Daily Sources 10/6

1. Germany decided on Sunday to guarantee all retail deposits in its banks, following on the decision in Ireland to guarantee six domestic banks and Greece's to do the same for the total amounts of all deposits. Britain has now decided to increase its guarantee on deposits from £35,000 to £50,000. Iceland's efforts to bail out its own financial system appear to have been overwhelmed by the size of the problem. This has led to more than one editorial calling for cooperation addressing the financial crisis in Europe, for example from The Economist, Wolfgang Münchau in the Financial Times, Daniel Gros and Stefano Micossi in the Wall Street Journal Europe as well as an editorial by the Wall Street Journal editorial board themselves. In an interesting counterpoint to all these calls for cooperation, former Fed Chairman Paul Volcker does not appear to think that increased international regulatory cooperation would necessarily be in our best interests.

2. Scott Lanman and Craig Torres at Bloomberg report that the Federal Reserve will double its auctions of cash to banks to as much as $900 billion.

To finance the Treasury's new plans, officials are considering changes to federal government debt sales, including a reintroduction of three-year notes. ... The Treasury also said that some of its cash-management bills may be ``longer-dated.'' ... In addition to the cash banks must hold at the Fed, lenders also sometimes place excess reserves. The central bank said today it will pay interest on those funds at the lowest targeted federal funds rate for each period less 75 basis points. That will put a floor under the actual fed funds rate each day and let the Fed `expand its balance sheet as necessary to provide the liquidity necessary to support financial stability.''

Michael M. Grymbaum of the New York Times reports that the DOW closed below 10,000 in response to all these efforts.

3. Freeexchange, a blog hosted by The Economist, has a very interesting piece noting that the past economic crisis which our current one most resembles might be that of 1873 and not 1929, according to financial historian Scott Reynolds Nelson. It began with a housing bubble which were complicated by investors relying on complex financial instruments and touched the globe. The blog piece suggests that what's in store for us now may be what was faced after the 1870s: robber barons and religious fundamentalism. (Watch out Bill Maher.)

4. Del Quentin Wilber at the Washington Post reported on Sunday that Xuighur Islamic separatists from China being in Guantanamo were being released to the United States, as sending them to China would likely result in their torture. The difficulties with the notion of an undifferentiated "war on terror," from the perspective of diplomacy, law, and just plain common sense, thus continue to wend their way through our lives.

5. Andrew Batson at Real Time Economics has a translation of the official statement of the People's Bank of China strongly endorsing the emergency financial rescue plan passed last Friday. It makes plain that the leadership in China believe their economic interests are closely entwined with the United States. It also has the following:

The People’s Bank of China will make financial and economic policies more predictable, targeted and flexible in order to maintain financial market stability and the sound and rapid development of the economy. The People’s Bank of China and relevant regulatory authorities have already drawn up plans to avoid and reduce the impact of the U.S. financial crisis on China.

An interesting sentence pair. You gotta wonder if it is good for the popular opinion of the plan in the US that the Communist government of China endorsed it.

6. Jose Llangari at Reuters reports that the Ecuadorian Oil Minister said that OPEC will analyze the effects of the financial crisis on the oil market and set production levels accordingly. Also today Ahmed Rouaba at Reuters reported that OPEC President Chakib Khelil said that he thought that oil prices would continue to fall next year. This is after several statements suggesting that OPEC was comfortable with $100/b, and then $90/b oil. This suggests to me that OPEC is slightly behind the ball here. Obviously, the real "decider" in OPEC is Saudi Arabia, and they have been worried about the high price environment for some time ... and it may well have been one of the precipitating factors in the current crisis. But I suspect that Riyadh is not likely to decide to put a high bottom on the price of oil in a climate where their two largest existing clients: the US and Europe (which together account for 45% of world oil demand) are broke and India and China (which have accounted for nearly all of the incremental demand growth in the last four or five years) have also lost their primary customers and, thus, the primary engines of economic growth in both.

