2. Jason Clenfield at Bloomberg writes that Richard Iley, an economist with BNP Paribas, published a report today which argues that "The scale of the global policy response -- monetary and fiscal -- should ensure the recovery [of the Asian economies] is more V than U-shaped." Iley forecasts that Asia, excluding Japan and China, will grow at a rate of 1.4% in 2008 followed by a rate of 4.1% in 2008. He forecasts that China grew by 9.3% in 2008, and will expand by 7.7% in 2009 and 8.1% in 2010.
3. The Oil & Gas Journal reports that Reliance, having started its 580 kb/d refinery in Jamnagar on December 25, is now synchronizing and initiating its secondary units. Reliance says it expects the refining complex to reach full capacity in due course, but will have a slow ramp up due to slow products demand. The Jamnagar refining complex is now the largest in the world with a total refining capacity of 1.24 mb/d.
4. Eric Watkins at the Oil & Gas Journal reports that PetroVietnam plans to sell a 49% stake in its Dung Quat refinery--Vietnam's first--scheduled to go online in February. "The Vietnamese firm, which plans to give preference to international partners committed to supplying oil to the refinery, is expected to begin talks with BP PLC next week." The refinery has a capacity of 130 kb/d and was thought to be set to run most of the Bach Ho crude stream (one of Vietnam's largest crude streams.) (see Daily Sources 12/24 #11)
5. Pamela Constable at the Washington Post reports that during his visit to Afghanistan yesterday Pakistani President Asif Ali Zardari the foreign ministers of the two countries signed an agreement to develop a "joint comprehensive strategy for combating terrorism." Zadari pledged to "closely cooperate" with Karzai in fight against militant non-state actors.
6. Christian Schmollinger at Bloomberg reports that refiners in Singapore and Taiwan told the media that the National Iranian Oil Company has informed them that it will reduce supply to them under long term contract by 14%. In and of itself this doesn't mean much, especially given that they could provide other volumes outside of the long term contract and we don't know the initial volumes. Further, Iran produced 232 kb/d more than its obligations under the November OPEC supply allocation cuts in December, and thus considerably more than its obligations under the December allocation cuts. That said, Alex Lawler at Reuters reported yesterday that a survey of oil companies the media company conducted indicated that OPEC-11 produced 27.36 mb/d in December, a bit more than the production allocations for November called for in the October 24 meeting in Vienna of 27.306 mb/d. The OPEC-11 supply target set on December 17 is for 24.845 mb/d, or roughly 2.52 mb/d less than the cartel produced in December.
7. Taghreed el-Khodary and Isabel Kershner at the New York Times reports that Israel pressed on with its operation in Gaza after allowing a brief respite for humanitarian aid to enter to region.
"In Paris, Mr. Sarkozy, who toured the region earlier this week in a diplomatic drive for a cease-fire, issued a statement welcoming what he called 'the acceptance by Israel and the Palestinian Authority' of a cease-fire plan put forward Tuesday evening by President Hosni Mubarak of Egypt in the resort of Sharm el-Sheikh."But, if I understand correctly, the Palestinian Authority is not exactly Hamas.
8. Benjamin Netanyahu has an op ed in the Wall Street Journal entitled "Militant Islam Threatens Us All: Hamas rockets have the same terror goal as Hitler's blitz."
9. Sabrina Tavernise at the New York Times reports that Azerbaijan has begun enforcing a law that bans foreign companies from broadcasting over the national FM frequency. This follows the news that the State Department made a statement on December 30 deploring Baku's decision not to renew the broadcasting licenses of RFE/RL, Voice of America, and the BBC. (see Daily Sources 12/31 #7) "Foreign companies are still permitted to broadcast on shortwaves, satellite and cable, according to Ali M. Hasanov, an official in Azerbaijan’s presidential administration."
10. Philip P. Pan at the Washington Post reports that shipments of natural gas via Ukraine came to a halt today, with Russia accusing Ukraine of shutting down the pipelines which supply Europe with 20% of its natural gas requirement and Ukraine accusing Russia of cutting off supply altogether.
"Chris Weafer, chief strategist at Uralsib, an investment bank in Moscow, said Europe needs to act as a mediator in the dispute because Russia and Ukraine 'have reached the point they're entrenched in their positions, and it is almost impossible for either side to back down.'"The FT had a nice graphic showing how dependent on Russian natural gas a variety of European countries are:
RIA Novosty reported today that Gazprom accused Ukraine of stealing more than 86 million cubic meters since the beginning of 2009. At $250/tcm that would come to $2.15 million--not exactly big numbers in the natural gas business, but substantial. Gazprom has sought to assure Europe that they are available for negotiations with Ukraine, but that Kiev does not appear to be willing.
