Daily Sources 2/13

1. Brian Swint at Bloomberg reports that the European Union’s statistics office announced today that GDP in the Eurozone fell by 1.5% in the fourth quarter from the third. GDP in the fourth quarter fell at a rate of 1.2% from the fourth quarter in 2007, the only drop for a full year period on record since the inception of the monetary union.

"[European Central Bank] board members Lucas Papademos, Juergen Stark and Jose Manuel Gonzalez-Paramo as well as Spanish central bank Governor Angel Fernandez Ordonez and Belgian Governor Guy Quaden said this week that the Frankfurt-based bank may cut rates next month."

2. Edward Hugh at Fistful of Euros reports that official German statistics released today show a 2.1% contraction of German GDP in the fourth quarter.

"A 2.1% quarterly contraction, for those who are confused by the way we economists do things is equivalent to an 8.4% annualized rate of contraction, which is quite something (although in fairness some of this comes from Q3 when there was a big build up in inventories, which has now unwound)."

Hugh also posts that the Estonian Finance Ministry released data showing that the economy shrank by an year over year rate of 9.4% in the fourth quarter."The contraction was 4.2% quarter over quarter. That is 16.8% annualized." Analysts are calling the contraction the worst economic crisis in the history of the country since its independence in 1991. Hugh also posts that the Czech Statistical Bureau announced today that GDP dropped by 0.6% in the fourth quarter from the third. At an annual rate it grew by 1% in the fourth quarter. And in a final bit of bleak news from Hugh today, preliminary government estimates are that Italian GDP fell by a seasonally-adjusted rate of 1.8% from the third quarter to the fourth.

"Across 2008 as a whole, the Italian economy fell 0.9%, ISTAT said, the most pronounced decline recorded since 1993.The Italian economy officially fell into recession in the third quarter of 2008. And one more interesting detail, Italian GDP is now back at the same level it was in Q4 2005, and falling. This is pretty worrying, and even more so given there are quite a lot more people in Italy then there were in 2005."

And in another bit of frankly exhausting bad economic news, Eurointelligence reports that French industrial production was down 1.6% quarter over quarter in the fourth, 8.6% year over year.

3. The G7 meeting in Rome began today, and in that context Rebecca Wilder at News N Economics produced an analysis and set of illustrative graphs showing that G7 growth rates are falling across the board while unemployment soars across the board. Here is her graph of G7 economic performance:



Worth a look. Eurointelligence reports that France will seek greater controls over hedge funds in the meeting this weekend--while publicly accusing Berlin of protectionism.

4. Kevin Hamlin at Bloomberg reports the much ballyhooed news that a survey of economists conducted by the wire service produced a median expectation of growth of 6.6% in China in the second quarter following expansion of 6.3% in the first quarter of 2009.

"The value of new loans in January was more than double the record set a year earlier, according to figures released by the People’s Bank of China yesterday.

The lending multiplies the effect of the government’s spending in ways that wouldn’t be possible in the U.S. and Europe, where banks are burdened by toxic assets, said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong."

Analysts have also taken note of the surge in iron ore imports in China, possibly due to restocking needs, potentially due to the infrastructure spending Beijing announced in December. (The rebound in iron ore imports has been named the primary cause of the rebound in the Baltic Dry Index, an index of shipping which is considered by many economists to be a good indicator of global trade.) Juliet Ye at the China Journal also notes that vouchers which various cities have introduced are spurring some consumption.

"In Hangzhou, capital city of eastern Zhejiang province, civil servants are to get 5% to 10% of their salaries in the form of consumer vouchers, according to one report. The vouchers are intended to be spent at local shops. Unlike actual money, they can’t be deposited at the bank for a rainy day, forcing consumers to spend."

Apparently vouchers are at the center of a discussion in which policymakers are considering how best to goose consumption--and the fact that Beijing is beginning to consider a boost in consumption an important goal is encouraging, from the American perspective.

"Local governments say the results are encouraging. The municipal government of Chengdu said that almost all shopping vouchers have been consumed. In Hangzhou, over 44 million of the 100 million yuan coupons have so been used by Feb. 5, 13 days after delivery of the vouchers, according to the Southern Metro Daily newspaper. On Monday, Jiang Zengwei, China’s vice minister of commerce, said in a press conference that issuing shopping vouchers is a effective way to spur consumption."