7. Bracewell & Giuliani and Business News Americas' have released their Energy Outlook 2008, which includes the assessment that peak oil is likely 10 or fewer years away in Latin and South America and that most energy sector investors do not think that renewables will take up the slack. I did not purchase the report, but these two statements on their own are fairly significant. Given the new finds off Brazil's coast and the seemingly excessive mismanagement of Venezuelan oil production, I am somewhat surprised that the majority think that South and Latin America peak oil is so near. If so, they are likely right that renewables will not be able to meet the gap on its own ... and that nuclear will be one of the options South and Latin American leaders will be looking at. Which, in certain cases, will prove problematic.

8. Michael Evans at the London Times reports that two modern Russian capital ships, including a missile cruiser, sailed through the Strait of Gibraltar today on their way to Venezuela. (The ships being sent from the Russian naval base Severomorsk are evidently not of the same quality as these. It is also only the second time Russian naval vessels have passed through the Strait since the end of the Cold War.) In the meantime, Ellen Barry at the New York Times reports that Russia has begun to withdraw from its positions inside Georgia proper, five days before the agreed upon deadline. Nonetheless, hackles continue to be raised by the Russo-Venezuelan dalliance. Mary O'Grady, at the Wall Street Journal, who can always be counted upon for the most alarmist take-no-prisoners approach, noted, in contrast to most everyone else, that Venezuela announced last week that it was in talks with Russia to build nuclear power plants. Given the $/BTU cost of uranium versus oil or gas, this may make a lot of sense. But it obviously could provoke a more meaningful response in the US than what is taking place in Iran.

9. Tim Webb at the UK Guardian reports that Unilever, the gigantic food and consumer goods company, has come out against the biofuel mandates in the EU. Obviously, the are concerned about the increases to their input costs and have now publicly identified biofuel mandates as a significant cause.

Daily Sources 10/3

1. Lori Montgomery, Paul Kane and Shailagh Murray at the Washington Post report that the House passed the $700 billion financial stabilization package. The bill passed 263-171 with 91 Republicans voting for. Although it seems clear that something needed to be done, I am unclear on why so much pork (200 pages-worth) was necessary to do it.

2. Marc Lifsher and Evan Halper at the Los Angeles Times have the story that yesterday Governor Schwarzenegger sent a letter to Treasury Secretary Paulson informing him that California would likely require a $7 billion loan from the federal government within weeks given the current credit situation. California is the state with the largest economy of the states in the US and with one of the largest state government budgets. The most recently data has it as the 10th largest economy in the world. The US Bureau of Labor Statistics released data showing that employment declined by 159,000 in September. Unemployment at 6.1%. Why, given the situation, hasn't the dollar tanked versus other world currencies? This is the explanation I've heard most recently, though I cannot vouch for it:

Since mortgage bonds held by European banks were issued in dollars, the European banks need to have capital reserved in US Dollars (for regulatory reasons). Usually the banks use LIBOR for this funding, but since LIBOR has gone through the roof, the European banks have turned to the euro/dollar swap market. This is why the dollar hasn't tanked. But if the bailout package passes, and unlocks the credit crunch, LIBOR should go back to normal, which would then precipitate a sell-off of the dollar.

