Daily Digest

Daily Digest 6/3 - Weak Economy Points To Obama's Constraints, Oil Output Soars As Iraq Retools, Merkel Rejects Debt Sharing

Sunday, June 3, 2012, 10:09 AM
  • In Economic Deluge, a World That’s Unable to Bail Together
  • Weak Economy Points to Obama’s Constraints
  • Merkel Rejects Debt Sharing As Obama Urges Europe Action
  • Oil Output Soars as Iraq Retools
  • Inter-Regional Trade Movements of Petroleum to and from the remaining Asia-Pacific Region, Part 11

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Economy

In Economic Deluge, a World That’s Unable to Bail Together (jdargis)

Moreover, there seems to be little willingness — or perhaps lit-tle ability — for the major countries to act together again. Squabbles have grown, some countries are in fiscal distress, and others face daunting domestic problems. The European situation is the most pressing. Banks are under pressure in many countries, for a combination of reasons. They did not raise as much capital as they might have when markets were more buoyant last year. In some cases, they appear to have been slow to recognize their real estate loan losses.

Weak Economy Points to Obama’s Constraints (jdargis)

Developments overseas have not helped either. American officials have complained as Beijing began letting its currency devalue again, making its exports cheaper and those from the United States to China more costly. And administration officials, and Mr. Obama himself, have lobbied leaders in Europe for more forceful action to promote growth or at least contain the threat of financial contagion there.

Merkel Rejects Debt Sharing As Obama Urges Europe Action (jdargis)

“Europe is having a significant crisis in part because they haven’t taken as many of the decisive steps as were needed to deal with the challenge,” he said at a separate event in Minneapolis.

Energy

Oil Output Soars as Iraq Retools (jdargis)

“Iraq helps enormously,” said David L. Goldwyn, the former State Department coordinator for international energy affairs in the Obama administration. Even if Iraq increased its oil exports by only half of what it is projecting by next year, he said, “You would be replacing nearly half of the future Iranian supply potentially displaced by tighter sanctions.”

Inter-Regional Trade Movements of Petroleum to and from the remaining Asia-Pacific Region, Part 11 (Crash_Watcher)

In view of the large discrepancy between the remaining Asia-Pacific region’s growing consumption rate and flat to declining production rate, it is no surprise that inter-regional import rates over the last decade have increased from 3 billion barrels per year in 2000 to 4.1 billion barrels per year in 2010, while inter-regional exports are flat to declining at 0.6 to 0.7 billion barrels per year. These imports amount to 82 percent of the remaining Asia-Pacific region’s total consumption. In 2010, the remaining Asia-Pacific region was importing about 24 percent of the total global inter-regional import pool, which is just slight below the 27 percent imported by the European region. Similar to Japan, the remaining Asia-Pacific region is highly dependent upon one region for these imports—over 70 percent of its inter-regional imports come from the Middle East with a much smaller, and declining, amount coming from Africa.

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13 Comments

pinecarr's picture
pinecarr
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Bank of England to consider £50bn stimulus for economy

 Per an article in the Telegraph, 'Bank of England to consider £50bn stimulus for economy"

Bank of England policymakers may opt to inject a further £50bn of stimulus into Britain’s ailing economy this week, according to leading economists.

http://www.telegraph.co.uk/finance/economics/9308789/Bank-of-England-to-consider-50bn-stimulus-for-economy.html

"Up until now we had been arguing the Bank would sanction no more QE after ending the previous programme last month. But conditions have worsened."

"The MPC cannot ignore this weaker news and we have thus changed our call for £50bn more quantitative easing to be announced at the June 7 policy meeting," he said.

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pinecarr
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Clinton in Arctic: Promenade with profit in mind

Per http://www.rt.com/news/clinton-arctic-profit-norway-860/

As Arctic ice recedes, exposing vast deposits of natural resources and new sea routes, US Secretary of State Hillary Clinton boards a research vessel in Norway’s northern town of Tromso, to demonstrate America’s interests the Arctic riches.