Still, some are pessimistic about the extent to which a vouchers program can spur consumption. I have, on the other hand, seen somewhere an analysis showing that in the US food stamps have the largest multiplier effect in terms of stimulus, because they cannot be horded. That said, Yves Smith at Naked Capitalism was at some pains to throw cold water on the estimates in a post today.

"Consider some basics. China's economy is not as export dependent as many believe, but exports have made a significant contribution to growth. Commercial real estate development has been another big driver. Those two have gone into reverse.

Let's deal with the notion of "stimulus" making up for the slack. The famed half trillion dollar plus package announced some months ago was largely spending already budgeted and planned. Analyst views vary (and further input welcomed) but from what I have seen, only 1/6 to 1/3 was new spending, and most of that occurred in the second year of this two-year program."

She also notes that Michael Pettis, one of the more prominent China-watchers, is very skeptical about the loan growth numbers, who argues they are the result of bad lending practices driven by the desire to keep Beijing happy, and thus a credit bubble, likely to burst quickly given the current global economic situation.

5. Alexander Kwiatkowski at Bloomberg reports that OPEC has reduced its forecast for 2009 oil demand by 530 kb/d to 85.13 mb/d. It now predicts a decline in demand in 2009 from 2008 of 580 kb/d or 0.7%. OPEC's numbers are somewhat higher than the EIA and IEA's forecasts for 2009 which are both 84.7 mb/d. However, as Keith Johnson at Environmental Capital notes, OPEC sees new demand destruction coming from Asia as opposed to the developed world. This is especially interesting because OPEC is in a place to know as oil imports for the major economies in Asia are overwhelmingly dominated by Middle Eastern crudes. From OPEC's analysis:

"The Chinese economy is dependent on exports and the slowing world economy is imposing a large burden on Chinese industrial production, which is leading to less use of oil products, particularly diesel. Hence, China’s oil demand is forecast to show a growth of only 2.3% this year down from 4.9% last year, a loss of 210 thousand barrels per day."

6. The January data from the California port of Long Beach shows a 23% decline year over year in container traffic.



Long Beach is the second busiest port in the United States, the 15th busiest container cargo port in the world, and about 13% of total US container cargo passes through it. And in further evidence of a gloomy economic outlook, the port of Marseilles reported a 24% decline in overall traffic in January year over year:



(The graph somewhat confusingly labels 2008 data 2009, but I think demonstrates the point well enough.) Some of the decline in the port is due to strikes, first by the oil workers, and later by nearly all the transportation unions. Still, the numbers from both ports do seem to indicate a weak global economy.

7. Marc Santora at the New York Times reports that a suicide bomber blew herself up in a crowd of Shiite pilgrims south of Baghdad today.

"It was the latest in a series of attacks directed at Shiite pilgrims in recent days, which Iraqi and Western officials said were aimed at stoking sectarian violence."

8. Ethan Bronner at the New York Times reports that Hamas today told the media that an agreement for an 18-month long cease fire was just days away. A senior Israeli official told the journalist that nothing had been agreed upon yet, however.

"The new prospective accord, again being mediated by Egypt, is aimed at rebuilding Gaza after the war and involves both reconstruction and reconciliation between Hamas and the West Bank-based Palestinian Authority, according to Ismael Ridwan, a Hamas spokesman, who spoke by telephone after extensive talks between Egyptian and Hamas officials.

He said among the materials that would be allowed to flow into Gaza in the new arrangement were cement and steel, which Egypt would monitor. Those materials are desperately needed for rebuilding, but the agreement would not allow pipes, cables and chemicals that Israel fears could be used for bombs."

Clearly, Tel Eviv will be unlikely to make deals prior to the formation of a government.

9. In an especially interesting note, Eduard Gismatullin at Bloomberg reports that the CEO of Total, SA, Christophe de Margerie, told reporters in London today that the company plans to expand activities in Venezuela as opposed to Brazil. He said that there was plenty of competition in Brazil and that therefore Venezuela provides a better opportunity.

