Daily Sources 6/30

1. CHINA'S NDRC HEAD OF METALS SAYS STOCKPILING OVER, DEPENDENCE ON FOREIGN OIL EXCEEDED US DEPENDENCE (PERCENTAGE-WISE) IN MAY

John Garnaut at the Sydney Morning Herald reports that Yu Dongming, the head of the metallurgical department of the National Development and Reform Commission, told the paper that "We don't anticipate that the country will continue to build its reserves." Zhang Bin, an economist at the Chinese Academy of Social Sciences, told the Herald that

"The commission is acting to reduce pressure on commodities prices and discourage over-production in heavy industry, including guiding steel production and reducing the building of excess capacity. Too much increase in inventories of commodities is not a good thing because the economy is still not that strong and cannot consume this level of imports of iron ore and coal."

(h/t Yves Smith at naked capitalism.) In a related piece, Steve Ladurantaye at the Toronto Globe and Mail reports that Bank of Nova Scotia commodity market specialist Patricia Mohr noted in its monthly report yesterday that the share of oil consumed by China coming from external sources surpassed the dependence on foreign oil of the US in May.

"China relied on imports for 57% of its petroleum production in May while the US imported 55% of its needs. ... China imported 4.3 mb/d, while consuming 7.6 mb/d. The US imported 9.9 mb/d, and consumed 18.2 mb/d."

May may well have been an extraordinary month, given that Chinese consumption rose by nearly 6% and oil imports grew by 3.5% from a year previous--a strong deviation from trend. And given noise from the government that the current bate of commodity stockpiling has come to a close, the June 1 announcement by the head of the National Energy Administration which seemed to say that Chinese storage was full, and the raise in prices for gasoline and diesel of 11% this weekend, Chinese demand may be about to take a big dive. We'll see. (h/t Leanan's Drum Beat at the Oil Drum.)

2. GERMAN HIGH COURT OKS LISBON TREATY PROVIDED LAW STRENGTHENING PARLIAMENT'S ABILITY TO IMPLEMENT EUROPEAN LAWS IS PASSED

Der Spiegel reports that the German high court--the Federal Constitutional Court--has ruled that the Lisbon Treaty is not fundamentally at odds with the Constitution, but that the Parliament must pass legislation strengthening its own involvement in the implementation of European law in order for the ratification process to proceed.

"Although the German parliament voted in favor of the treaty last year, a number of members from across the political spectrum petitioned the Constitutional Court to reject the treaty. While most are from the far-left Left Party, Peter Gauweiler, a member of Bavaria's Christian Social Union--the sister party to Chancellor Angela Merkel's Christian Democratic Party--led the challenge. He argued that the Lisbon Treaty would enable the EU to circumvent national parliaments and thus undermine Germany sovereignty.

President Horst Köhler had refused to sign the treaty until after the Karlsruhe court had made its ruling. The parliament will now be under pressure to rapidly bring in new legislation so that the ratification process can continue. The Lisbon Treaty is supposed to be implemented by the beginning of 2010 at the latest. [Andreas] Vosskuhle [the court's presiding judge] said on Tuesday that he was sure that the 'last hurdles' would soon be overcome. The German parliament is to gather for a special sitting on August 26 for a first reading of the new law, a spokesperson for the Social Democrats parliamentary party announced on Tuesday. The vote in the lower house would then take place on Sept. 8, just weeks before Germany's national election."

3. UK GDP FALLS 2.4% IN Q1, MORE THAN PREVIOUSLY ESTIMATED

Svenja O’Donnell at Bloomberg reports that revised figures show UK GDP fell by 2.4% in the first quarter from the fourth quarter of 2008. The Office for National Statistics' prior estimate had been of a 1.9% decline.

"The UK’s GDP will probably fall 4.3% this year, the Organization for Economic Cooperation and Development said in a June 24 report. That compares with a 4.8% drop in the euro area and a 2.8% decline in the US."

4. TURKISH GDP FELL 13.8% IN Q1

Steve Bryant at Bloomberg reports that the Turkish state statistics office published data today showing first quarter GDP falling by 13.8% from a year previous. First quarter GDP fell by 6.2% from the fourth quarter. Exports fell 26% in the first quarter from a year previous. Industrial production fell by 22% in the first quarter from Q1 2008. Unemployment rose to 16.1%.

"The slump in output is adding to pressure on Prime Minister Recep Tayyip Erdogan to accept assistance from the International Monetary Fund, just as Turkey did during the last crisis in 2001. To date, Erdogan has resisted a loan accord with the IMF, opting instead to expand the budget deficit to fund tax cuts and incentives designed to preserve jobs."

4. US TROOPS LEAVE IRAQI CITIES

Ernesto Londoño at the Washington Post reports that US troops left the major metropolitan areas in Iraq, returning responsibility for security to Iraqi forces. More than 130,000 troops remain in the country, but the US has closed or returned to local control 120 bases and facilities, with plans to formally transfer control for another 30 today.

"The government staged a military parade to mark 'National Sovereignty Day,' and Prime Minister Nouri al-Maliki made a triumphant, nationally televised address.

"This day, which we consider a national celebration, is an achievement made by all Iraqis," said Maliki, speaking before the explosion at a market in Kirkuk, which damaged at least 30 shops."

Iraqi Interior Minister Jawad al Bolani has an opinion piece in the Washington Post in which he enumerates the problems the country will face going forward, in "the beginning of a highly uncertain chapter in Iraqi democracy and self-governance." Key excerpt:

"Looking beyond the policing and anti-corruption efforts, ordinary Iraqis will perhaps have the strongest say yet in how their future takes hold. We are already looking well past June 30 to Jan. 30, 2010, the date of our next national elections. Many parties, including my own, will field candidates. But this democratic process is not an end in itself. The mere act of voting does not secure our democracy, for it can easily fall into the hands of separatist or foreign-controlled parties. Each successive election here has been a tug of war for our national survival; perhaps none will be more momentous than 2010."

5. IRAQI OIL AUCTION HITS SOME SNAGS--CHINA NOT FROZEN OUT YET

Carola Hoyos at FT Energy Source reports on the outcome of the auction of rights to develop Iraqi oil and gas fields today.

"BP and CNPC have won the right to help Iraq develop the Rumaila field. The UK and Chinese companies beat ExxonMobil, the US oil company, which had partnered with Petronas, the Malaysian oil company. BP clinched the contract when it agreed to reduce its fee per barrel from $3.99 to $2.
...
The Mansuriyah gas field got no bids.

There were four bids from different consortia for the Zubair oilfield. But in the end the winning bidder rejected the terms on which Iraq was insisting and the field went unawarded. The groups that had initially bid were BP , together with CNPC; India’s ONGC with Gazprom Russia and Turkish Petroleum Corp. The third was headed by Italy’s ENI, with China’s Sinopec, Occidental and Korean Gas; and the fourth was led by Exxon Mobil, with Royal Dutch Shell and Petronas.

The Maysan field failed to find a developer as Iraq and the single consortium that bid (Cnooc and Sinochem) could not agree the terms.

The Kirkuk field got one bid by a group led by Royal Dutch Shell and including Sinopec and the Turkish Petroleum Corp.

The Bai Hassan failed to find a developer as Iraq and the ConocoPhillips-led consortium that bid on it failed to agree terms.

The West Qurna field got five bids, but its future hangs in the balance after ExxonMobil and CNPC both rejected Iraq’s tougher terms.

The Akkas gas field got one bid from a group led by Edison.

The the group led by Cnooc, the Chinese oil company, that bid on the Missan oil field, ended up rejecting Iraq’s tougher terms."

The report yesterday at Platts that winners will not be "announced" may mean that the ratification process leaves room for those who have lost bids to lobby. So far the decision by Sinopec to make an offer on Addax does not appear to have affected the ability of Chinese companies to secure concessions with Baghdad.

6. CHINA EXTENDS $950 M TO ZIMBABWE

The BBC reports that Prime Minister Morgan Tsvangirai told the media that "The government through the minister of finance, secured credit lines of almost $950m from China."

"'We will encourage and facilitate more Chinese companies to seek development in Zimbabwe,' Chinese official Zhou Yongkang told state news agency Xinhua."

I am increasingly becoming convinced that Chinese international loan agreements are mostly headlines, with the actual flow of finances tending to be much smaller.

7. US SUPREME CT SAYS ECUADOR IS NOT REQUIRED TO SUBMIT DISPUTE TO ARBITRATION

Gerald Karey at Platts reports that the US Supreme Court has declined to overrule a lower court ruling which rejected Chevron's claim that the joint operating agreement under which they operated in Ecuador required any dispute to be resolved via arbitration before the American Arbitration Association. In the meantime, Chevron

"is awaiting a ruling by a judge in Ecuador in a lawsuit seeking damages for Amazon residents for what could be upward of $27 billion. A judgment is expected later this year.