Kateryna Choursina and Lyubov Pronina at Bloomberg report that Gazprom CEO Alexei Miller said yesterday:
"'If Ukraine fully stops delivery of gas to the west, for consumers in central and western Europe, we do not see sense in supplying gas to the border with Ukraine' ... . Miller said Gazprom would hold talks with European partners in Brussels tomorrow."Meanwhile, Isabel Gorst, Roman Olearchyk, Delphine Strauss and Chris Bryant at the Financial Times report that Oleg Dubyna, chairman of Naftogaz, told reporters that he had spoken to Miller and would be flying to Moscow for talks tomorrow, January 8.
"Brussels on Tuesday called for the immediate resumption of gas supplies to Europe and urged the two sides to resume talks immediately. 'Without prior warning and in clear contradiction with the reassurances given by the highest Russian and Ukrainian authorities to the European Union, gas supplies to some EU member states have been substantially cut,' the EU said in a statement."The German economics minister, Michael Glos, urged the two sides to resume talks on Tuesday, emphasizing that both nations' commercial reputation was being undermined by the debacle. Meanwhile, Platts reports that Stephen Hadley, the US National Security Adviser, said in prepared remarks at the CSIS today "A Russia that continues to threaten its neighbors and manipulate their access to energy will compromise any aspirations for greater global influence."
12. Farangis Najibullah at RFE/RL reports that beginning January 1, Uzbekistan began charging its neighbors Kyrgyzstan and Tajikistan $240 per thousand cubic meters (tcm) of natural gas, up from last year's price of $145/tcm. ($240/tcm roughly corresponds to $6.80/MMBtu or $39.43/b on a Btu basis; $145/tcm ~ $4.12/MMBtu ~ $23.82/b on a Btu basis.) Gazprom, which already takes much of Uzbekistan's natural gas output, reportedly has agreed to pay more than $300/tcm for Uzbeki gas in 2009 (~$8.50/MMBtu ~ $49.29/b on a Btu basis.) "LUKoil has said it would invest $5.5 billion in gas projects in Uzbekistan by 2015."
13. Eurointelligence reports that FT Deutschland has the story that Angela Merkel has a plan to set up a €100 billion (~$134.9 billion) fund to ensure that German industrial groups will have access to credit.
14. Edward Hugh at Fistful of Dollars has a detailed survey of the situation facing the Spanish economy, which he argues is in a serious downturn, not just a housing slump.
"So my argument is that the disinflation which is being produced by the negative energy price shock, in the context of very, very weak internal demand could in fact produce a negative feedback cycle of price reductions which extend well beyond food and energy."Long, but worth reading if you have the time.
15. Bob Willis at Bloomberg reports that ADP Employer Services released a report today suggesting that 693,000 people were cut from employer payrolls in December. "The ADP report is based on data from about 400,000 businesses with approximately 24 million workers on payrolls." Meanwhile, WTVN Ohio reported yesterday that the state Department of Job and Family Services is being overwhelmed by people seeking information about unemployment benefits.
"Spokesman Brian Harter said Tuesday the section of the state's web site that enables people to make claims online is down.New York and North Carolina are reportedly experiencing similar difficulties.
Harter said the telephone hot line generally receives about 7,500 calls a day, but has been getting about 80,000 each of the past two days."
16. Bob Lawless at Credit Slips reports that the number of chapter 11 petitions rose 61.5% in 2008 year over year, outpacing the total number of bankruptcy cases which rose at an annual rate of 32%. (In the comments, Lawless argues that about 1 in 5 chapter 11s are filed by individuals, most of whom he suspects are there because of business-related problems.) (h/t Yves Smith)
17. Kerry E. Grace at Real Time Economics reports that the latest Fitch Ratings Credit Card Index has charge off rising in December to 6.8%, nearly one-third higher than in 2007. Fitch expects the rate to hit 8% in 2009. (If I understand correctly, charge offs are credit card debts that the credit card company has written off as bad loans.) Given that US GDP is 70% comprised of consumer spending, a full one third rise in credit card debt default by consumers would seem to be very bad news, indeed.