3. Patrick Hosking at The Times reports that Greece responded to widespread depositor withdrawals in that country by guaranteeing all deposits at all Greek banks whatever their size. Although it was previously reported that Germany had more or less doomed Sarkozy's pan European €300 ($414) billion financial stabilization fund, it is now being reported that Greece put the final nail in its coffin. Evidently the Irish decision last week to guarantee 6 banks operating there made them especially attractive to asset holders and money quickly started migrating there--putting further strain upon the banking systems of the other EU nations. The story has a pretty good recap of the events to date in Europe. Edward Cody and Kevin Sullivan at the Washington Post have a similar story on the difficulties European leaders are facing in terms of putting a unified response on the table. Nicolas Véron, a research fellow at Bruegel, has an op ed at the Wall Street Journal calling for centralized regulation of the markets in Europe. Another potential outcome to the current difficulties in the European financial sector. In this context, Andrew E. Kramer at the New York Times reports that Russian President Medvedev told a forum held at St. Petersburg State University that the era of US economic hegemony is over. “The times when one economy and one country dominated are gone for good.” He argued that the world does not want America as a "mega-regulator." German Chancellor Angel Merkel was at the forum, which was the 8th annual Petersburger Dialog, an effort to create stronger Russo-German ties, and responded that Germany, too, would “always support a multilateral approach” to market regulation. It does not seem to me that it is in Berlin's interests to realign away from Brussels and Washington towards Moscow, but plainly a message is being sent here.

4. Philip P. Pan at the Washington Post has the important story that one of the most important opposition parties in Russia, the Union of Right Forces, has decided to disband and establish a new party under Kremlin control. Anatoly Chubais, one of Russia's more prominent reformers, was one of the founders of the party and was involved in the talks that led to this move. How this would work in practice I have no idea.

5. Ellen Barry at the New York Times reports that a car bomb exploded at a Russian peacekeeping base in South Ossetia, killing 9 Russian soldiers. This comes 6 days before the agreed upon deadline for Russian troops to withdraw from Georgia proper altogether.

6. Karen DeYoung and Walter Pincus at the Washington Post report that the Defense Department will spend as much as $300 million over the next three years on private entities contracted to produce print and broadcast media in Iraq with the aim of winning hearts and minds. "The four companies that will share in the new contract are SOSi, the Washington-based Lincoln Group, Alexandria-based MPRI and Leonie Industries, a Los Angeles contractor."

7. Alex Lawler reports on the Reuters survey of oil firms, OPEC officials and analysts which has OPEC supply reducing by 310 kb/d in September (32.39 mb/d down from 32.70 mb/d). Most of the expected supply reduction comes from disruptions in Nigeria and Angola. Attacks in Nigeria took 60 kb/d off the market and the shut in of the Plutonio field (which has a capacity of 200 kb/d). Iran reportedly exported 50 kb/d less; Saudi Arabia 100 kb/d less (9.55 mb/d down from 9.65 mb/d.) (You'll note that taken altogether that equals 410 kb/d.)

8. Platts has the story that the Nigerian oil workers union Nupen has decided to put it plans to strike on hold as talks progress with Chevron. Chevron's current production in Nigeria is about 350 kb/d, down from capacity of about 450 kb/d due to unrest in the Delta State.

9. The Business Standard reports that Reliance Industry's new 580 kb/d capacity refinery in Jamnagar, India, is set to do test runs in the next couple of days and should be officially commissioned within a month. This refinery is sophisticated and meant to produce gasoline and diesel for the European and US markets. It will be able to process heavy crudes and thus should theoretically at least reduce demand for light crudes, ie the price you hear about in the papers. It will be one of the largest refineries in the world.

10. David Biello at Scientific American has the story that scientists at the Energy & Environmental Research Center (EERC) at the University of North Dakota have arrived at a process to refine canola (rapeseed), coconuts and soybeans into jetfuel indistinguishable from the crude oil derived process. This project is part of the U.S. Department of Defense's Defense Advanced Research Projects Agency (DARPA) and the jet fuel produced has a freezepoint of –47º C (–52.6º F) and a similar density and energy content as jet fuel refined from crude oil. Scientific American gave no details on the cost of the process, but the fact of it is very important as it presents a perfect substitution to kerosene. Department of Defense involvement also probably means that potentially high initial industrial production costs will not kill the project. (Air domination, of course, is central to American military strategy generally.) Furthermore, jet fuel is the only petroleum product which truly has a global market, as there are only two real commercial jet fuel specifications and in practical terms they are basically interchangeable.