The Ecuador suit alleges that Texaco (later acquired by Chevron) dumped billions of gallons of toxic waste in the Ecuadorean rain forest from 1964 to 1990. Chevron has argued that Petroecuador should pay a share of any damages award. Petroecuador partnered with Texaco from 1974 to 1992, when the state-owned company took over sole operations."

8. FAO SAYS 1 BILLION GLOBALLY UNDERNOURISHED

On June 19, the AFP reported that the FAO released figures showing that one billion people globally are undernourished.

"[Jacques] Diouf [FAO chief] said in a statement earlier: 'A dangerous mix of the global economic slowdown combined with stubbornly high food prices in many countries has pushed some 100 million more people than last year into chronic hunger and poverty.'

An FAO statement said 1.02 billion people do not get enough to eat and predicted an 11 percent increase for all of 2009.

An estimated 642 million of the total are in the Asia-Pacific region, the agency said in a statement. Some 265 million are in sub-Saharan Africa, 53 million in Latin America and the Caribbean and 52 million in the Middle East and north Africa.

Some 15 million are hungry in developed countries, the FAO said."

(h/t Charles Kenny at Fistful of Euros.)

9. BIS CALLS FOR SWEEPING REFORMS TO FINANCIAL REGULATION

Chris Giles at the Financial Times yesterday reported that the Bank for International Settlements [BIS]--an international organization of 55 central banks--published its annual report calling for sweeping financial regulation reforms.

"It advocated big reforms to markets to limit bilateral trading between banks and instead introduce central counter parties, with trading on regulated exchanges.

It said institutions, particularly banks which posed a risk to the financial system, should also be subject to higher requirements to hold bigger buffers of capital against a future crisis. The authorities should strive to increase those buffers in good times.

It also recommended 'a scheme analogous to the hierarchy controlling the availability of pharmaceuticals', with a sliding scale topped by the safest products available for everyone to purchase, and tailed by financial instruments deemed illegal."

10. CASE SHILLER APRIL INDEX HOME PRICES DOWN 18% YOY, INITIAL CLAIMS DATA MAY MEAN JOB LOSSES HAVE PEAKED--UNEMPLOYMENT INSURANCE EXHAUSTION'S EFFECT ON CONSUMPTION MAY HAVE BEEN OVERSTATED

Barry Ritholtz at the Big Picture reports that the Case Shiller index showed home prices continuing to decline in April--18% year over year--but at a slower rate than in March.



Rebecca Wilder at News N Economics argues that if you take the four week moving average of initial unemployment claims, it looks likely that job losses are likely to slow from now on.

"Robert Gordon ([in an] Econbrowser post from April 2009) noticed a pattern that is quite evident in the chart [below]: for each recession, the 4-week moving average is a good predictor of the recession's end. We will see if that happens this time."

Wilder further notes that once unemployment claims peak, they tend to fall sharply. She also puts the kibosh on the notion that exhausted claims means that the fall in continuing claims is simply an indicator of people falling off unemployment losing all support for basic necessities. She notes that there are a number of additional unemployment programs not included in the basic state numbers--and

"By including the number of people that are collecting benefits under the [Emergency Benefits] EB and [Emergency Unemployment Compensation] EUC-2008 programs, the total stock of claimants tallies closer to 9 million rather than the 6.1 million (not seasonally adjusted) claiming under the regular program."

Worth reading in full.

11. STATES ONLY ALLOT 0.9% OF STIMULUS FUNDS FOR TRANSPORTATION TO PUBLIC TRANSPORTATION AND OTHER GREEN TRANSPORTATION INFRASTRUCTURE--THE REST GOES TO ROADS

Ana Campoy at Environmental Capital reports that the American Recovery and Reinvestment Act of 2009, which appropriated stimulus money to jump start transportation projects, is being used almost exclusively to fund highway and road construction and repair, per a report released Monday by Smart Growth America--a green transportation advocacy organization.

"Instead of pouring the money into new, cleaner ways of getting around, such as street cars or bike paths, many states fell back on their old habits: more than 30% of the funds are going towards building new roads. Another 63% will be used to fix the nation’s decrepit transportation infrastructure. In contrast, states are only spending 0.9% of the stimulus money on public transportation projects."

Worth reading in full.

Daily Sources 6/29

1. IEA REVISES GLOBAL OIL DEMAND DOWN TO AN AVERAGE ANNUAL RATE OF 0.6% FROM 2008-14

Carola Hoyos at the Financial Times reports that the IEA has cut its forecast for incremental global oil demand from 2008-14 to an average annual rate of 0.6% or 540 kb/d, bring total consumption to 89 mb/d from 85.8 mb/d.

"This latest forecast is 3.3 mb/d lower than the previous forecast for 2013 volumes. If the agency’s most pessimistic economic scenario proves correct, oil demand could contract, with consumption falling to 84.9 mb/d by 2014, it said in a report."

Managing Director Nobuo Tanaka suggested that the current environment makes forecasting especially difficult and noted that the data on which the forecast was made, for April, is already old.

2. JAPANESE LNG IMPORTS DOWN 19.6% IN MAY FROM APRIL, BUT INDUSTRIAL PRODUCTION UP 5.9% IN MAY FROM APRIL--BOTH ARE DOWN 18.8% AND 30% FROM MAY 2008, RESPECTIVELY

Jonty Rushforth at Platts reports that Japan imported 4.24 million metric tons of LNG in May, down 18.8% from May 2008 and "19.6% from April, when Japan imported 5.27 million metric tons." (The Platts story includes a table of imports by source, month over month and year over year.) It is interesting in the context of the report released Sunday by the Ministry of Economy Trade and Industry (METI) which showed industrial production up 5.9% in May from April, though still down 30% year over year, as per Jake at Econopix. Their chart:



There has evidently been a rebound in production of passenger cars, which account for about 8.5% of the industrial production index. Worth a look.

3. NDRC RAISES GUIDELINE PRICES ON DIESEL & GASOLINE (SLIGHTLY LESS IN THE SOUTH)

Bloomberg reports that the National Development and Reform Commission announced yesterday that it will raise the price of diesel and gasoline today by as much as 11%. Prices for both will be lifted by 600 renminbi a metric ton ($87.80 or roughly $11.71/b ~ $0.28/gallon).

"Today’s price increases will vary by city and region, according to the NDRC’s statement.

In Beijing, the new ceiling price per ton for the retail grade of gasoline that meets euro III standards, known as 90 octane, will be 7930 yuan a ton (~$1,162/ton ~ $136.71/b ~ $3.26/gallon), while the ceiling price in southern Guangdong province is set at 7795 yuan (~1,142/ton ~ $134.38/b ~ $3.20/gallon)."

Guangdong is the center of economic growth in China, if I understand correctly. The NDRC is raising prices in part due to the surge in demand for cars, driven by the stimulus program.

4. PBOC GOVERNOR SAYS CHINESE RESERVE POLICY WILL NOT CHANGE SUDDENLY

Stephanie Phang at Bloomberg reports that People’s Bank of China Governor Zhou Xiaochuan told journalists today that "Our foreign-exchange reserve policy is always quite stable. There are not any sudden changes." This follows the release of the bank's review on Friday, which appeared to reiterate formally the call for an alternative to the dollar--see Daily Sources 6/26 #1. Yves Smith at naked capitalism comments:

"This certainly looks like a retreat, although Zhou may simply be clarifying the difference between long term policies and immediate plans. But that still begs the question of when and how the transition between the two comes into play.

The tension may also reflect the need to posture aggressively before a domestic audience without unduly rattling markets. But it may also result from the need to appease certain interests within the government. A New York Times article last year explained that as the central bank took foreign exchange losses as the RMB rose, it may have to go hat in hand to the finance ministry, which opposes many of the central bank's policies, particularly on the dollar ...."

5. CHINA PASSES NEW STATISTICS LAW

Andrew Batson at China Journal reports that on Saturday China passed a new law to take effect next year which will stiffen penalties for falsifying social and economic data.

"Recently, officials of the National Bureau of Statistics have become more forthcoming about deficiencies in their data, and have also started publishing a more detailed accounting of economic growth. And this year’s economic census, a quinquennial attempt to obtain basic information on every company of economic significance in the nation, is the centerpiece of the bureau’s effort to build up more accurate figures through the use modern survey techniques."

Batson quotes some examples of the misreporting the government is trying to eradicate:

"* In 2001, a township government in Liaoning province in 2001 instructed the villages it oversees to report quarterly economic indicators that were precisely one-fourth of the annual target, to ensure that the target was met.