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pinecarr
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Shipbuilders in troubled waters

http://www.koreatimes.co.kr/www/news/nation/2012/06/182_112293.html

 

Korean shipbuilders are caught between a rock and a hard place. The prolonged global economic downturn has ship owners killing orders or requesting a postponement on deliveries as they struggle to cope with the financial squeeze. This has Korea’s once-mighty shipbuilding industry down on all fours.

Shipbuilders say they are struggling to cope with a growing inventory of unsold ships, which they put up for resale at belowmarket prices but still struggle to get off their hands. This desperate measures trigger a vicious cycle where potential buyers demand for even lower prices for their ships, industry sources say.

Daewoo Shipbuilding and Marine Engineering (DSME) is scrambling to find takers for two 320,100 deadweight tonnage (DWT) crude carriers, after Taiwan’s Today Makes Tomorrow (TMT) withdrew the orders for the ships it ordered for in 2007.

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TFGC
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Ireland looking for a Chief Economist

http://www.linkedin.com/jobs?viewJob=&jobId=3127176&srchIndex=129&trk=nj...

http://www.publicjobs.ie/publicjobs/campaignAdvert/5120.htm?=CEF+001

"...Department is working for the period 2011 to 2014 towards achieving the following principal goals:

1. A resilient Irish economy founded on sustainable and balanced growth and leading to significant increases in employment numbers,

2. A sustainable macroeconomic environment and sound public finances,

3. An improvement in the living standards of our citizens,

4. Return by Ireland to international debt markets so as to achieve an exit from the EU/IMF funding programme at the earliest possible date,

5. Completion of the restructuring of the banking system and a vibrant, secure and well regulated financial sector. 
"

 

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crash_watcher
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Iraq helps enormously?

Really?  Let's look at some numbers.

According to the article, Iraq is producing 2.5 mbd and the Iraq government thinks it can add another 0.4 mbd by the end of next year (meaning the end of 2013).    

According to the EIA (http://www.eia.gov/cabs/Iraq/Full.html), Iraq exported 1.8 mbd, or about 73% of its production of 2.4 mbd.  And, a good deal of those exports went to Europe (22%) and Asia (47%).  

Oil exports from Iraq to the USA amounted to 0.41 mbd, or, 22% (see AER 2011 http://205.254.135.24/totalenergy/data/annual/showtext.cfm?t=ptb0504).  That’s actually down from to 0.63 mbd the USA imported from Iraq in 2008 and 0.79 mbd in 2001.

So, let’s consider the importance of that additional 0.4 mbd that may come online by the end of 2013.  If 73% get exported that’s down to 0.29 mbd, and if 22% that exported amount goes to the USA, that’s 0.064 mbd. 

And how does this compare to the USA’s consumption rate?

Well, 0.064 mbd is 0.34% of the USA’s total consumption rate of 18.5 mbd in 2011 (http://www.eia.gov/dnav/pet/pet_cons_psup_dc_nus_mbblpd_a.htm).  

And how much oil does the USA presently get from Iran?  Zero. 

Helps?  Sure

Enormously? No

If Iraq ever does produce 10 mbd, the bulk of that oil will go to Asia, which has been the growing trend for at least the last decade. 

 

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Oil is fungible

crash_watcher,

It doesn't really matter who get Iraq's oil. If it all went to the US, then oil from producing countries that the US currently buys from would go to Europe and Asia. If they took all of Iraq's oil, they wouldn't be buying as much from other sources. We would then have tankers delivering oil from other countries.

Can Iraq raise their output to levels they are claiming? Doubtful. If they are successful and pump 10 or 12 MBPD, at best, their fields will run out that much sooner. The extra income will likely cause those in power to "invest" in security devices intended to keep terrorists from harming the cash cow. They will likely abuse the power and cause widespread upheaval among the populace.

