted to NATO without going through the traditional admission process. Secretary of State Condoleeza Rice has allegedly had long telephone conversations with senior German, French, and other European diplomats in support of the initiative. In light of the most recent news from Georgia ... not gonna happen.

4. Vandana Hari and Mriganka Jaipuriyar at Platts report that IEA Executive Director Nobuo Tanaka told journalists in Singapore today that the integration of China and India into the organization was of strategic importance given that most new demand was in those countries. He urged OPEC to carefully examine the market data in their upcoming meetings and to stand ready to act should the market reverse. In the IEA oil market report released November 13, the IEA forecast that the fourth quarter call on OPEC crude would be 31.1 million b/d, about 1 million b/d below their estimate of OPEC's October production of 32.13 million b/d. Tanaka also suggested that the IEA might revise further downward their projection of 2009 oil demand growth, "Certainly there is a possibility of [another] downward revision. But how far, how much, I don't know."

Tanaka also said he would like to see greater cooperation with the countries of Southeast Asia and that the organization's interest in Indonesia is growing. (Indonesia recently left OPEC.)

5. Platts reports that Turkish energy minister Hilmi Guler told television reporters in Istanbul today that during his visit to India Monday he and Prime Minister Tayip
Erdogan discussed the development of MedStream--an oil transit corridor between the two countries. He told reporters that a preliminary study of the feasibility of the project has been completed and that Turkey is in talks with other participatory countries to determine whether to move ahead with a full feasibility study.

"The route involves the construction of the long-planned Trans Anatolian Pipeline from the Black Sea to Turkey's Mediterranean oil hub at Ceyhan.

From Ceyhan a second pipeline would be built, to the Israeli oil port of Ashkelon and on to Israel's Red Sea port of Eilat from where tankers would carry the oil to markets in India and the Far East, he said.

Guler added that plans for the link between Ceyhan and Israel involved the construction of a triple pipeline carrying oil, natural and fresh water as well as electricity and fiber optic links."

6. Aaron David Miller has an opinion piece in the Washington Post which argues that it would be folly to make the Isreali-Palestine issue the Obama Administration's first foreign policy priority, but that Isreali-Syrian relations are ripe for a breakthrough. His primary argument against focusing especially on Palestine is that there is no real negotiating authority that Tel Aviv can negotiate with just now. Given that complication, expecting a serious resolution to an issue that includes resolving the status of a city holy to three separate religions seems quixotic. Syria, on the other hand, has a stable government and the issues between the two countries are well-understood and straight-forward: withdrawal, peace, security and water. I think Mr. Miller is probably right on this issue from a tactical perspective. His argument is well-worth reading in full.

7. Matthew Rosenberg at the Wall Street Journal report that Afghan President Hamid Karzai's office released today a transcript of a meeting with a UN delegation yesterday where the President said,

"'This war has gone on for seven years, the Afghans don't understand anymore, how come a little force like the Taliban can continue to exist, can continue to flourish, can continue to launch attacks.'"

Some think the harsh criticism comes as Karzai readies himself for elections, where he must be seen as independent of the West in order to counter domestic critics. But Karzai's comments include the remark that "If there is no deadline we have the right to another solution for peace and security, which is negotiations," which suggests he wants a deadline for the end of the war.

8. Sudarsan Raghavan at the Washington Post reports that the Iraqi Parliament has postponed a vote on the Status of Forces Agreement until tomorrow. They have also agreed that should Parliament pass the proposal, it will be subject to a national referendum next year. Grand Ayatollah Ali Sistani has said that any deal should have the support of every Iraqi party in order to be legitimate. Thus the Sunni bloc of 44 votes in a 275 member parliament has proved enough to block the deal. The Sunnis are demanding the dissolution of the special criminal court which tries former members of Saddam Hussein's government and the reinstatement of former Baath members to government jobs.

9. Fiona MacDonald at Bloomberg reports that the Kuwait state news agency has announced the country is not considering rerouting its tankers away from the Suez Canal.

"Eighty percent of Kuwaiti tankers go to Asia, bypassing the Gulf of Aden, al-Shuwaib said, according to KUNA. The remaining vessels leaving the country are rented and non-Kuwaiti, or are Kuwaiti ships that sail under international military protection, the news agency said, citing al-Shuwaib."