* In one town near Ningbo, Zhejiang province, a party secretary reported a total industrial output of 463 million yuan in 2001, which was later determined to be 76% more than the actual figure.

* The leaders of one town near Chongqing in 2004 altered the statistical reports of local companies they sent to higher authorities, in one case changing output of 5 million yuan to 8 million yuan, and in another adding a zero to make output of 3 million yuan into 30 million yuan.

* Over-reporting is not confined to eager officials: one company in Wenzhou, Zhejiang province reported output of 32.15 million yuan in 2003, which was then discovered to exceed the actual figure by 71%."

The post includes a number of links to sources--worth a look.

6. NATO & RUSSIA RESUME OFFICIAL TIES; RUSSIA STARTS WARGAMES IN THE CAUCASUS, A FEW WEEKS AFTER NATO WARGAMES IN GEORGIA

The Associated Press reports that NATO and Russia have resumed ties after NATO suspended them in reaction to the Georgia conflict.

"Russian Foreign Minister Sergei Lavrov met his counterparts from NATO's 28 member nations on the western Greek island of Corfu ahead of a broader informal meeting of ministers from the 56-nation Organization for Security and Cooperation in Europe.

Mr. Scheffer described the talks as 'open and constructive, which means we did not try to paper over our differences on Georgia, for example. But we agreed not to allow those agreements to bring the [NATO-Russia Council] to a halt.'

He said the renewed military contacts would involve meetings of the chiefs of staff of Russia and NATO countries.

The meeting in Corfu, which came as President Barack Obama and Russian President Dmitry Medvedev prepare to hold a summit next week, reflected the trend toward improved relations with Russia."

Meanwhile, Michael Schwirtz at the New York Times reports that Russia has begun war games using 8,500 troops from all branches of the armed services in the Caucasus region.

"The event is also occurring a few weeks after NATO concluded its own exercises in Georgia, drawing complaints from the Russians.

'The Russian exercises, given the timing, are a definitive response,' said Dmitri O. Rogozin, Russia’s envoy to NATO, Interfax reported. 'We are conducting them to ensure the defensive capabilities of Russia in those areas where we see threats.'

Georgia on Monday expressed worry about Russian exercises so close to its borders.

'These exercises are a source of concern because they involve an unprecedented number of servicemen and the newest military hardware of Russia,' said Alexander Nalbandov, Georgia’s deputy foreign minister, Interfax reported. 'We hope that the events of last August, when the Russian army invaded Georgia and occupied its lands, will not repeat.'"

7. GAZPROM SEALS PURCHASE OF 500 MILLION CU M OF NAT GAS FROM AZERBAIJAN IN 2010, SAYS IT WILL RECEIVE PREFERENTIAL TREATMENT ON SHAH DENIZ GAS

Lyubov Pronina and Lucian Kim at Bloomberg report that Russian President Medvedev sealed a deal in Baku today for Gazprom to purchase 500 million cubic meters of natural gas from Azerbaijan next year.

"Gazprom will get priority treatment when the State Oil Co. of Azerbaijan determines the buyers for the [Shah Deniz] offshore field, said Alexei Miller, chief executive officer of the Russian company. Azerbaijan’s gas production will rise 11% to 30 billion cubic meters next year, Aliyev said."

Shah Deniz is a key source of potential supply for the Nabucco pipeline project--the alternative possibility of sourcing from Iran looks particularly politically difficult at the moment.



This follows the news Friday that former German foreign minister Joschka Fischer has been signed on as a consultant to Nabucco--see Daily Sources 6/26 #3.

8. INDIAN REFINERS RUN 2.4% MORE CRUDE IN APRIL, DOWN 4.3% FROM MAY 2008

Vandana Hari at Platts reports that Indian refiners ran 12.77 million metric tons (~3.02 mb/d) of crude in May, up about 2.4% from April, but down 4.3% from May 2008.

"The utilization rate against the country's total installed refining capacity was 102.5% in May, versus 107.1% a year ago.

Between January and May, Indian refiners have run around 65.57 million metric tons of crude, roughly 1.5% lower from a year ago. The trend contrasts with a 3.6% year-on-year increase in 2008 crude throughput over 2007."

Reliance started operating the Jamnagar addition of 500 kb/d capacity on Christmas--see Daily Sources 1/7 #3.

9. IRAQI VP TO BOYCOTT TUESDAY AUCTION, OIL EXPORTS UP 80 KB/D IN MAY (THE ADDT'L OIL CAME FROM THE NORTH), AND THE CABINET WILL NOW DELAY RATIFICATION OF THE OIL AUCTIONS TOMORROW INDEFINITELY

Ahmed Rasheed at Reuters reports that Iraqi Vice President Tareq al-Hashemi has announced on his website that he will boycott the auction on Tuesday to award concessions for eight oil and gas fields.

"'There are many existing reservations over this vital issue concerning Iraq's oil resources,' Hashemi said in a letter, posted on his website, to Oil Minister Hussain al-Shahristani.

He urged the minister to 'hold off on awarding bids to the winning companies and give parliament enough time to study these bids,' said the letter, released by Hashemi's office."

Ben Lando at the Iraq Oil Report notes that Iraqi oil exports grew to 1.9 mb/d in May from 1.823 million in April.

"In the south, where most of Iraq’s production and exports are located, May was a down month, exporting only 1.38 mb/d compared to 1.413 mb/d in April. In the north, however, exports increased to 522.6 kb/d from 410 kb/d in April."

Meanwhile, Faleh al-Khayat at Platts reports that the oil ministry said today that it will not announce the winners of the auction tomorrow, and instead only provide the names of the bidders and a score card of their bidding parameters.

"The cabinet may refer the contracts for approval by the parliament if it
deems this as necessary, marking another new element in the process.

As a result, the August 15 deadline for contract ratification by the council of ministers has been pushed back indefinitely, senior sources close to the licensing department said.

'The winner will not be declared by the score of each bidder and the name of the bidder will be declared,' said one source.

The formula to determine the winning bid has also been changed whereby the ministry will give more weight to the incremental production rather than the remuneration fee submitted by each of the bidding companies, the sources said."

10. ISLAMIC EMIRATE OF AFGHANISTAN THINKS OBAMA IS A BIGGER THREAT TO THE JIHADIST MOVEMENT THAN BUSH

Thomas Hegghammer at jihadica reports that the main story of the July issue of the Arabic-language magazine of the Islamic Emirate of Afghanistan argues that the Obama administration is more dangerous to al-Qaeda than the Bush administration was. The primary reason is that Bush, through foolhardy policies, did much to undermine American power, in language the Obama administration has already disavowed. However, the writer argues that the policies, in effect, will not change. I couldn't agree more insofar as the writer believes that Obama will work to protect the national interest of the US, something that the Bush administration seemed to abandon. (The president's ability to wield soft power is generally more unbounded than hard power--I suggested, as did others, that Obama's credibility advantage will present the largest challenge to our enemies in a piece in March 2008:The Geopolitical Consequences of the Candidates.) Hegghammer's post is worth reading in full.

11. ISRAEL NOT TO PURCHASE LCS'S FROM LOCKHEED MARTIN

Galrahn at Information Dissemination reports that Israel has decided not to go ahead with plans to purchase a number of Lockheed Martin's Littoral Combat Ship (or LCS). Galrahn notes:

"The interesting part of this story isn't necessarily that Israel doesn't want to buy the LCS anymore, and that is a big deal. The interesting thing is that the US would fund the LCS, but not the MEKO [built by the Hamburg-based ThyssenKrupp Marine Systems (TKMS)], through FMS [the Financial Management Service bureau of the Treasury] grant money. By choosing to buy the MEKO, Israel will try to fudge the system and get some of the parts paid for by buying US, with US funding."

12. FAO POLICY BRIEF ON INTERNATIONAL INVESTMENTS IN THE AGRICULTURAL SECTOR IN AFRICA SUGGESTS CONCERN A LITTLE OVERPLAYED

Denis Drechsler and David Hallam at VoxEU argue that concern regarding foreign acquisition of African farmlands is somewhat misplaced. They note that official development assistance going to agriculture has been on a downward trend since 1995:



Key findings:

"* Investments have increased
* Deals seek access to resources, not markets
* Main form of investment: land purchase or long-term lease
* Share of total land assets owned by foreigners is small
* Major investors: Gulf States, China, Republic of Korea
* Main target region: Africa
* Investors: mostly private sector, but governments involved
* Investment partners in host countries: mainly governments
* New focus: production of basic foods and animal feed"

Worth a look.