10. Platts reports that Indonesia has concluded a deal to supply LNG from 2011 to 2020 to the Japanese consortium of Kansai Electric, Osaka Gas, Kyushu Electric, Chubu Electric, Toho Gas and Nippon Steel. However, the contract would be for 3 million tonnes a year from 2011-15 and 2 million tonnes a year from 2016-2020. The current contract through 2011 was for 12 million tonnes a year at $8-9/MMBtu (~ $46.40-$52.20/b on a Btu basis.)

11. James Morgan at the BBC reports that global warming may reduce the number of fish in the oceans by as much as 50% by 2050 according to a report first published at a meeting of the American Association for the Advancement of Science today.

"Thirty-three nations in Africa, Asia and South America are highly vulnerable to the impact of climate change in fisheries, according to scientists from the World Fish Centre.

Of these, 19 were already classified by the United Nations as 'least developed' because of their particularly poor socioenomic conditions.

'Economically, people in the tropics and subtropics likely will suffer most, because fish are so important in their diets and because they have limited capacity to develop other sources of income and food,' said Edward Allison, director of policy, economics and social science at WorldFish. "

(h/t Yves Smith at Naked Capitalism.)

12. Walter Pincus and Joby Warrick at the Washington Post reports that the Director of US National Intelligence, Dennis C. Blair, told the Congress yesterday that the financial crisis is the primary near-term security threat facing the US.He said, "Roughly a quarter of the countries in the world have already experienced low-level instability such as government changes because of the current slowdown." He also indicated that were the financial crisis to continue for a year to two that the world would likely witness "high levels of violent extremism" as well as "regime-threatening instability."

"In answer to a question about whether he was shifting assets to cover the financial downturn, Blair said that by leading off with the economic situation he "was trying to act as your intelligence officer today, telling you what I thought the Senate ought to be caring about." He said he was not refocusing the intelligence community's basic collection and analytic work from traditional concerns such as terrorism, Afghanistan, Pakistan, Iran, North Korea, Russia and China."

Very informative article well-worth reading. I personally am heartened to read that the head of US intelligence has such a clear-headed approach to the analysis of the evolving global environment. That said, perhaps diverting assets to developing scenarios for how the financial crisis in a variety of nations critical to the national interest would be an especially reasonable and wise allocation of funds.

13. Justin Lahart, Timothy W. Martin and Janet Adamy at the Wall Street Journal report that the Commerce Department released data showing that consumer spending fell by the inflation-adjusted rate of 3.7% in the fourth quarter. Apparently a great deal of that reduction is coming out of food purchases:



14. Brian Blackstone at Real Time Economics reports that the latest Fed survey shows that average household worth declined "by 22.7% from 2007 until October 2008. The median, or midpoint, fell a more modest 17.8%, suggesting declines were centered among wealthier families."

Daily Sources 2/4

1. Keiko Ujikane and Kyoko Shimodoi at Bloomberg report that Makoto Utsumi, a former vice finance minister for Japan, hinted in an interview last week in Tokyo that the G-7 was likely to reinstate calls for the renminbi to trade more freely in their meeting in Rome next week.

"Finance ministers and central bankers from the G-7 nations gather on Feb. 14 in Rome. In April, the group said they 'encourage' further appreciation of the yuan, language that was omitted an from October statement."

2. Eurointelligence reports that the EU has warned the US that it will pursue legal remedies should the buy American provisions of the stimulus bill become law.

3. Eurointelligence reports that Paris has decided to offer unlimited guarantees for exports to China, India and Brazil. The guarantees act as partial or full insurance against payment default on the import contract. Though Eurointelligence has a snarky take on the move, it occurs to me that if letters of credit have become difficult to obtain in the shipping industry (see Daily Sources 1/8 # 20 for a recent indication that this is the case), then these guarantees might represent a reasonable way to resurrect trade being put on hold due soley to tight credit requirements being driven mostly by the liquidity concerns of financial institutions. (Export guarantees were removed for exports to Russia, Nigeria and Morocco.)