That is, most of our ships don't go through the Suez, those that do are protected by others' navies, and the rest don't fly our flag.

10. Jamie Dale at Lloyds List reports on further distress in the shipping industry, with Cargill chartering a capesize (of 180,180 dead weight tonnes) for a transatlatic round trip voyage at $1,000/day, which is way below the market rate as expressed on the Baltic Exchange of $1,864/day.

"Today the capesize average time charter rate fell to $2,773 per day, down $456 from a day earlier, and its lowest level since the Baltic Exchange began reporting this rate on March 1, 1999."

The decision to avoid the Suez Canal doesn't seem to have had much of an effect upon the price of shipping generally, as expressed by a chart of the Baltic Dry Index for the last month below:


11. The Associated Press reports that on Sunday Somalian pirates moved the Sirius Star 30 miles offshore Harardhere in a defensive move prompted by the promise Friday by Islamist fighters to free the ship--giving as cause its Islamic provenance. The promise was made by fighters claiming to represent al-Shabab, but yesterday the official spokesman for the group denied that they were part of the movement. "Al-Shabab had never attacked a pirated ship before, but militias linked to the Puntland administration in northern Somalia had twice intervened when pirates captured a ship with connections to Somali business interests."

12. David Osler at Lloyd's List reports that the pirate "mothership" destroyed by the Indian frigate may in fact have been a Thai fishing boat. The development has damaged Indo-Thai relations, with Bangkok summoning the Indian Ambassador for an explanation.

13. Tim Johnston at the Washington Post reports that Thai Army chief Anupong Paochinda told a news conference today that Prime Minister Somchai Wongsawat "'should dissolve parliament and call a snap election' as a way to end the crisis." He also called on protesters to disperse. Both refused. The article has a pretty good summary of the course of events and worth reading.

14. Li Yanping and Nipa Piboontanasawat at Bloomberg report that the People's Bank of China announced today it will reduce its benchmark lending rate tomorrow by 108 basis points (or 1.08%) to 5.58%. The deposit rate will also be reduced by 108 basis points to 2.52%. David Barboza at the New York Times reports that heavy industry in China is taking a serious hit.

15. Dorothy Kosich at Mineweb reports that the Soros, Citadel and Invesco hedge funds have recently taken large stakes in US coal mining operations. Investors apparently think coal is a good buy because it is used for power generation--which is less elastic than, say, transportation--and demand is growing. (It might face some substitution difficulties, though, especially from natural gas in the United States. China just made a major coal find.)

16. AP reports that the Commerce Department published data showing that new home sales fell 5.3% in October, the lowest level recorded since 1991. The median price of new homes sold fell by an annual rate of 7%. The Commerce Department also released data today indicating that consumer spending fell by 1% in October, per the Associated Press. Meanwhile, the AP also reports that the Labor Department announced that new jobless claims fell slightly from 543,000 to 529,000 (on a seasonally-adjusted basis). The number of people who continue to claim unemployment has also dropped from 4.02 million a week ago to 3.96 million.

17. Jane Black at the Washington Post reports that the number of Americans using food stamps looks likely to exceed the highest level ever seen. The Agricultural Department will release the data next week, but provided a basic sense of what to expect in a briefing last month.

18. The EIA's This Week in Petroleum announced that crude stocks grew by 7.3 million barrels(!) in the week ended November 21 and are nearing the top of the historical average. The Platts survey had analysts expecting a 400,000 barrel build. Gasoline stocks also grew by 1.9 million barrels, which is still at the bottom of the historical average, but well above the expectations of Wall Street of a 300,000 barrel build. Distillate stocks fell 200,000 barrels and are at the very bottom of the historical average. Analysts expected a draw of 900,000 barrels. Taken in isolation, this should be pretty bearish data. Taken in combination with a $30 full curve contango and it should be very bearish. But, so far, it looks like the market is mostly responding to the interest rate cut in China with a $4-5/b price rise.

19. Leslie Moore Mira at Platts reports that MasterCard Advisors published a survey on Tuesday which indicated that gasoline demand was up in the week ended November 21. Gasoline consumption still appears to be at 3% below the 2007 rate.