13. HONDURAN PRESIDENT OUSTED BY MILITARY, HONDURAN SUPREME COURT AND CONGRESS SUPPORT THE MOVE, THE REST OF THE WORLD EXPRESSES CONCERN

William Booth and Juan Forero at the Washington Post report that soldiers forcibly removed President Manuel Zelaya from the Honduran presidential palace yesterday and put him on a plane to Costa Rica.

"Zelaya was removed from office as Hondurans prepared to vote Sunday in a nonbinding referendum asking them whether they would support a constituent assembly to rewrite the constitution. Zelaya's critics said he wanted to use the referendum to open the door to reelection after his term ends in January 2010, an assertion that he denied.

The referendum--which US officials described as more of a 'survey' than a true vote--was condemned by broad swaths of Honduran society as an obvious power grab. The Honduran Supreme Court called the referendum unconstitutional, and leaders of Zelaya's own party denounced the measure."

Both the Honduran National Congress and the Supreme Court voiced support for the move by the military to oust Zeyala. The Honduran military broke off contact with the US following the coup. (The Post article is worth reading in full.) Condemnation of the move was widespread, coming from the OAS to Venezuela to Cuba to the US.

15. CANADA PASSES SUBSIDY FOR PAPER SECTOR IN RESPONSE TO (ALTERNATIVE FUELS) SUBSIDY FOR US PAPER SECTOR

The Wall Street Journal's editorial board notes that in 2007 Congress extended a $0.50 credit for every gallon of a blend of traditional and alternative fuels used to a broad spectrum of corporations, and it turned out that "'black liquor,' a carbon-rich substance the paper industry has used for decades to power its mills, qualified.

"All the paper industry had to do was blend some fossil fuel in with their alternative fuel and--voila!--billions of dollars in federal subsidies were within reach. So they did."

The Journal notes that the US paper industry is set to collect $6 billion in tax credits in 2009, enough to reduce the cost of paper products by 25%.

"Not surprisingly, Canadian paper companies are miffed at this subsidized windfall to their competition. Now they've gotten their Parliament to do something about it. Following the two-wrongs-make-a-right logic of trade wars, Canadian lawmakers recently passed a subsidy worth $882 million for their domestic paper industry."

Worth reading in full.

16. BANK FAILURES UP IN US, CONCENTRATED IN GEORGIA, BUT CONSOLIDATION LIKELY HAS A WAYS TO GO

Rebecca Wilder at News N Economics reports that bank failures are up slightly in 2009 from 2008, but the sector's consolidation has yet to see the number of failures experienced during the S&L crisis. Her graph:

"Notice that roughly 20% of the bank failures in 2008 and 2009 have been in Georgia, or as Camden Fine says to the WSJ, 'Georgia is basically the Chernobyl of banking right now; it's radioactive down there'. And according to the Wall Street Journal, the failures in Georgia have only just begun ..."

Worth reading in full.

17. COLORADO PASSES NEW LAWS PERMITTING RAINWATER HARVESTING

Kirk Johnson at the New York Times reports that two new laws have been passed in Colorado which allow people with private wells to legally collect rainwater, formerly they had only been allowed to do so if they possessed the water rights on their property.

"State water officials acknowledged that they rarely enforced the old law. With the new laws, the state created a system of fines for rain catchers without a permit; previously the only option was to shut a collector down.

But Kevin Rein, Colorado’s assistant state engineer, said enforcement would focus on people who violated water rules on a large scale.

'It’s not going to be a situation where we’re sending out people to look in backyards,' Mr. Rein said.

Science has also stepped forward to underline how incorrect the old sweeping legal generalizations were.

A study in 2007 proved crucial to convincing Colorado lawmakers that rain catching would not rob water owners of their rights. It found that in an average year, 97 percent of the precipitation that fell in Douglas County, near Denver, never got anywhere near a stream. The water evaporated or was used by plants.

But the deeper questions about rain are what really gnawed at rain harvesters like Todd S. Anderson, a small-scale farmer just east of Durango. Mr. Anderson said catching rain was not just thrifty--he is so water conscious that he has not washed his truck in five years--but also morally correct because it used water that would otherwise be pumped from the ground."

Daily Sources 6/26

1. HSBC ISSUES $146.4 MILLION IN YUAN-DENOMINATED BONDS; THE PEOPLE'S BANK OF CHINA REITERATES CALL FOR NEW INTERNATIONAL CURRENCY

Aries Poon at the Wall Street Journal reports that HSBC Holdings PLC issued renminbi-denominated bonds on Thursday.

"SBC's 1 billion-yuan ($146.4 million) bond, aimed at institutional investors, was sold Thursday at 0.38 percentage point above the three-month Shanghai interbank offered rate, a person familiar with the deal said Thursday. That was toward the top end of the indicative range of 0.30 percentage point to 0.40 percentage point above Shibor, which now stands at 1.2925%.

Bank of East Asia plans to launch two-year yuan bonds with a coupon between 2% and 2.8%, with a retail tranche of more than 1 billion yuan, another person familiar with the situation said earlier."

Bloomberg reports that the People's Bank of China reiterated its call for a new international currency:

"To avoid the inherent deficiencies of using sovereign currencies for reserves, there’s a need to create an international reserve currency that’s de-linked from sovereign nations."

Yves Smith at naked capitalism comments:

"The practical impediments to an SDR regime is the lack of deep trading markets for investments, But the transition from sterling as reserve currency to the dollar was a protracted, messy, and disorganized affair. The Chinese prefer order and particularly want a fixed rate (or at least narrow float as they have now) regime. They see floating rates as destabilizing and as bad for trade. They increase uncertainty which deters investment.

Again, this may simply be more insistent posturing. The Chinese tend to be frontal. But if nothing else, the Chinese are signaling that they are not happy with the status quo and expect change. The US simply has not been with that program. And we don't seem to have other ready ways to placate the Chinese. We've nixed deals we considered politically sensitive, to their outrage, and will continue to guard our advanced military technology. It isn't clear what China wants in the way of gives and gets here. Again, this may be playing to a domestic audience, but negotiators can get locked into what was initially mere playing to the gallery.

This salvo coming now is also going to be perceived to constrain US fiscal deficits if we need a second stimulus package (likely). I tend to buy the analysis that the spending shortfall is large enough that this isn't the inflationary monster that it is perceived to be. However, the fly in the ointment is first, that we have already thrown so much firepower into the sinkhole of the financial system with perilous little effect (restructuring debt, shorting up certain borrowers directly, reining in the banks, and smaller capital infusions would have been a much better course of action). In particular, the Fed efforts to create a zillion facilities to shore up TBTF markets that have become important channels for credit extension muddies the picture considerably."

2. SOME GERMAN ANXIETY RE: DIMINISHING INFLUENCE WITH THE US--AND WORLD

Gregor Peter Schmitz at Der Spiegel worries that very few representatives of the US government were at a reception for Chancellor Merkel held at the Library of Congress on Thursday.

"[T]here was just a single member of the House of Representatives (out of a possible 435) who bothered to show up to see the German chancellor. Interest for countries like Germany is no longer seen as a way to advance one's career in the US Congress. Those who take an interest in foreign policy have begun looking to Asia first. The only other politician of note at Merkel's reception [outside of former Sen. Chuck Hagel] was Alan Greenspan. But the 83-year-old is also now in retirement."

The Chancellor will be meeting with President Obama today, on the other hand, but the article does seem to express a genuine worry in Europe that it is being relegated to the margin in determining the international order. I suppose it is a legitimate concern, though Europe's role in the world is hardly marginal. (On the other hand, Germans no longer represent the largest ethnic group in the United States, as they did at the time of WWII.)

3. JOSCHKA FISCHER TO ADVISE NABUCCO

Der Spiegel reports that former German foreign minister Joschka Fischer has taken a job as a consultant to the Nabucco gas pipeline project.

"Fischer has joined the €7.9 billion ($11.1 billion) project as a political adviser, primarily to ensure that Turkey remains on board--but also to manage relations with other countries affected by the pipeline, including transit countries Bulgaria, Romania and Hungary."

"Ironically, Fischer's new position puts him across the fence from [ex-Chancellor Gerhard] Schröder, his former political partner from 1998-2005, when a coalition government of Schröder Social Democrats and Fischer's Greens called the shots in Berlin. Just weeks after losing his chancellor job to Angela Merkel in the 2005 elections, Schröder took a position as chairman of the board of a Gazprom consortium currently building a natural gas pipeline beneath the Baltic Sea from Russia to the northern German coast. Called Nord Stream, the 1,220 kilometer long pipeline is scheduled for completion in 2012 and is estimated to cost some €7.4 billion."