Grover

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Oil is fungible
Grover wrote:

crash_watcher,

It doesn't really matter who get Iraq's oil.

I agree, but now let me throw one more spanner in the works......  how many barrels a day will global production deplete by over the next 15 months?

I bet it's way more than any increases in Iraqi production.....

Mike

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Oil is somewhat fungible, but not completely fungible...

... because "oil" is not a single homogenous commodity. 

Moreover, oil like any commodity, oil will go to the places where it is valued the most.  And the trend has been for Middle Eastern exports to shift from the USA and Europe and towards Asia, in particular China and other Asia-Pacific countries, other than Japan (see e.g., Figure 10 of http://crash-watcher.blogspot.com/2012/04/part-7-inter-regional-trade-movements.html). 

Damm, to me, the more important, or interesting, question is: how will the size of the global export pool of oil change going forward?  Will the pool go down, as production goes down and domestic consumption go up (the classic ELM view), or will it go up or stay steady, as the net exporting countries continue to export in the face of declining production, e.g., because they need the foreign income? 

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Grover
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Power source
crash_watcher wrote:

... because "oil" is not a single homogenous commodity. 

crash_watcher,

You are absolutely correct that oil is not completely fungible. If it were, the only difference between WTIC, Brent, and sour KSA would be the cost of transportation. Nonetheless, your original post concerning the amount destined for American shores was disingenuous. If Iraqi oil were to be removed from the global mix, all grades of oil prices around the globe would be significantly higher. The same for Iran's oil. If they are removed from the global markets by US sanctions, all other oil will trade at a higher price.

crash_watcher wrote:

Moreover, oil like any commodity, oil will go to the places where it is valued the most.  And the trend has been for Middle Eastern exports to shift from the USA and Europe and towards Asia, in particular China and other Asia-Pacific countries, other than Japan (see e.g., Figure 10 of http://crash-watcher.blogspot.com/2012/04/part-7-inter-regional-trade-movements.html). 

Damm, to me, the more important, or interesting, question is: how will the size of the global export pool of oil change going forward?  Will the pool go down, as production goes down and domestic consumption go up (the classic ELM view), or will it go up or stay steady, as the net exporting countries continue to export in the face of declining production, e.g., because they need the foreign income? 

I can't agree more. This is the more interesting question! Classical economics says that higher prices encourage producers to produce more; however, at some point, producers have to realize that their oil is worth more in the ground than in the fiat bank. This is particularly true once a country realizes that all the competition has to deal with Hubbert's peak. But what happens when noneconomic drivers come to the forefront? The US has military outposts in the vast majority of foreign countries. We use this military might to ensure that our "national security interests" are properly addressed.

Damnthematrix wrote:

how many barrels a day will global production deplete by over the next 15 months?

I bet it's way more than any increases in Iraqi production.....

Mike

As long as our military is forced to act like the goons who steal junior high school nerd's money, we'll have enough oil to maintain a semblance of economic sufficiency. Once our power drops below the threshhold of world dominance, we are toast. Some other goon nation (who has lived under the tutelage of the US) will try to ascend the power pyramid and assume the role we perfected. Their first assignment will be to destroy the previous emperor. The big question is whether or not there will be enough global production of any grade left to matter at that point.

Grover

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RE Power source

Hi Grover, some interesting comments.  Thanks!

at some point, producers have to realize that their oil is worth more in the ground than in the fiat bank

There have been some signals from the King of KSA that he wants to leave some oil in the ground, for "future generations," but it remains to be seen if he can actually do this and keep the country stable.  KSA and many other governments in the ME are highly dependent on exports for their income.  When that export income starts to end, the country coincidently starts to fall appart (e.g., Egypt, Yeman, Syria). 

Once our power drops below the threshhold of world dominance, we are toast

 

Although the USA as a global dominant nation may be winding down, in my opinion, it will still have enough influence, at least in the western hemisphere, to maintain some flows of oil imports, and, the USA certainly could get by with proportionately less oil consumption, as compared to some other regions. 

