"Ms. Merkel told the conference that she would "react very strongly" if the financial community tried to block government efforts to tighten regulation. "We must not repeat the mistakes of the past," she said."Tony Blair, who was co-hosting the conference, called for "complete review of . . . global financial supervision."
2. Eurointelligence points out that when the Bank of England cut rates to 1.5%, it was to the lowest number seen in the history of the bank itself. That means in 315 years! The Bank of England was chartered in 1694.
3. Peter Hirschberg and Saud Abu Ramadan at Bloomberg report that Israel and Hamas have each rejected the terms of the cease fire ordered by the UN Security Council. The Security Council voted yesterday 14-0 for a resolution immediately demanding a cease fire. The US abstained. Hamas fired a set of rockets into Israel a few hours later.
4. Philip P. Pan at the Washington Post reports that Russia has agreed to begin supplying the Ukrainian natural gas pipeline network provided that supply is monitored by the EU.
"'Our impression is that the Ukrainian side fears that such a mechanism will be created, because we very well know that thefts of Russian gas did not start yesterday. This practice has continued for many years,' Gazprom chief executive Alexei Miler told reporters in the Black Sea resort of Sochi after meeting with his Ukrainian counterpart."Vladimir Putin responded to accusations about the crisis being the result of maneuvering inside middleman company RosUkrEnergo by acknowledging that Gazprom owns half of the organization, but stating that Moscow was unaware of who on the Ukrainian side owned the other half! Nick Comfort and Kateryna Choursina at Bloomberg report that the breakthrough came "talks in Brussels yesterday involving Miller, his counterpart at NAK Naftogaz Ukrainy, Oleh Dubina, and EU Energy Commissioner Andris Piebalgs." James Kanter and David Jolly at the New York Times warn that the deal is not a done deal quite yet--Ukraine has yet to sign the agreement.
5. Eric Watkins at the Oil & Gas Journal reports that the Medgaz consortium has completed the subsea pipeline connecting Algeria to Spain. Medgaz is comprised of Sonatrach 36%, Cepsa 20%, Iberola 20%, Endesa 12%; and GDF Suez 12%. The pipeline has a capacity of 8 billion cubic meters/year and should come onstream in mid-2009.
You can take a virtual tour of the submarine pipeline here. (Heh, I love this stuff.)
6. Platts reported that CNPC began filling its 6.29 million barrel crude oil reserve at Shanshan county in Xinjiang province December 22 a CNPC official indicated on January 7. The reserve is being filled with crude from the Tarim oil field and the 10 million mt/year (200,000 b/d) Sino-Kazakhstan pipeline.
"[China's] current SPR storage capacity of 19.7 million cubic meters, or 136 million barrels, is equivalent to around 42.5 days of the country's import demand, based on the November data.Below is a slightly outdated map of the Central Asian energy pipelines network. (By outdated, for example, China's "West-East Pipeline" was completed a few years ago if I remember correctly. The Russian pipeline to the Pacific would now follow a different route.)
The State Council said in 2007 that China should build up its SPR to an equivalent of 120 days' import demand.
The International Energy Agency in November 2006 suggested the equivalent to 90 days' import demand."
This map shows where the Tarim Basin is and the main route of the West-East Pipeline.
7. Brad Setser reports that Taiwan's exports in December were down 40% year over year and that South Korea's exports were down 17.4%. Taiwan's imports were down 45%; South Korea's fell by over 21%.
8. William Sim at Bloomberg reports that the Bank of Korea cut its benchmark lending rate by 0.5% to 2.5% today.
"The government said yesterday it will provide an additional 50 trillion won in loans and credit guarantees to small businesses.Meanwhile, Seyoon Kim and David Tweed report that the deputy finance minister, Shin Je Yoon, told the journalists that South Korea was seeking to increase the size of the $30 billion swap agreement with the Fed and extend the maturity.On October 29 the Fed established dollar swap lines with the Banco Central do Brasil, the Banco de Mexico, the Bank of Korea, and the Monetary Authority of Singapore (see Daily Sources 10/30 #4.)
It has allocated about 140 trillion won, or 15 percent of GDP, in tax cuts, extra spending and liquidity injections."
"The won has gained 12% since reaching its decade low versus the dollar on Nov. 21.9. Christian Schmollinger at Bloomberg reports that Saudi Aramco will cut shipments in contracts with refiners in Taiwan and Japan by 10%.
The US arrangement 'was a turning point' for the won, Shin said. 'The swap line showed that the US cares about the Korean market.'"
"'This shows that they are really serious since this, I think, actually puts them below their quota,' said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. 'As OPEC cuts back on their term, it means buyers will have to come back to the spot market.'"10. Vandana Hari, Pradeep Rajan and Sharmilpal Kaur at Platts report that the Indian union Oil Sector Officers Association have called off part of their strike. The rest are expected to follow suit shortly. The total refining capacity of IOC and BPCL is about 1.4 mb/d--India's total, after the commissioning of the new Jamnagar facility--is around 2.8 mb/d. My back of the envelope estimate is that the strike took a little less than 400 kb/d of capacity offline, or about 14% of total capacity, which, I believe, is substantially more than India's surplus refining capacity.
11. Gregory Viscusi at Bloomberg reports that the US Navy has told the media that it appears that a ransom has been paid for the Sirius Star supertanker and is about to be released. $3 million has allegedly been paid to the hijackers.