4. Edward Hugh has a long post on spiking unemployment and falling consumption in Spain at Fistful of Euros. Courtesy of Hugh:



Hugh provides a slew of data demonstrating that the downturn in Spain will be long and deep, but that Spanish consumers still expect inflation. He concludes that it is likely to enter a deflationary period more intense than was seen in Japan.

"When [Spain’s Economy Secretary David] Vergara was asked about whether falling inflation would make it more likely that the European Central Bank would cut rates at its meeting next week, he replied: 'We are convinced the ECB will take all available data into consideration and act accordingly.' But the point is, if we are entering deflation here, and looking at the rate of contraction in the economy, which I am forecasting will be in the region of 5% of GDP this year, we certainly are. And Spanish deflation is likely to be much deeper than anything Japan has experienced, due to the severity of the contraction, which means that what we should be talking about is not simply a half point, or three quarter point, trimming in the ECB repo rate, what we should be asking for is the immediate introduction of Quantitative Easing, but Spains leaders are a long, long way from accepting this reality, and when they do finally accept it it will, unfortunately be too late to find any kind of rapid exit strategy. The issue is expectations. Spanish people still have inflationary expectations, but this will turn, and expectations will change to the anticipation of price decreases, postponement of consumption, and when we do reach this point it will be the devils own work to get them out of that pit."

Worth reading in full, though quite long.

5. The AP reports that Bulgarian foreign minister Ivailo Kalfin said in a TV interview today that Sofia wants to renegotiate its natural gas contracts with Gazprom to reduce the number of intermediaries which deliver gas to the country to one from three. The interview was given just prior to leaving on a state visit to Moscow led by Bulgarian president Georgi Parvanov.

6. Candace Rondeaux at the Washington Post reports that the Taliban has destroyed an iron bridge near Peshawar, effectively shutting off the main supply line to NATO forces being employed by US quartermasters. Marla Dial at Stratfor has a podcast reporting that US General Craddock said Monday that NATO member states were free to discuss opening supply routes for forces in Afghanistan with Iran. (Registration required.) Prior the primary alternative supply route under discussion was via Russia, through Kazakhstan, to Uzbekistan, and onwards Afghanistan. (see Daily Sources 1/21 #1) Meanwhile, George Friedman, the CEO of Stratfor, has an op ed in the New York Times which frames the geostrategic question of supply in terms of Moscow's probable unwillingness to permit supply through its borders without some sort of assurance that NATO will not expand further in Eastern Europe. What he leaves unanswered is a) why it is in US--or NATO--interests to expand NATO and b) why any such interests trump the clear US and NATO interest in integrating Moscow into its defensive framework. That said, it is interesting that some advocates of rapprochement with Tehran have picked up this meme of Iran being a potentially critical partner in resisting Russian encroachment in Central Asia. I personally think that concern is overblown, given that Russian demographics will undermine, on their own, any truly expansionist policy--though certainly Moscow will try and strengthen its influence in the region. It seems to me that the regional balance of power is being slowly upset from other directions, even if with less bluster, and as a result of historical trends as opposed to policy.

7. Nariman Gizitdinov at Bloomberg reports that Kazakhstan has devalued the tenge by 18%, abandoning attempts to shore up the currency. On February 2, the government agreed to bail out its largest bank--BTA--exchanging 251 billion tenge for 78% of the company's shares. Astana has reportedly offered OAO Sberban, Russia's largest bank, half of its new stake.

8. Eric Watkins at the Oil & Gas Journal reports that in a state visit to Japan, Indonesian Vice-President Jusuf Kalla has reiterated Jakarta's determination to prioritize natural gas for domestic consumption against exports.

"I have spoken to the Japan Bank for International Cooperation (JBIC) that we will help Japan (meet their gas demand) as long as (the transactions) are under a win-win solution," Kalla said.

"We need gas for domestic consumption, but we also need to export gas for foreign exchange reserves," said Kalla who did not detail Indonesia's plans to export gas to Japan this year."