11. Gerry Karey at The Barrel has a (kind of funny) report on Palin's strange understanding of the size of the Alaskan National Wildlife Refuge, as demonstrated in her ongoing interview with Katie Couric over the last week. I personally find it somewhat annoying that the candidate refers to energy as her "area of expertise."

Spot Life CL Nov '08 (wk 1)

Heh ... well if you remember the spot life of CL Oct 08 ended with a bang--a $16.37/b price increase to $120.92/b. (Traders were caught short and got squeezed.) But the very contract in sequence, CL Nov 08, had only gone to $109.37/b, a $6.62/b rise, large, but not in the historic fashion of its predecessor. This meant that people saw the price of oil go up $16.37 one day and down $14.31 the next, but reports merely saying that the price had only gone down $2.76 ... must of been confusing to the layman, eh?

Here is the reported causes table (sorry my trading week is a day longer than usual) but I doubt that the markets are behaving in a rational way ... or even if they are being moved by news of one sort or another. From my remove it seems as if the financial crisis has created a bit of feeling of terror behind those trading screens, but it is from a far remove. In the medium term, I think the fundamentals are signaling that the price must go down.



Still looks to me that oil is leading the Euro, not the other way around, but whatever ...



Forward Differentials ... nearly back to perfect contango again. Differentials look like they're widening.

Daily Sources 10/2

1. The Senate also yesterday passed the United States-India Nuclear Cooperation Approval and Nonproliferation Enhancement Act (H.R. 7081), which follows the news yesterday of France's nuclear agreement with India. It seems like the American Indian strategy, which was under a lot of pressure in recent months from other members of the Nuclear Suppliers Group and from domestic politics in New Delhi, has born fruit. The vote passed by 86-13. The bill also encourages India to sign the additional protocol to the non proliferation treaty:

"Congress urges the Government of India to sign and adhere to an Additional Protocol with the International Atomic Energy Agency (IAEA), consistent with IAEA principles, practices, and policies, at the earliest possible date."

2. John Bolton and Nicholas Eberstadt, neoconservative fellows at the American Enterprise Institute, have an op ed in the Wall Street Journal arguing that we should welcome instability in North Korea, because a united Korea would be an American ally. Yes, you read that right, the Wall Street Journal is giving space to people who are actually arguing that we should consider encouraging instability in North Korea. Difficult to believe.

3. Maureen Fan at the Washington Post reports that China will retain the restrictions on car use in Beijing that the government put in place for the Olympics. Beginning October 11, motorists will be prohibited from driving one day a week in the capital as well. There are 3.5 million cars in Beijing and about 1,000 are added to the fleet every day. This should make a significant impact on oil demand for the country.

4. Blaine Harden at the Washington Post gives no numbers, but reports that Japanese car sales to the US have "fallen off a cliff." "North American car sales ... account for more than half of the operating profits of Toyota, Honda and Nissan ...."

5. Carl Hulse and David M. Herszenhorn at the New York Times report that the Senate passed the revamped emergency financial stabilization bill last night at 9:20pm or so, EST. The vote was 74-25 and the bill has grown from the original three page proposal to 451 pages, which I doubt I will read. However, there are hundreds of provisions in the Senate proposal which are just pork, horse-trading, evidently, to get the bill passed. But, again, I have to wonder whether the House, given the intense scrutiny the bill is receiving in the press, will be willing to pass such a larded bill?

6. Alan Bjerga at Bloomberg reported yesterday that the US Agricultural Secretary, Ed Schafer, said that the credit crisis might affect the 2009 harvest. His argument makes sense, farmers may be unable to get credit in order to purchase the seed, etc., required to plant for the 2009 harvest. A major distinction between this crisis and the crisis of 1929, included in the linked article, is that farmers before the Great Depression were unable to sell their product at a profit and thus unable to repay their loans due to low food prices. This time it may be that farmers will be unable to get the credit needed to plant--despite an extremely high price environment and the reasonable expectation of a fair return.