12. Dow Jones reports that Ecuadorian Mining and Oil Minister Derlis Palacios told the journalists that Quito is asking Tehran for a $280 million line of credit to invest in its oil infrastructure. The minister said the money was needed mostly for expanding the country's pipeline network and that he was confident that Iran would make it available to them. It certainly would be interesting if they did, but all signs point to Iran facing a budget crisis of its own given the low oil price environment and I am not sure how the administration would justify such an outlay to a country which had just defaulted on its debt to the Majlis.
13. Stephen Power at the Wall Street Journal reports that the Bush Administration is preparing to issue a final directive to federal agencies which would order them to determine how much of the Arctic Circle the US can claim sovereignty over.
"'The purpose of the Arctic policy is to recognize that the U.S. has important and strategic interests in the Arctic region,' [White House spokesman Gordon] Johndroe said. 'Many countries have been aggressively pursuing their interests in the Arctic . . . The US, as an Arctic nation, has competitive interests in the region, and we need to be a player there along with all the other arctic nations.'"The US Geological Survey estimates the Arctic Circle contains estimated 1,670 trillion cubic feet of natural gas and 90 billion barrels of oil.
At 2008 rates of consumption, 90 billion barrels of oil would last the US 12.3 years. It would meet the oil needs of the world for 2.9 years. Global proven reserves of natural gas stand at about 6,046 trillion cubic feet just now. Last year there were some international grumblings about Russian explorations and claims in the Arctic.
14. James Morgan at the BBC reports that Prof. David Battisti at the University of Washington and Prof. Rosamond Naylor, director of Stanford University's Program on Food Security and the Environment, have collaborated on a report published in Science Magazine which calculates "there is greater than 90% probability that by 2100, the average growing-season temperatures in the tropics and subtropics will be higher than any temperatures recorded there to date." Such higher temperatures in the tropics would cut yields on staple foods like maize and rice by 20 to 40%. 2100 is some time away, but, for example, record temperatures experienced in Europe during the Summer of 2003 cut the crop yields of France and Italy by one-third. Meanwhile the AP reports that the credit crunch will lower the rice yield in Asia as food prices fell, but the food was produced by previously high cost fuel and fertilizer, thus causing farmers to take a bath. Since they did not do well, they are looking for credit to plant new crops, but cannot find it, which should push up prices for rice given lower production. The Philippines has just lowered its rice production estimates by 4% for 2009 given the difficulty farmers are having in obtaining credit.
15. Sudeep Reddy reports that in absolute terms the unemployment report was the worst seen since WWII with employers cutting 524,000 jobs in December and the November job losses revised upwards to 584,000 from the 533,000 reported earlier. However, the Minneapolis Federal Reserve Bank has data showing that in relative terms jobs losses so far are considerably less than 1981, 1960, 1957, 1953, and, yes, 1948. (Man, I thought the 50s were full employment Beaver Cleaver days that everyone except for non-conformists yearn for! Sure doesn't look that way from those numbers.)
16. Barbara Sard at the Center on Budget and Policy Priorities published a report yesterday which argues that" the number of people in 'deep poverty'--with incomes below half of the poverty line--will rise by an estimated 4.5 – 6.3 million if unemployment reaches 9%," which is what Goldman Sachs has forecast for 2009. That would mean between 900,000 and 1.1 million families which would be put at housing risk and potentially made homeless. She cites data from a number of areas:
" * In July - November 2008, compared with the same period in 2007, the number of families entering New York City homeless shelters jumped by 40 percent.1.1 million families made homeless, if I understand correctly, would translate into an additional 3.5 million people made homeless, or 1.2% of the population. This would not be good for political stability. The full report is here.
* Massachusetts reports a 32 percent increase between November 2007 and November 2008 in the number of homeless families residing in state-supported emergency shelters.
* In Connecticut, family homeless shelters turned away 30 percent more families due to lack of bed space in September 2008 than in September 2007.
* Hennepin County, Minnesota (Minneapolis) reports a 20 percent increase between the first 10 months of 2008 and the comparable period in 2007 in the number of homeless families in emergency shelters.
* Los Angeles County reports a 12 percent increase between September 2007 and September 2008 in the number of families receiving welfare assistance who are known to be homeless."
17. Tara Siegel Bernard at the New York Times reported yesterday that average mortgage rates have fallen to 5.01% for the week ended January 8. That is down from a high of 6.7% over the Summer and 5.87% a year ago. "'Refinance activity continues to be strong, but purchase inquiries are relatively static,' said Cameron Findlay, chief economist at LendingTree."
18. Rebecca Wilder has a nice graph at her blog--News N Economics--illustrating monthly changes in vehicle miles driven versus the average price of gasoline:
Wilder cites a Gallup poll which indicates that 64% of Americans changed their driving habits in response to the high cost of gasoline. The poll also confirmed that people with lower incomes are more responsive to price changes:
" * 69% of Americans making < $30k/year drove less when gas prices were surging, while 19% drove more when gas prices fell.It is a piece worth reading in full.
* 56% of Americans earning > $75k/year drove less when gas prices were surging, while just 8% drove more when gas prices fell."
19. Liam Denning at the Wall Street Journal reports that people who want to get in on the oil contango profits might do so by purchasing tanker futures, and paper trades spiked 40% to WS63 yesterday. I'd be awful reluctant to do so given the demand numbers, however.