Jakarta wants to utilize gas for domestic power consumption in part due to environmental concerns, but largely due to a desire to export crude oil as opposed to natural gas. Oil is currently a considerable part of its power generation consumption mix, and gas can additionally be used to boost the production of oil fields via reinjection. The shift in priorities had raised alarm bells in Tokyo because they have long depended on natural gas imports from Indonesia for power generation--and because their long term contracts were originally made at what were, for the time, generous contract terms. However, the dilemma may, in part, be resolved over the course of the year by new LNG plants being commissioned, which has caused some to argue that the US will face a natural gas glut. (see Daily Sources 2/2 #11)

9. Peg Mackey and Alex Lawler at Reuters report that an OPEC source told them in an interview that OPEC may well cut another 1 mb/d in the upcoming meeting scheduled for March 15.

10. Grant Smith at Bloomberg reports that Saudi Arabia has raised the price of all crude grades for export in March.

"Saudi Arabia bolstered the cost of its Arab Light crude for US customers by $3/b to a premium of $1/b to the West Texas Intermediate benchmark. For buyers in Asia, it was increased 70 cents to a 25 cent premium to Oman and Dubai crude. In northwest Europe Arab Light was raised $1.70 to a discount of $3.75 against Brent crude."

Prices for Arabian Heavy to US customers were raised the most, by as much as $4.70/b.

11. Juan Cole at Informed Comment posts that according to statements made to the Iraqi Media Center, Prime Minister Nuri al-Maliki said, "The new US Administration has sent messages on its plans to withdraw the US forces ahead of the agreed upon schedule which is something we consider to be good." Meanwhile, Ernesto Londoño at the Washington Post reports that there have been serious allegations of election fraud committed by the Iraqi Islamic Party in Anbar province.



Voter turnout in Anbar was 42%, among the lowest in the country. The Iraqi Islamic Party currently holds 26 of 29 seats in the provincial council.

12. Elzio Barreto at the Reuters reports that Santander, JPMorgan, and HSBC have been hired to manage the sale of 10 year bonds by Petrobras to the international capital markets. On January 28, the CEO of Petrobras asserted that the cost of credit was too steep for the company to, at this stage, issue new bonds, saying "We don't need more funds." (see Daily Sources 1/28 #11)

13. Craig Whitlock at the Washington Post reports that Chancellor Merkel has strongly criticized the Pope's decision to rescind the excommunication of four bishops, given that one is a holocaust denier and doing so gives the impression that denial of the holocaust is tolerable. Merkel told reporters that, "The pope and the Vatican should clarify unambiguously that there can be no denial and that there must be positive relations with the Jewish community overall." Benedict XVI is of German descent.

14. Nick Bunkley at the New York Times reports that new vehicle sales fell by 37% in January. Hyundai and Subaru reported sales increases. Chrysler sales fell by 55%. GM sales fell by 49%; Ford: 40%; Toyota: 32%; Nissan: 30%; and Honda's sales fell by 28%.

"In general, carmakers and analysts expect sales this year of 10 million to 11 million vehicles, down from 13.2 million in 2008. Until last year, automakers had been selling about 17 million vehicles annually for nearly a decade."

For the first time last month, more cars were sold in China than in the US.

15. Phil Izzo at Real Time Economics reports that ADP released data today suggesting that the private sector lost 522,000 jobs in January. The Bureau of Labor Statistics is set to announce its unemployment data on Friday. ADP does not include public sector employment in its numbers, which is some cause of different unemployment projections from the more complete BLS reports.

16. The EIA reported today that crude stocks grew by another whopping 7.2 million barrels to 346.1 million barrels for the week ended January 30, above the historical range, but just a bit below the most recent high in 2006 of 352.6 million barrels. A Bloomberg survey of Wall Street analysts had expectations of a 3 million barrel build. Gasoline stocks built by 300 kb, are near the top of the historical range, and versus analyst expectations of a 800 kb build. Distillate stocks fell by 1.4 million barrels, but are still above the historical range. Linda Rafield at Platts reports that crude stocks at Cushing, Oklahoma, the nominal delivery point for CL contracts, grew by 832 kb to 34.335 mb. Stocks were at 17.88 million barrels above last year's levels. Taken in isolation, the news is very bearish for price.