7. Free Exchange at The Economist reports that Warren Buffett has agreed to make a $3 to $6 billion investment in GE in order to shore up confidence in the behemoth.

For an investment of $8 billion (between Goldman and GE), Mr Buffett is guaranteed $800 million in annual dividend payments, in addition to his equity stakes. Not bad. Not bad at all.

It beginning to look like Buffett will own all the cards in this economy soon.

8. John Kingston at Platt's the Barrel had a very interesting post yesterday giving three consequences of the credit crunch on the oil markets. 1) Oil traders are seeing their loan requests receive 10% interest rate offers. 2) In the southeast, where the country is facing gasoline shortages, petroleum marketers (usually small and independent of the majors) are seeing their credit lines tighten, which means that we hypothetically could see some retailers not even be able to purchase the gasoline to relieve the shortage, regardless of the logistical complications. 3) Volume in NYMEX's Clearport has more than doubled over the course of the last two weeks in September, as the clearing facility is backed by a guarantee which regular over-the-counter trades do not feature. In terms of the shortage in the Southeast, Tina Seeley at Bloomberg reported today that the US has approved the release of 900,000 barrels of crude to two unnamed refiners. The refiners will be named if they go ahead with the deal. There are stories of police officers being forced to carpool to work in that part of the country. We may see the south east become blue states if this situation continues.

9. Patrick Hosking at the London Times reports that France floated the proposal for a €300 ($414.4) billion pan European fund to stabilize banks across the Union. Evidently the plan was dead on arrival, though it's hard to tell definitively, and met with "skepticism" in London and "hostility" in Berlin. German Chancellor Angela Merkel's response was that Germany

could not and would not issue a blank cheque for all banks, “regardless of whether they behave in a responsible manner or not”.

People are now arguing that the situation for the European banks is even worse than they are for those in the US. Ambrose Evans-Pritchard at The Telegraph writes that European regulators allowed more creative accounting than was the case in America. He goes on to argue that the monetary union was fragile to begin with, essentially a means of setting a pace for political union, and that it might fall apart under the pressure of this banking crisis. (I have noted in the past that the Telegraph has a strong alarmist / yellow press streak, so salt is recommended.) A European emergency summit is tentatively scheduled for Saturday to include Italian Prime Minister Silvio Berlusconi, Angela Merkel, British Prime Minister Gordon Brown, and hosted by French President Nicolas Sarkozy. (h/t naked capitalism for both these stories) Vox has an open letter by economists to European leaders calling for a "systemic response" to a "systemic crisis." Political pressure is clearly mounting on both sides of the Atlantic. Carter Dougherty at the New York Times reports that Jean-Claude Trichet, president of the European Central Bank, is hinting at a rate cut. The Economist's View has analysis from Tim Duy which argues that a rate cut is also imminent from the Fed. It points out that "arch-hawk" Philadelphia Fed President Charles Plosser appears to be considering a rate cut, which likely means the rest of the Federal Open Market Committee already thinks one is necessary.

10. Norma Cohen at the Financial Times reports that UK housing prices fell 1.7% in September, which means that in 2008 prices have cumulatively fallen by 12.4%. It is the largest annual drop seen since housing prices were first actively watched and recorded in 1991. Evidently in 2007, fully 40% of home buyers were financing more than 100% of the price of the house purchased!

11. The Wall Street Journal Asia editorial board has a piece today criticizing the EU's evident determination to extend anti-dumping duties on shoes manufactured in Asia. They, however, are encouraged that some in Europe are beginning to think the tariffs are counterproductive. Perhaps, but it may prove difficult in a difficult economic environment to bring down any tariff regime. I would add that most economists argue that protectionist legislation exacerbated the 1929 financial crisis and created the Great Depression.