18. In another bad indicator for the world economy, Julie Creswell at the New York Times reports that Alcoa, one of the world's largest aluminum smelters, plans to eliminate 13% of its employees, or 13,500 jobs, and cut output by 18% in 2009. Aluminum demand has crashed, most significantly in the automotive and consumer sectors. Klaus Kleinfeld, CEO and President, estimated in a conference call with analysts October that one-third of the world's aluminum capacity was "under water" and that "one half" of the industry was losing money at the current market price.
19. The Oil & Gas Journal reports that ExxonMobil is planning to spend $1 billion on three refineries to expand their total capacity to produce ultra low sulfur diesel (less than 15 ppm sulfur) by 6 million gallons per day (142.9 kb/d). "The company is adding new units and modifying existing facilities at its 567 kb/d Baytown, Tex.; 503 kb/d Baton Rouge; and 305 kb/d Antwerp, Belgium, refineries." The modifications and additions are expected to be complete by the end of 2010 and are clearly targeted to the European diesel market.
20. Eileen O'Grady at Reuters reports that T. Boone Pickens told a gathering at Rice University that oil prices will return to $100/b by the end of 2010 in response to a global economic recovery. He also said that oil prices in the $40/b range are "not going to be around much longer." He argues that if the US continues to rely on foreign sources for 70% of its oil requirement, then prices could reach $200-300/b in another 10 years.
21. Justin Fox at the Curious Capitalist has further anecdotal evidence that lower gasoline prices has bolstered the sales of SUVs and pickup trucks, especially pick up trucks. Also some evidence that the potential bankruptcy of the car companies doesn't appear to be deterring potential customers, though it's hard to say.
22. Matthew L. Wald at the New York Times reported yesterday that Continental today will test fly a Boeing 737 on jet fuel manufactured from algae and jatropha oil. (Jatropha is a fruit bearing tree that is the basis of much of India's biofuels production plans.)
"Air New Zealand flew a four-engine Boeing 747 last week with one engine on a 50 percent biofuel mix, and Japan Airlines will do the same in a few weeks as part of a series of tests including the flight on Wednesday."The flight will last for two hours and start and end in Houston.
"The three test flights involved several airlines; the Boeing Company; three engine makers, Pratt & Whitney, Rolls Royce and General Electric; and the fuel maker, UOP, a subsidiary of Honeywell. The companies will use the data to try to get the fuel certified as a drop-in replacement, meaning no changes would be needed to engines or other plane parts, or to the fueling infrastructure at the airports."23. Alaric Nightingale at Bloomberg reports that Jens Martin Jensen of Frontline told her in a telephone interview that there are inquiries from oil traders for the charter of 5 to 10 very large crude carriers for storage purposes. VLCCs have a capacity of about two million barrels. There are already approximately 25 VLCCs being chartered for storage purposes, an additional ten charters would bring the potential amount of crude stored at sea to about 70 million barrels, or 82.4% of daily global oil consumption (assuming 85 mb/d). 35 supertankers would represent 7% of the world's VLCC fleet. "A supertanker would cost about 90 cents a barrel a month for storage depending on the length of the rental, according to data last month from shipbroker Galbraith’s Ltd." Traders would be renting the ships to capture profits from the giant contango of 2008. (see my post on The Giant Contango of 2008.) Using yesterday's closing price, the cost of crude for delivery three months out beyond crude for delivery next month is $8.21/b. Thus if you purchase now and store for four months, you would be locking in a profit of $4.61/b, two million barrels of that profit is $9.2 million. The contract to delivery oil a year out is $15.12/b more expensive than the contract for front month delivery. Generally this would put upward pressure on the near month contract as there is extra demand and downward pressure on later delivery month contracts as there is less. But storage tanks are nearly full everywhere, which means there is little physical capacity to store which has limited the upward pressure on price.
24. The EIA's This Week in Petroleum reported that for the week ended January 2 crude oil stocks grew by a whopping 6.7 million barrels to 325.4 million barrels, well above the historical range for this time of year. Analysts expected stocks to rise by 800 kb on average, according to a survey by Bloomberg. Gasoline stocks grew by 3.3 million barrels to 211.4 million barrels and are in the middle of the historical range. Bloomberg's survey showed that analysts had expected a one million barrel build. Distillate stocks grew by 1.8 million barrels to 137.8 million barrels, near the top of the historical range. Analysts had expected a build of 1.1 million barrels. Taken in isolation this news should put strong downward pressure on price, and at the time of my writing CL was trading at $43.30/b, down $5.28/b or 10.9% on yesterday's close.