4. IRAQI OIL MINISTER FACES CRITICISM IN IRAQI PARLIAMENT

Samuel Ciszuk at IHS Global Insight reports that Iraqi oil minister Hussein al-Shahristani testified before the Iraqi Parliament on Tuesday and Thursday, meeting a barrage of criticism.

"[Chairman of the parliamentary Oil and Gas Committee, Ali Hussein Balou, led the assault on the oil minister’s policies, saying that the parliament would 'totally reject' the contracts unless it was allowed to ratify them, adding that 'we will not allow the Oil Ministry to move ahead, ignoring parliament and signing contracts in the first bidding round, since they are illegal and unconstitutional'. The outlook for the future was perhaps even more menacing, with Balou—from the Kurdish minority that is claiming full autonomy over its oil industry and reserves—promising that the fight would continue even if the licenses were awarded. 'If [Shahristani] dares to sign these contracts, he must assume responsibility for the consequences', Reuters quoted him as saying."

The energy committee issued a summons for the oil minister to appear in May--see Daily Sources 5/18 #4--and parliamentarians have been openly calling for his resignation since--see Daily Sources 5/21 #6.

5. QATAR AGREES TO SUPPLY PAKISTAN WITH 1.5 MILLION TONS LNG/YEAR

Chris Stanton at the Nation reports that Pakistani and Qatari officials yesterday concluded a preliminary agreement to ship 1.5 million tons of LNG a year to Pakistan.

"Pakistan had originally sought 3.2 million tonnes, but Qatar could not provide that amount, [Asim] Hussain [a petroleum and natural resources adviser to the Pakistani government] said. Pakistan regularly suffers power cuts because it has inadequate supplies of gas to fuel power stations.

The country faces a gas shortage of about 192 million cubic feet per day (cfd), according to estimates released earlier this year by the ministry of petroleum resources. That amount will grow to 507 million cfd next year and reach 3 billion cfd by 2015.

The volumes of LNG under discussion yesterday would work out to about 200 million cfd."

The proposed Iran-Pakistan-India pipeline (or just Iran-Pakistan pipeline) remains bogged down--presumably the problem remains a question of the price Pakistan would pay for the gas.

6. QATARI PM AND CHIEF OF EGYPTIAN INTELLIGENCE MEET IN RIYADH

Khaled Omar Abdel Halim at Almasry Alyoum reports that Qatari Prime Minister and Minister of Foreign Affairs Sheikh Hamad bin Jassem bin Jabr al-Thani told al-Jazeera that he had met with Omar Suleiman, the chief of the Egyptian General Intelligence Services, in Riyadh for talks mediated by Saudi Foreign Minister Saud al-Faisal.

"Hamad denied any rift between Egypt and Qatar. He said the tension between the two countries was caused by some Egyptian officials, who follow the principle of 'either you are with me or you are against me.' He also accused some American officials of trying to exploit their failure by showing incomprehensible sensitivity towards Qatar and all its initiatives. And he expressed that he cannot identify the next steps to bring the two countries closer to each other."

He also denied any link between the Hezbollah cell in Egypt and Qatar. (h/t Michael Collins Dunn at MEI's Editor's Blog.)

7. ISRAEL GRANTS PALESTINIAN SECURITY FORCES MORE FREEDOM TO OPERATE

Isabel Kershner at the New York Times reports that Israel has agreed to give Palestinian security forces more freedom to operate in the cities of Ramallah, Qalqilya, Bethlehem and Jericho.

"The Israeli military also recently removed several significant checkpoints inside the West Bank, in line with a policy of easing movement and improving daily life for the Palestinians so long as calm prevails."

8. 4 NIGER DELTA MILITANT GROUPS AGREE IN PRINCIPLE TO ABUJA'S AMNESTY OFFER; MEND ATTACKS OFFSHORE WELL HOURS AFTER OFFER MADE

Austin Ekeinde at Reuters reports that four militant groups have indicated that they want to meet with representatives of the government to discuss the details of the recent amnesty offer made by Abuja.

"Representatives of Ateke Tom, Farah Dagogo, Soboma George and Boyloaf--key leaders of armed gangs behind some of the most spectacular attacks--said they wanted to meet [President Umaru Yar'Adua] to work out details of the deal.

'We accept peace as encapsulated in the said offer of amnesty,' they said in a joint statement.

'Depending on the outcome (of the meeting with Yar'Adua), the leaders will then announce when they will begin to hand over the arms and munitions in their possession to the federal government,' the statement said.

Nigeria's chief of defense staff, Air Chief Marshall Paul Dike, said the security forces would observe a cease-fire and respect all the terms of the amnesty. But he warned the army would respond if attacked."

The four groups are from the states of Rivers and Bayelsa and all have ties to MEND, the umbrella militant organization. Meanwhile, Dulue Mbachu at Bloomberg reports that MEND said it had blown up an oil well in Shell’s Afremo offshore field hours after the amnesty offer made by President Yar'Adua. The attack was

"in response to 'a punitive' raid by the military on Agbeti community in Delta state, Jomo Gbomo, the spokesman for the group, also known as MEND, said in an e-mailed statement today."

The FT has a cool interactive map of the Niger Delta and its key oil and gas infrastructure here:



9. BRAZIL'S CENTRAL BANK CUTS FORECAST FOR 2009 GDP TO 0.8%, UNEMPLOYMENT FALLS SLIGHTLY

Andre Soliani and Iuri Dantas at Bloomberg report that Brazil's central bank cut its forecast for GDP growth in 2009 to 0.8% from 1.2%.

"'Consumption, which accounts for the bulk of aggregate demand, is relatively resilient,' policy makers said in a quarterly report released today. 'Monetary policy, without hurting the commitment to the inflation target, and fiscal policy tend to help the recovery of economic activity.'"

The national statistics agency announced yesterday that the unemployment rate in the six main metropolitan regions fell in May to 8.8% from 8.9%.

10. PDVSA TO ISSUE $3 BILLION IN DOLLAR DENOMINATED BONDS TO COVER DEBTS

Dulue Mbachu at Bloomberg reported yesterday that PdVSA will sell as much as $3 billion in dollar denominated zero-coupon bonds to cover its obligations, per a statement by central bank President Nelson Merentes.

"No investment bank from outside Venezuela is involved in the bond placement, Merentes said. Local investors will be able to buy the bonds at the official exchange rate of 2.15 bolivars per dollar ... .

Buyers will only be able to trade the bonds in the local market, according to the company statement. The minimum purchase is $2,000 per investor."

11. US PERSONAL INCOME UP 1.4% IN MAY FROM APRIL, PERSONAL SAVINGS AT HIGHEST RATE SINCE DEC 93

Jeff Bater at the Wall Street Journal reports that personal income rose by a seasonally-adjusted rate of 1.4% in May from April, per the Commerce Department.

"Disposable personal income in May--income after taxes--jumped 1.6%, driven by the aid package President Barack Obama signed in February to spur the economy. Disposable income rose 1.3% during April.

Personal saving as a percentage of disposable personal income was 6.9% in May, the Commerce Department said. It was 5.6% in April and 4.3% in March.

The 6.9% rate was the largest since 7.6% in December 1993."

The price index for personal consumption expenditures excluding food and energy rose by 1.8% in May year over year. Core PCE climbed 0.1% in May from April.

12. INTERACTIVE TIME LINES OF FINANCIAL CRISIS FROM THE NY FED

The NY Fed published a useful interactive time line of the financiaL crisis and the international response. It also published one for the US. (h/t James Hamilton at Econobrowser.)

Daily Sources 6/25

1. OECD REVISES FORECAST FOR CHINESE 2009 GDP GROWTH UPWARD TO 7.7%

Liu Li at the Wall Street Journal reports that the OECD has upped its forecast of Chinese GDP growth in 2009 to 7.7% from its 6.3% projection made in March.

"The OECD said it now expects China's economy, the world's third largest, to grow 9.3% in 2010, up from its previous projection of 8.5%. Still, it cautioned that 'the outlook for 2010 is more uncertain and depends on the extent to which private consumption and business investment react to the stronger economic situation, as both the fiscal and monetary stimulus will be easing.'"

The OECD stood by its projection that the consumer price index in China would fall by 1% in 2009 versus the projections coming out of Beijing of an 4% increase.