12. Ellen Berry at the New York Times reports that European monitors have entered the buffer zone in Georgia bordering South Ossetia. Russian President Medvedev has promised that troop withdrawals will take place "on time" in a news conference held with Spanish Prime Minister José Luis Rodríguez Zapatero in St. Petersburg. Medvedev also said:

“Today, we don’t have the kinds of ideological differences which could spark off a cold war or, for that matter, any other war ... .”

and remarked that cooperation was just as important for NATO as it is for Russia.

13. Angela Macdonald-Smith at Bloomberg reports that analysts at Merrill-Lynch have released a study which includes a low-growth scenario which would have oil bottom at $50/b next year. The scenario takes place in the event of a world-wide recession, which the analysts think is unlikely. I'm beginning to think it is likely, but doubt oil would go down that far even in the event of a global recession.

14. The Bahrain Tribune has the story that the although the UAE clearly has the money to pay, international banks may be unwilling to renew $20 billion in loans they have made to the government and businesses of Dubai. The crisis has already reduced enthusiasm for project finance in the region.

15. Jeffrey Fleishman and Saif Hameed at the Los Angeles Times report that operational control over Sunni fighters in Iraq is being transferred from the US to the government of Prime Minister Nouri Maliki. The US paid Sunni fighters about $300/month and that is what the Iraqi government is expected to pay. The Sunni fighters are considerably worried about their chances under the Shia dominated government--it has publicly questioned their loyalty and whether it can afford their services.

Daily Sources 10/1

1. Craig Whitlock, Mary Jordan, Edward Cody, Emily Wax, Shannon Smiley, and Karla Adam at the Washington Post report that Central Bankers around the world are becoming increasingly nervous as an American bailout plan continues to be delayed. Very nice survey article. Evidently the European response has been fragmented. So far they are unable to design a unified response. To paraphrase an old banker's saying: If you lend someone $1 million, he'd better watch out, if you lend him $1 billion, you'd better watch out. Andreas Scholz and Gabi Thesing at Bloomberg report that the head of the European Central Bank, Jean-Claude Trichet, said in an interview that US lawmakers must pass a bailout package. He refused to answer any questions about the rate meeting the ECB was holding tomorrow. Chris Giles at the Financial Times had a story yesterday on the various efforts foreign central bankers are taking to try and stem the fallout from the crisis. Also, Yves Smith at Naked Capitalism has an interesting analysis of the decision by the EU to impose more capital requirements on member banks shortly. She argues that imposing an requirement increase during the crisis would be counterproductive.

2. Jeff Fick at Dow Jones reports that Brazil announced two more offshore oil finds today. Petrobras and Anadarko both made the finds in the Campos Basin in the past 24 to 48 hours.



3. Jaspal Singh at the New Strait Times reports that seafood prices are surging in Malaysia due to fuel shortages. Catches have dropped by 60% since August 22nd as a shortage of subsidized diesel idled the fishing fleet. "Seafood prices are expected to rise by at least 20 per cent next week, with fears that prices could rise further if the fuel shortage persists."

4. Kim Graham of Sun Media Corp reports that Cameco is planning a $6 million expansion to their Blind River uranium refinery in Ontario, Canada. The refinery converts raw uranium ore into UO3, not quite yellowcake or U3O8 if I understand correctly, but still requiring further upgrading before it becomes nuclear fuel either way. The outlook for nuclear power is pretty good worldwide, considering the alternatives. But electricity demand may not jump as quickly as expected if growth in the export-model economies is essentially limited by oil prices. In that vein, Kaori Kaneko at Reuters reported today that the Northwest Airlines CEO said that the airline could be profitable at $100/b. Possibly, but I suspect the bar is lower for the continued profitability of the export-economies.