 

 

Nonetheless, your original post concerning the amount destined for American shores was disingenuous

My statements about the amount of Iraqi oil going to the USA were just statements of fact, based on the EIA references cited, and, not my opinion or guess.  It is also a fact that the trend for the last several year has been for less Iraqi oil (or ME oil in general) to go to the USA.  I don't see any evidence to suggest that this trend is going to change anytime soon.   If an important military objective in Iraq really was to get vastly more oil exports to flow from Iraq to the USA, then it has been a dismal failure, so far. 

 

 

 

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Strange game. The only winning move is not to play.
crash_watcher wrote:

There have been some signals from the King of KSA that he wants to leave some oil in the ground, for "future generations," but it remains to be seen if he can actually do this and keep the country stable. KSA and many other governments in the ME are highly dependent on exports for their income. When that export income starts to end, the country coincidently starts to fall appart (e.g., Egypt, Yeman, Syria).

Agreed. There are economic and political forces that cause potential money generators to be extracted on the supplier's sides. On the other side, we've got the US military saying that we need the oil for our national interest and if you don't pump it, we'll take that as an assault on our country.

crash_watcher wrote:

Although the USA as a global dominant nation may be winding down, in my opinion, it will still have enough influence, at least in the western hemisphere, to maintain some flows of oil imports, and, the USA certainly could get by with proportionately less oil consumption, as compared to some other regions.

We will always be able to maintain some oil flows; however, our entire lifestyle is predicated on "energy slaves" doing the hard work. On average, every American has the equivalent of 110 slaves transporting, heating, cooling, lighting, growing, removing, etc. etc. etc. Without our military to enforce our will with the people who export this valuable commodity, our country will be relegated to 2 1/2 world status. Extend your time horizon a bit. What do we offer that adequately compensates for the energy density of oil ... food? financial securities? American Idol? 

crash_watcher wrote:
Grover wrote:

Nonetheless, your original post concerning the amount destined for American shores was disingenuous

My statements about the amount of Iraqi oil going to the USA were just statements of fact, based on the EIA references cited, and, not my opinion or guess. It is also a fact that the trend for the last several year has been for less Iraqi oil (or ME oil in general) to go to the USA. I don't see any evidence to suggest that this trend is going to change anytime soon.

 

Agreed that your statements were based in fact; however, you alluded that we weren't getting our share of oil out of the deal. I merely tried to correct that insinuation by acknowledging the fungibility of oil (granted, not completely fungible!) The MSM keep harping on these same statistics as reasons why we should go to war or why war won't cost us that much anyway. The idiots who listen to the MSM for "complete and balanced coverage" actually believe the tripe. You are smarter than that. Whip up the masses to do the right thing.

Here's a likely scenario: All the oil that can be pumped will be pumped. It will be sold to whichever group provides the best compensation package. It doesn't matter which group or country gets whichever drop of crude. If a country misses out on getting enough, it will bid up the next marginal barrel. Once the price is too high to make economic sense to the next highest bidder, the price will be set. Those with enough oil won't want to expend an extra penny to secure a wee bit more. At some point the bidding always ends.

Think about this dynamic when the amount of oil on the market drops a little bit each and every year. Will the US still be able to maintain its incredibly complex organization to outcompete the smaller, more nimble countries? Will we want to police the world with our military when everything is literally falling apart here? When things get bad enough, the military's paychecks will be worthless and the personnel will just walk away from the job.

crash_watcher wrote:

If an important military objective in Iraq really was to get vastly more oil exports to flow from Iraq to the USA, then it has been a dismal failure, so far. 

Oil is more fungible than you are willing to admit.