17. Jim Tankersley at the Los Angeles Times reports that Steven Chu, Secretary of Energy, said in an interview that global warming could have dire consequences for California if it is not arrested. In the worst case scenario, 90% of the Sierra snowcap could disappear, severely cutting the supply of water to Californian cities and farms. Water shortages brought on by global warming would be seen throughout the American West and Upper West according to Dr. Chu. Worth reading in full.

Daily Sources 10/20

1. Brad Setser at Follow the Money has a piece on how the unlimited dollar currency swaps established by the Fed has eased the pressure on large institutions to purchase dollars, but that countries whose currencies have not been afforded unlimited dollar swaps, ie emerging economies, are facing tougher times as a result. Since a large percentage of debt worldwide is denominated in dollars, the lack of access to unlimited dollar currency swaps means that institutions exposed to such debt must either borrow the currency from their own central banks--which have plenty of dollar denominated debt on their books as well, generally speaking--or purchase dollars on the currency markets in order to service their debt.

Setser thinks this may make the gap between the G7 and emerging nations larger and deeper, balkanizing the international financial system in effect. His post is well worth reading in its entirety.

It occurs to me that many of the nations--with the exception of China--being forced to purchase dollars are export-oriented nations, whose interests are served by a weak exchange rate to the dollar insofar as their exports are thus more affordable in the importing nations--of which the US is the most significant.

As long as the price of oil does not climb too high, this might provide the underpinnings of a recovery. One set of nations scrambling for dollars under this "balkanized" scheme are the Gulf nations and most of the OPEC nations. Juan Forero of the Washington Post reports on some of the speculations regarding the effects on the Venezuelan economy. Ariana Eunjung Cha, also of the Post, reported on Saturday on US investors selling off their assets in the stock markets of the emerging economies is helping to push their currencies to new lows. It is bankrupting companies and leaving infrastructure projects unfinished throughout the emerging world. This includes Russia, Mexico, and I deduce Oman--three of the largest oil exporters which are not members of OPEC.

In terms of the rest of the G7, I imagine (as a non monetary economist) there would be less purpose to a strong dollar, especially given that the American share of consumption must fall until new credit can be credibly extended to the American consumer. Exports to the rest of the G7 could lead the way.

China, evidently, is not being affected by the currency swaps given its tremendous reserve of dollar holdings. Corporations do not need to turn to the international markets for dollars, but can simply turn to the Bank of China. However, Ariana Eunjung Cha reported today that China's growth in the third quarter, though high at 9%, was sharply below analyst expectations.

"Economists had expected China's exports to be affected by the slowdown in the United States and in Europe. But the extent to which other parts of its economy had deteriorated -- such as industrial production, government revenue and imports -- was a shock. This is the first time in more than five years that the National Statistics Bureau has recorded a single-digit GDP growth rate."

Analysts are widely quoted as noting that GDP growth must stay at at least 8%, as below that it no longer keeps pace with the growth in the size of the labor market--the number of workers.

Keith Bradsher at the New York Times reports that Beijing is moving quickly to stimulate the economy in response.

"As part of the new policy, the State Council announced that it would increase export tax rebates for everything from labor-intensive products like garments and textile to high-value products like mechanical and electrical products. Banks will be encouraged to lend more money to small and medium-size enterprises and support programs will be drafted to help farmers, the government said."

I wonder how welcome such rebates would be in Washington. Jim Yardley, also at the Times, reported yesterday that Beijing had decided to move forward with land reforms, which allow farmers to sell or lease the land to which they have "use rights."This at a time when high food prices have made farming a much more remunerative occupation in China than it has been in the past. Real Time Economics has a blurb from Hong Liang, an analyst at Goldman Sachs, which indicates that most of the decrease in growth actually comes from declines in domestic demand, as "the nominal trade surplus grew by 13.8% [year-to-year] in [the third quarter] versus -12.1% [year-to-year] in [the second quarter]." I find this hard to square with evidence such as the Baltic Dry Index--and suspect that the increase might have come as a result of the reduction in the cost of oil imports, but it's something to consider. Either way, just now it looks as if China is still mostly depending on exports for economic growth, mainly.