5. Jason Leopold at the Intelligence Daily reports that Secretary of State Rice gave a statement to the Senate Armed Service Committee which said she led high-level discussions about subjecting al-Qaeda detainees to torture techniques. (h/t informed comment) This gives the lie to statements by President Bush, Cheney, and others that the torture was done by a few bad apples and went forward without the OK of higher-ups. Well, at least the truth is finally out there.

6. Securing America's Future Energy, a program led by the Energy Security Leadership Council, has released a "National Strategy for Energy Strategy." I have not had time to actually read it, but it is likely to be influential. Its membership includes Maurice R. Greenberg (yes, that Greenberg), Edgar M. Bronfman (yes, that Bonfman), the current CEOs of Southwest Airlines (whose success with oil hedging has become famous), FedEx, the International Continental Exchange (ICE ... on which the basic Brent contract is traded and which was targeted in part by the commodities anti-speculation bill that recently passed the House), and Waste Management, Inc., among others. It also includes a rather illustrious roster of former generals and admirals.

7. Brian Burnsed at Businessweek reports that the gasoline shortage in the Southeast continues unabated. Remember the US decided not to ask for emergency gasoline supplies from the International Energy Agency (IEA), so presumably they expect this problem to resolve itself before the supplies would have arrived. The Energy Information Administration reported today that only one refinery in the Gulf (which is where the South East gets a substantial portion of their product from) remains shut down. However, they also report that "742,000 barrels per day of the original crude oil outage of 1.3 million barrels per day [remains] shut in."

8. Chris Frank at KAKE News reports that the Kansas Energy Council is considering lowering the speed limit in that state from 70 to 65 mph. "There is a seven to 23 percent increase in fuel consumption with each five mile per hour increase over 60." Welcome news as it seems our federal representatives do not have the guts to do something so straightforward (and in doing so making American security a priority). I believe the numbers are that if the US made 55 mph the national speed limit, then the country would consume 2 mb/d less. That would represent fully 10% of our current demand. It would represent about 2.3% of world demand. That could theoretically mean a 40% reduction in price--though it would be silly to promise that and I am suspicious of the supply elasticity numbers that have been thrown around by the petroleum economics community.

9. The US Department of Transportation announced today that Americans drove

"3.6 percent less, or 9.6 billion miles fewer, in July 2008 than July 2007. Since last November, Americans have driven 62.6 billion miles less than they did over the same nine-month period last year. Meanwhile, she said, transit ridership is up 11 percent, and in July, Amtrak carried more passengers than in any single month in its history."

In June, Americans drove 4.7% less than they did in June 2007. The Summer is the driving season in the United States, so it is too soon to see if the demand reduction will pass through the Fall, but the fact that prices are at the very least reducing "disposable" driving is a sign that this price environment erodes the largest and richest export market for oil--the US. If it can be extrapolated to Europe, the second largest, that suggests considerable demand destruction going forward. We know that in India and China the price environment is forcing the governments there to scale back subsidies of transportation fuels as much as is politically possible.

10. The EIA published This Week in Petroleum reporting a 0.9 million barrel increase in American gasoline stocks today. Analysts were expecting a 1-3 million decline, but stocks are still at historically (read lowest in 40 years or so) low levels. Crude stocks were up 4.3 million barrels, which put them in the middle range of historical levels, and were against a range of analyst expectations. Distillate stocks fell 2.3 million barrels to near the bottom of average holdings and consistent with analyst projections. Propane stocks grew 2.4 million barrels, but are slightly below the average historical range. This news should put downward pressure on crude prices.

11. Greg Robb at Marketwatch reports that the Institute for Supply Management's manufacturing index for September indicates that manufacturers cut down on production to 43.5% from 49.9% in August. "This is the lowest level since October 2001. ... This is the biggest drop in the index since 1984. The drop surprised economists." On the other hand, the Automatic Data Processing employment report released today shows that jobs "only" fell by 8,000 in September, which is less than expected, as per Real Time Economics. Jennifer Waters at Market Watch also has the story that credit card debt is "on the brink of imploding.