2. CONSUMER SENTIMENT UPTICK IN JAPAN, BUT BOJ SEEMS TO BE DISCOURAGING TOO MUCH OPTIMISM

Edward Hugh at Fistful of Euros has a characteristically long and detailed post on the Japanese economy where he notes that consumer sentiment is upbeat, with the confidence index climbing to 35.7 from 32.4 in April, according to the Cabinet Office in Tokyo--but in the face of horrible export numbers. Hugh notes that the OECD's new forecast has Japan's GDP still on course to contract by 6.8% in 2009 and has revised its forecast for 2010 down to 0.7% growth in 2010. Hugh remarks:

"In its Monthly Report of Recent Economic and Financial Developments the BOJ revised its basic view of the economy upwards for the second consecutive month. In April, the Bank were saying that “Japan’s economic conditions have deteriorated significantly”, but this was revised in May to the view that 'Japan’s economic conditions have been deteriorating, but exports and production are beginning to level out', and in June to the view that 'Japan’s economic conditions, after deteriorating significantly, have begun to stop worsening'.

This has been widely seen as an indication that the BOJ has revised its view on the economy upward, but the BOJ itself has been trying to discourage this interpretation. At the press conference, Governor Shirakawa said that the BOJ’s view on the current state of the economy was in line with the forecast made in the Outlook for Economic Activity and Prices report published on 30 April, namely that 'the pace of deterioration in economic conditions will likely moderate gradually and start to level out', thus emphasizing that the BOJ has not changed its view. To reinforce this point, using the analogy of a weather forecast, he said that if the weather forecast for the following day turns out to have been right, this does not mean that the forecast has been revised."

Well worth reading in full.

3. CHINA AND TURKMENISTAN INK DEAL FOR ADDITIONAL 30% SUPPLY OF NAT GAS, CHINA AGREES TO $4 BILLION LOAN ON PREFERENTIAL TERMS

Alexander Vershinin at the Associated Press reports that China has signed a 30 year deal to increase purchases of Turkmen natural gas by 30%.

"Chinese Vice Premier Li Keqiang met with his Turkmen counterpart Wednesday to sign the contract, which increases gas deliveries to 40 billion cubic meters (52 billion cubic yards) annually, the state-run newspaper Neutral Turkmenistan reported.

Work on a 7,000-kilometer (4,300-mile) pipeline from Turkmenistan to China is expected to be finished by the end of the year.

'This agreement is very important for ensuring a stable, long-term and adequate supply of gas for this pipeline,' Li said at an official signing ceremony, according to the newspaper.

China has also committed to lending Turkmenistan's state gas company $4 billion on preferential terms, the newspaper reported."

4. JAPAN STRIKES DEAL WITH ADNOC TO INCREASE ITS STRATEGIC PETROLEUM RESERVE

Chikako Mogi at Reuters reports that the Japanese trade ministry has concluded a basic agreement with the UAE's ADNOC to store stocks of oil in Kagoshima, southern Japan.

"The ministry did not provide details of the volume that Japan was expected to receive from ADNOC.

The ministry said the project will help beef up Japan's energy security by tapping the supply from ADNOC in times of supply shortages."

5. KOGAS AND GAZPROM AGREE TO FEASIBILITY STUDY ON NAT GAS PIPELINE EXTENSION TO SOUTH KOREA

Eric Watkins at the Oil & Gas Journal reports that Gazprom and Kogas have signed a memorandum of understanding to study the feasibility of supplying gas to South Korea via a pipeline extension from the Sakhalin-Khabarovsk-Vladivostok (SKV) gas pipeline.

"According to analyst Global Insight, two pipeline options between Russia and South Korea are currently being evaluated: an overland route via North Korea and a direct subsea line.

'The first option suffers from severe geopolitical risks while the second option presents partners with formidable technological and financial challenges,' GI said, adding, 'A drawn-out negotiation and planning process for the project…can be assured in either scenario.'

Underlining that point, Russian officials also have been courting Japanese investors into joining the SKV pipeline project."

In televised comments during his visit to Tokyo in May, Prime Minister Vladimir Putin said,

"Japanese partners could take part in projects to develop pipelines and other transport infrastructure. I mean from Sakhalin Island to Khabarovsk to Vladivostok." (see Daily Sources 5/12 #4.

6. IRAQI MINISTRY CONSIDERING HOW TO RESPOND TO SINOPEC'S BID FOR ADDAX

Anthony DiPaola at Bloomberg reports that the Iraqi Oil Ministry is considering whether to exclude Sinopec from bidding on developing oil fields, following the news that the company had made an offer on Addax Petroleum, which operates fields in Kurdish Iraq. (See Daily Sources 6/24 #7.)

"The Oil Minister hasn’t yet decided, a ministry spokesman said by telephone today. The Chinese company, also known as Sinopec Group, is among more than 30 oil producers short-listed by Iraq to bid for development rights on June 29 and 30.

The government hasn’t received official notification of the agreement between Sinopec and Addax, said Abdul Mahdy al-Ameedi, deputy director general of the Oil Ministry department running the bid rounds.

'They can participate so far,' he said of Sinopec. 'There are some days until the bidding process,' he said, adding the government would be reviewing the deal."

7. OPEC SAYS WORLD OIL MARKET IN "DELICATE AND PRECARIOUS" STATE

Margaret McQuaile at Platts reports that in its latest bulletin, OPEC said that the world oil market is in a "delicate and precarious state."

"A commentary in the latest issue of the OPEC Bulletin said oil prices were now 'closer to levels that could support sound investment plans for future production' but were not justified by fundamentals of supply and demand.

It noted that OPEC's own crude basket, which had stood at $44/barrel at the start of the March 15 ministerial meeting, had climbed above $70/b since the most recent conference on May 28 despite supply continuing to be greater than demand and OECD commercial stocks remaining well above five-year average levels."

8. RUMORS OF SAUDI-SYRIAN-LEBANESE 'GRAND BARGAIN'

Michael Collins Dunn at the MEI's Editor's Blog reports that there are rumors of a grand bargain being arranged between the Saudis, Damascus, and Lebanon.

"To sum it all up before I start linking: Syria is going to accept the idea of Sa‘d Hariri as Prime Minister in Lebanon. In turn, Saudi Arabia is going to patch up its relations with Syria. King ‘Abdullah will then visit Damascus. And if the Lebanese can smooth out the outlines of a unity government of some sort, Syria won't stand in the way."

Worth reading in full.

9. US DELIVERS WEAPONS TO SOMALIA'S TFG

Stephanie McCrummen at the Washington Post reports that the US has sent a shipment of weapons and ammunition in aid for the transitional federal government in Somalia.

"To cut off the rebels' weapons and supplies, the United States has stepped up pressure on Eritrea, and foreign warships patrolling Somali waters to combat piracy have begun blocking cargo ships heading to the rebel-held port of Kismaayo in southern Somalia.

African diplomats have also proposed a no-fly zone over Somalia to prevent weapons from being flown in from Eritrea to the rebels, but it is unclear whether that idea will gather necessary support at the United Nations."

10. MEND ATTACKS IN NIGERIA FORCE CLOSING OF TWO REFINERIES, GAZPROM AGREES TO JV WITH THE NIGERIAN NATIONAL OIL COMPANY, GAZPROM TO BEGIN CONSTRUCTION ON TRANS-SAHARAN PIPELINE NEXT YEAR, TOTAL OFFERS TO COOPERATE WITH GAZPROM--ESPECIALLY IN AFRICA

Jacinta Moran at Platts reports that Nigeria shut down the 125 kb/d Warri and the 150 kb/d Port Harcourt after attacks by MEND on pipelines and other oil facilities have cut the flow of crude, making operations impossible. Warri has reportedly been shut down for over a month.

"Nigeria's main militant group earlier Thursday said it sabotaged a Shell oil pipeline in the Delta today, the latest in a slew of attacks against facilities in Africa's biggest oil producing country.

The Movement for the Emancipation of the Niger Delta (MEND) said in an emailed statement it had attacked the Billie-Krakama pipeline in Rivers state in the Niger Delta.

'Cawthorne Channel 1, 2 and 3 flow stations feeding the Bonny export terminal have been effectively put out of service,' it said."

Susan Njanji at AFP reports that Shell confirmed that the Billie-Krakama pipeline had been attacked and stated that it had been shut down.

"President Umaru Yar'Adua on Wednesday expressed hope he could resolve the Niger Delta crisis this year.

'I am hopeful and confident that by the end of this year, we will have a secure and stable environment in the Niger Delta,' he told a news conference with [Russian President] Medvedev [who was in Nigeria yesterday to pursue energy cooperation initiatives.]

Yar'Adua is Thursday expected to unveil details of an amnesty package for militants who cease hostilities as part of efforts to end the unrest and save the crucial oil and gas industry."

BBC reported last week that one militant leader took advantage of the amnesty offer--see Daily Sources 6/17 #9. Meanwhile, Medvedev's visit evidently bore fruit as Gazprom announced that they have started a 50-50 JV in oil, gas, gas processing and transportation. Gazprom also announced it plans to begin construction of the Trans-Saharan pipeline next year.