If all the above is a fair statement of the facts, I am led to ask the following questions:

A) If, hypothetically-speaking, China continues to buy dollars indefinitely in order to subsidize its exports, is it likely to alienate the rest of the (non-oil producing) export nation bloc? Presumably oil producers will benefit from a high-dollar currency exchange, even as the price of oil drops. Countries without oil reserves forced to purchase dollars in order to service debts might find this onerous, even if ultimately it would be likely to make their products even more competitive, on a currency-exchange basis, than China's. Would even such additional competitiveness serve to separate China's interests from most of the exporting economies ... except perhaps from Japan's?

B) If OPEC cuts its production, as most expect it to, what happens to the viability of continuing to rely on exports to the US? That is, if the price of oil goes up in response to OPEC cuts--and it did today and Friday, but that really means nothing even short term--at what price will the price of oil make exports to the US from the emerging markets non-viable? Muriel Boselli at Reuters reports that IEA Executive Director Nobuo Tanaka said at a news conference that "The IEA is concerned (an OPEC cut) might have a negative impact on the global economic recovery." Platts also reports that on October 17, UK Prime Minister Gordon Brown said, "I think it is absolutely scandalous that OPEC is thinking of meeting in the next few days to cut oil production so they can push up the price of oil again and we will certainly try and prevent this happening." On the other hand, the IEA is a political child of the consuming nations--which the UK is slated to become--and Nesa Subrahmaniyan at Bloomberg reports that London-based Goldman Sachs analysts said that the first cuts OPEC makes to production in a recessionary environment have historically not supported a price recovery, but only subsequent cuts did so.

The analysts also gave the following helpful estimations:Iran, Nigeria, Venezuela and Indonesia need a crude price of more than $80 a barrel to balance their national budgets, and the United Arab Emirates needs $30, while Saudi Arabia, the biggest OPEC member, requires $54 a barrel, the analysts said.

Aresu Eqbali at Platts reports that Iran's OPEC governor Mohammad Ali Khatibi thinks the organization will need to cut supply by 3 mb/d to see the price of oil recover. It is my sense that supply is still so tight that Iran, Nigeria, and Venezuela, were they to coordinate a cut independently of Riyhad, would be able to drive up the price. Barclays Capital, on the other hand, thinks that a 1 mb cut is unlikely to be made effective, given the imminent addition of 3 mb to the market.

I suspect that $54/b would sustain an export-based growth/recovery of the international economy, but am not sure about $80/b. The general consensus seems to be that supply capacity additions at the margin would require at least $70-80/b, in which case there may be no price at which the international economy can continue to grow on the back of international trade (where ships and planes run on oil anyways). So, to sum, at $54/b, international trade could underpin a recovery via exports, but would the balance of that growth go to nations other than China, given that their currencies will be much worse off vis-a-vis the dollar than the yuan? (The Bank of China has been keeping down the value of the yuan since June.) If that were to prove the case, would it make sense for China to stimulate demand for oil internally--putting it more at odds with the rest of the world?

C) If the dollar falls in value relative to the Euro, will Europe be the destination of choice for exporting countries, given the relative return? Is that possible given consumer behavior in Europe? If the US stops importing a considerable share of the world's exports, is it likely that debt will be denominated in Euros or Sterling? Will the Eurozone be the only area able to bear the cost of transportation inherent in oil-based trade?

D) We might expect the price of oil to rise as it should remain a decent hedge. As the price of oil relative to the Euro falls demand for oil might pick up in Europe--where a small percentage increase means a large absolute increase in oil demand. Would there be more enthusiasm for Euro-denominated oil contracts on the part of producers, even though Europe has been fairly serious about reducing consumption?

2. Stephanie McCrummen at the Washington Post reports that fighting between government forces and a renegade general in Eastern Congo has erupted, creating over 100,000 refugees.

3. Sahar Ahmed at Reuters reports that Pakistan was unable to secure a loan from Beijing and now is looking to the IMF in a meeting at Dubai slated for tomorrow.

4. Thom Shanker at the New York Times writes that the Chairman of the Joint Chiefs of Staff, Adm. Mike Mullen, is visiting Serbia. This is the first visit of a Chairman of the Joint Chiefs of Staff to Serbia.