Meanwhile, Simon Shuster at Reuters reports that the general director of Total E&P Russie told reporters today, "We are very open to discussing with a company like Gazprom to have developments abroad including, of course, in Africa."Douglas Muir at Fistful of Euros observes:

"If you’re a human being who speaks French, you’re more likely to be African than European. La Francophonie’s demographic center of gravity is now somewhere around Bamako, Mali.
...
Demographic growth plus the slow-but-steady rise of literacy rates in most of Africa means that by the next decade, most literate Francophones will be African too.
...
[T]he Academie Francaise has always allowed non-French citizens to be members; by 2050, I’d expect these members to be approaching a majority.
...
If you’re a human being who speaks French, and is also a practicing Catholic, you’re almost certainly African--like, ten-to-one odds. Plenty of people have already pointed out that Catholicism, slowly retreating in Europe, is growing like crazy in Africa, so I won’t go into that here.

But: French is now one of the major languages of Islam. "

11. VENEZUELA AND US TO EXCHANGE AMBASSADORS

Ian James at the Associated Press reports that Venezuela and the United States will exchange ambassadors, after each expelled them nine months ago.

12. CREDIT CARD CHARGEOFFS RISE WITH UNEMPLOYMENT INSURANCE EXHAUSTION RATES, INITIAL UNEMPLOYMENT CLAIMS UP

Barry Ritholtz at the Big Picture compares credit card charge off rates to the rate of people who have exhausted their unemployment insurance.



Meanwhile, Glenn Somerville at Reuters reports that initial unemployment claims rose by 15,000 to a seasonally-adjusted total of 627,000.

"Continued claims, which gauge how many Americans were still on jobless rolls after an initial week of claims, rose 29,000 to 6.738 million in the week ended June 13, the latest period for which the data was available."

12. ANOTHER STUDY LINKING US RECESSIONS TO PRICE OF OIL

Sheila McNulty at FT Energy Source reports that Steven Kopits of Douglas Westwood Energy research has released a study which notes that in the last 37 years the US has experienced seven recessions, and that oil has played an important role in each. "In every case when oil consumption breached 4% of GDP, he notes, the US has suffered a recession." Koptis also remarks that every time there has been a sustained rise of more than 50% or more in the price of oil, the US enters a recession. McNulty writes:

"From his research, then, it seems there are three rules by which to avoid recession caused by oil prices:

- Crude oil expenditures should not exceed 4% of GDP.

- Oil prices should not increase by more than 50% year-on-year.

- Oil price increases should not be so great that a potential demand adjustment should have to reach 0.8% of GDP on an annual basis, as shedding demand at this rate has generally been associated with recession."

Kotis' piece graphs nominal and inflation-adjusted crude prices from 1970-2009, shading the periods of US recession.



His work can be found here--well worth reading in full. Meanwhile, Grant Smith at Bloomberg reports that Barclay's Capital technical analysis that crude will fall to below $66/b after having broken through a "Ichimoku cloud" at $70.35/b.

"The so-called Ichimoku cloud is an area bound by two predictive lines on a general-overview chart, the investment banking arm of Barclays Plc said. Crude breached the lower boundary of this cloud at around $70.35 a barrel in New York on June 19, and oil may consequently be dragged towards a support layer around $66 and fall below that, the bank said.

'You still want to be looking to sell,' Barclays analyst MacNeil Curry said in a telephone interview from New York. 'In the sessions ahead, we look for a break of trend-line support at $66.83 to reignite the downtrend,' the bank said in a report."

This analysis comes from a different team, if I understand aright, than the one led by Paul Horsnell in London, which correctly predicted in May that prices were set to breach $70/b--see Daily Sources 5/14 #9.

Monthly Throughput Down at 4 Key Ports in May

The port of Los Angeles reported a 16.31% decline in total TEUs (twenty foot equivalent units or 20 foot-long cargo container) year over year in May. (And an 8% increase month over month.)



The port of Long Beach reported a 20.7% decline in TEUs in May year over year. (And a 5.1% increase month over month.)



The port of Hong Kong reported a decline of 12.1% in TEUs in May year over year. (A 7% increase month over month to 1,792 million TEUs from 1.675 million in April.)



The port of Marseilles reported a decline in total throughput of 14% in May, year over year. (And a 3.3% increase month over month to 6,956 million metric tons from 6,733 million metric tons.)



The numbers are still sobering year over year--the month over month data may be encouraging, but appears to be due to some extent to cyclicality. Probably not a green shoot.

VMT in April Shows Year Over Year Growth

The Federal Highway Administration reported (at some point earlier this month) that April vehicle miles traveled rose by 1,421 million miles over April 2008, the first year over year increase in vehicle miles traveled seen since October 2007. The increase in demand was predictable given the low average price of gasoline nationally. However, the national average price for regular gasoline for the week ended June 22 has risen to $2.691/gallon--well into the area where you see people driving less.



(The slight draw on distillate stocks seen in April, seen below, could indicate that there was some increase in freight trucked in that month. But, if that indicates some increased demand, the latest builds in commercial distillate stocks seems to indicate that demand has risen only slightly given the latest increase in refining utilization.)

Daily Sources 6/24

1. JAPANESE EXPORTS IN MAY DOWN 40.9% YOY, 0.3% MOM; CHINESE GDP GROWTH NOT TRANSLATING INTO MORE IMPORTS; CHINA'S NBS PROVIDES QUARTERLY ESTIMATES OF GDP GROWTH

Jason Clenfield at Bloomberg reports that Japanese exports fell by 40.9% in May from a year previous, a sharper decline than the 39.1% seen in April. Exports fell by 0.3% in May from April.

"Shipments to China, Japan’s biggest trading partner, fell 29.7%, more than April’s 25.9%. Exports to Asia slid 35.5% from 33.4% a month earlier.
...
Imports slid 42.4% from a year earlier, and the trade surplus narrowed 12.1% to ¥299.8 billion (~ $3.1 billion), the Finance Ministry said."

Brad Setser at Follow the Money notes:

"US exports to China are also down (15.6% y/y, through in the first four months of 2009, though a bit less in April itself). The eurozone’s exports to China are also down--though the 8% or so fall y/y fall in the eurozone’s exports to China seems a bit more modest than the fall in Japan’s exports to China.

China’s economy may have expanded over the last year, but that expansion clearly hasn’t fed through into more Chinese demand for US, European or Japanese goods."

In the meantime, Andrew Batson at China Journal reports that Guo Tongxin, an official at the National Bureau of Statistics, provided GDP estimates on a quarterly basis in contrast to Beijing's traditional practice of providing year on year data.

"The new estimates from Guo, which only cover 2008 and early 2009, may be a surprise for skeptics who suspect that China’s statistics officials are only capable of reporting nice-sounding numbers. These figures actually show the slowdown in the fourth quarter of last year was even sharper than most outside economists had believed.

Economists surveyed by the Journal in February had, on average, estimated that fourth-quarter GDP expanded at an annualized rate of 2.1%. Guo cited what he called a preliminary estimate that fourth quarter GDP grew 0.1% from the previous quarter, equivalent to an annualized rate of just 0.4%.

The headline year-on-year growth rate announced at the time, by comparison, was 6.8%--a gap that clearly shows how quarterly and annual growth rates can give very different pictures of economic turning points."

2. THE US AND EU LODGE WTO COMPLAINT AGAINST CHINA ALLEGING THAT BEIJING HAS BLOCKED THE EXPORT OF RAW MATERIALS

Gabriella Stern at China Journal reports that the EU and the US have filed a WTO complaint against China. The complaint alleges:

"that Beijing unfairly helps domestic makers of steel, aluminum and chemicals, among others, by effectively blocking overseas exports of raw materials (eg. the ingredients that go into steel, aluminum and chemicals)."

Stern adds:

"Brian Blackstone points out the irony that the US government is complaining about China holding back on exports when Washington’s usual stance is to complain about China flooding the world with its exports. There are, indeed, many ironies in the messy world of trade disputes. This is the Obama administration’s first WTO complaint against China and the timing is sensitive, given America’s deep dependence on Beijing’s purchases of US sovereign debt--and also the global importance of a Chinese economic recovery spurred by that government’s thus-far-effective stimulus program."

3. BEIJING SUSPENDS REFORESTATION EFFORT ON FOOD SECURITY CONCERNS

Jonathan Watts at the Guardian reports that Beijing has suspended the reforestation of marginal arable land on fears of food shortages.

"Lu Xinshe, deputy head of the ministry of land and resources, said the country was struggling to hold the 120 million hectare 'red line' considered the minimum land areas needed for food self-sufficiency.
...
By the end of last year, the amount of arable land in China had decreased to within 1% of the 'red line.'"

In November, Zhang Xiaoqiang, Vice Chairman of China's National Development and Reform Commission, set as a national strategic priority domestic production of 95% of their grain consumption through 2020--see Daily Sources 11/14 #5. China was facing the worst drought it has seen since 1951 at the beginning of the year--see Daily Sources 2/9 #13--I have no idea what the rainfall situation is now.

"[S]elf-sufficiency [of 95%] requires the production of 500 million metric tons of grain a year. To maintain this level, prime minister Wen Jiabao has said the state would increase spending on agricultural production by 20%, well above inflation."

4. GERMAN HOUSEHOLD CONSUMPTION UP IN Q1; CABINET ADOPTS FISCAL PLAN WITH DEFICIT SPENDING

Eurointelligence reports that German household consumption appeared to rise in the first quarter, per FT Deutschland.

"Why should this be so? First, the article says, unemployment was still low and will be rising more strongly later this year and in 2010. But also there have been a number of tax cuts, a large increase in pension payments, a large increase in public sector wages to support private sector incomes."

In the meantime, Der Spiegel reports that Chancellor Merkel's cabinet adopted a fiscal plan for the next four years, which includes deficit spending.

"In total, it calls for €310 billion ($436 billion) in fresh debt from 2010 to 2013, including a whopping €86.1 billion ($121.2 billion) for 2010, far and away the largest single-year budgetary hole in the history of post-war Germany.

The 2010 total could even top €100 billion depending on the development of expenses related to Germany's economic stimulus packages (worth a total of €82 billion) and its bank bailout fund (worth €500 billion). Germany's previous record for fresh debt in a single fiscal year was the €40 billion borrowed in 1996. Steinbrück's new plan calls for new debt to begin falling after 2010, with €71.1 billion necessary in 2011, €58.7 billion in 2012 and €45.9 billion in 2013."

5. INTERNATIONAL INVESTORS LEARY OF NEW DELHI'S NEW DEBT ISSUANCE PLANS

Anil Varma and Anoop Agrawal at Bloomberg report that international investors appear uncomfortable with Indian Prime Minister Manmohan Singh’s plan to sell a record $74 billion in bonds this fiscal year.

"Foreign funds cut holdings of local-currency debt by 20% from a January peak to $5.7 billion, according to India’s Securities and Exchange Board. Investec Asset Management Ltd., Nikko Asset Management Ltd. and ING Investment Management, which together manage more than $15 billion in emerging-market debt, say they’re avoiding the market.

Yields are rising as Singh boosts spending on infrastructure and programs to reduce poverty, which he says are needed to return the economy to 9% growth, from the 6% forecast by the central bank for the year started April 1. Standard & Poor’s said June 22 that India may raise its budget deficit estimate in July to 6.5% of GDP, the most in 19 years. It has a negative outlook on the nation’s BBB- credit rating, the lowest investment grade."

6. KYRGYZSTAN REVERSES DECISION TO CLOSE MANAS AIR BASE TO US

Michael Schwirtz and Clifford J Levy at the New York Times report that Bishkek has decided to reverse its decision to end the US lease of the Manas air base.

"[T]he base is to be renamed a transit center, as opposed to an air base. And the Kyrgyz will control security around the base; currently, American military personnel do. The text of the new agreement specifies few other restrictions on how the United States can use the base. There do not seem to be any prohibitions on shipping weaponry.

One major change, though, is the rent. It will rise to $60 million annually from $17.4 million, Kadyrbek Sarbayev, Kyrgyzstan’s foreign minister, told the Kyrgyz Parliament on Tuesday.

Washington will also pay $36.6 million to expand the airport and will contribute tens of millions of dollars toward economic development and the fight against drug trafficking, Mr. Sarbayev said. He said the agreement would be for one year and would be contingent on the situation in Afghanistan."

The agreement must now be approved by parliament, which is reportedly a sure thing.

7. SINOPEC OFFERS $7.24 BILLION FOR ADDAX A WEEK AHEAD OF BAGHDAD'S OIL CONCESSION AUCTIONS

Kate Mackenzie at FT Energy Source reports that the rumored acquisition attempt of Addax Petroleum, which has a large stake in the Taq Taq field in Kurdish Iraq, are true. Sinopec has offered $7.24 billion for the company and the board has recommended the sale to its shareholders. Baghdad is set to auction concessions next week. Yesterday, the Kurdish government released a statement calling the planned auction "unconstitutional"--see Daily Sources 6/23 #5. On June 1, the Kurdish Regional Government presented Baghdad with a fait accompli, sending oil through the Iraq-Turkey pipeline without an arrangement for revenues to accrue to the operators of the fields--see Daily Sources 5/12 #8. Iraqi parliamentarians are openly calling for the resignation of oil minister Hussein al-Shahristani for his alleged mismanagement of the issue of oil concessions--see Daily Sources 5/21 #6.

8. LARGE MIDDLE EASTERN BUY US$/€ PROGRAM REPORTED

Macro Man reports that there "appears to be a large EUR/USD buy program emanating from the Middle East."

9. US TO SEND AMBASSADOR TO DAMASCUS AFTER 5 YR HIATUS

Patrick Rucker at Reuters reports that the US will send an ambassador to Syria, after having recalled the ambassador in 2005.

10. US EMBASSY IN KHARTOUM WARNS OF POTENTIAL ISLAMIC MILITANT ATTACKS ON GOVT

Andrew Heavens at Reuters reports that the US embassy in Sudan has issued a statement warning of attacks by Islamic militants on the government in Khartoum. The statement read in part:

"Statements threatening violent action against the government of Sudan have been posted on a jihadist website, following the death of a suspected Islamic extremist."

In the meantime, BBC News reports that representatives of southern and northern Sudan have agreed to abide by a ruling at the Hague's Court of Arbitration on the status of Abyei in talks led in Washington, DC, by US Sudan envoy Scott Gration.



Much of Sudan's oil wealth is in the region. The south began demobilizing earlier this month--see Daily Sources 6/11 #9.

11. CARACAS DOLLAR SALE PRIORITIES HURTING REGIONAL EXPORTERS TO VENEZUELA

Andrea Jaramillo at Bloomberg reports that Fabricato Tejicondor SA, Colombia’s biggest textile maker, has announced that exports to Venezuela have fallen by about 70% after Caracas decided to stop allowing the industry's importers to purchase dollars at the official exchange rate.

"Importers ... have to buy dollars in Venezuela’s unregulated parallel market, where the bolivar trades at 6.63 per dollar, a rate that is 68% weaker than the official 2.15-per-dollar, said Fabricato Chief Executive Officer Oscar Ivan Zuluaga. He said the surge in the cost in bolivar terms 'put a brake on demand' in Venezuela, which accounts for about half of Fabricato’s exports."

On April 24, the Venezuelan finance minister said that Caracas would make imports of food and medicine a priority in allotting dollars for sale at the official rate this year.

12. NEW ONE FAMILY HOME SALES UP 0.6% IN MAY FROM APRIL, DOWN 32.8% YOY

Barry Ritholtz at the Big Picture reports that sales of new one-family homes were up 0.6% in May from April, but notes that the margin of error is plus or minus 17.8%.

"And as expected, April’s data was revised downwards.

Year over year, sales fell 32.8%--a valid number relative to the error (±10.9%) below the May 2008 estimate ...."

He links to a Barron's Econoday chart plotting new homes sales since January 2006:



13. DURABLE GOODS ORDERS UP 1.8% IN MAY FROM APRIL

Shobhana Chandra and Courtney Schlisserman at Bloomberg reports that the Commerce Department announced today that orders for durable goods rose 1.8% from April.

"Economists projected goods orders would drop 0.9 percent, according to the median of 75 forecasts in a Bloomberg News survey. Estimates ranged from a decline of 3.9% to a gain of 1%. Commerce revised the April gain to 1.8% from a previously reported 1.9% increase."

14. US COMMERCIAL CRUDE STOCKS DOWN 3.8 MB, GASOLINE UP 3.9 MB, REFINERY UTILIZATION UP TO 87.05%

The EIA reports that commercial crude stocks were drawn down by 3.8 million barrels in the week ended June 19 to 353.9 million barrels. Holdings are well above the historical range for this time of year, but have been falling steadily in recent weeks. A Bloomberg News survey had the median expectation of analysts for a 950,000 barrel draw. Commercial gasoline stocks grew by 3.9 million barrels and are at the bottom of the historical range for this time of year. Distillate stocks grew by 2.1 million barrels and are 32.7% larger than the comparable week last year. The national average price of gasoline rose to $2.691/gallon for the week ended June 22. Refinery utilization for the week ended June 19 rose to 87.05% from the 85.90% seen in the week ended June 12.