Do you think the objective with the Iraqi war was to get more oil for the US? Perhaps that was implied, but the war was an incredible job creator. The US is best at manufacturing high tech weapons in the whole darn world. Those weapons are worthless if not expended. Once expended, they must be replenished. That puts people to work in (coincidentally) every congressional district in America. If someone in congress wants to cut a military program, they'll be putting their constituents on the unemployment line. Do you think any congressperson is stupid enough to do that? Come to think of it, it isn't a coincidence. The military industrial complex has aligned our selfish interests with theirs so we will fight to make them richer.

Who cares that XXXXXX people are injured, permanently injured, maimed, or killed? Our blue collar workers have high paying jobs, and the stockholders are getting rewarded for being patriotic enough to invest in an American company ...

All right ... sarcasm off! crash_watcher, the situation is too fluid to pin on a board and too porous to fill a cup. We're all pawns in this game. The key is to figure out how not to play.

Grover

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RE: Strange

Again some interesting comments, Grover!

 

Without our military to enforce our will with the people who export this valuable commodity, our country will be relegated to 2 1/2 world status.

The reason why I don’t think that the USA will drift into “two and half-world” status anytime soon is that the USA’s present per capita oil consumption rate is about 25 barrels per person per year (bs/py) whereas South Korea, Japan, and many European countries are about half that amount—and these are still developed "first world" countries (see e.g., Figure 16; a shameless plug for my blog).   In my opinion, this means that the margin for oil consumption decline in the USA without catastrophic effects is much larger than in many other countries.  

For example, consider a hypothetical case where the USA’s oil consumption rate declined by 40-50%,  which could be the case if all imports, other than that from the W. Hemisphere, to the USA stopped, (see e.g., my comment here; shameless plug for Bill Hick’s The Downward Spiral blog), and, domestic oil production continues as is.  This would still put the USA’s per capita consumption rate at about 12 bs/py, which is the about the same or better than those other developed countries presently.   In comparison, a 50% decline in oil consumption rates in Europe, Japan or S Korea, would put these country’s per capita, consumption on par with Russia or Brazil today.  And a 40-50% decline in China’s or India’s present consumption rate (about 1-2 bs/py) would shift these countries back into third world status.  

Do you think the objective with the Iraqi war was to get more oil for the US? Perhaps that was implied, but the war was an incredible job creator.

What I said was that, “If an important military objective....”  

I don’t know what goes on inside the minds of those of those in the beltway.  Certainly there are some, like Michael Ruppert, who think that Iraq was all about getting oil (see e.g., his Crossing the Rubicon).  But at the same time, there is evidence that war and military spending do not create jobs over the long run. (see e.g., Dean Baker 2007).  I think that this is a variation of the Broken Window fallacy, something that Steve (aka, kemosavvy around here) covered in a very entertaining interview recently (now shamelessly plugging Two Beers with Steve)

 

Agreed that your statements were based in fact; however, you alluded that we weren't getting our share of oil out of the deal. I merely tried to correct that insinuation...

What I said was that “If Iraq ever does produce 10 mbd, the bulk of that oil will go to Asia, which has been the growing trend for at least the last decade.”

I think that any perceptions about disingenuous statements, allusions or insinuations about “our share” of oil..., are actually coming from your own mind (or maybe MSM), and not from what I said.  I'm am just looking at the data and it's trends. 

My initial comment was intended to communicate was that the reported possible future uptick in Iraq’s production will have very little effect on the USA. What is disingenuous, in my opinion, is the reported statement in the article from former State Department coordinator Goldwyn that, “Iraq helps enormously.” It doesn’t.

 

The key is to figure out how not to play.

In my opinion, I don’t think most of us will have much choice but to continue on as part of society, because this is going to play out over a fairly long time, possibly decades, and, you will not be left alone.  As Orlov says, just gently ride it down to a stop and then step off.

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Good shameless plugs

crash_watcher,

Those were some good shameless plugs. This ain't going anywhere, so I'm bowing out. We'll both have front row seats when it plays at a theater near us. The script will likely play differently than either of us imagine.

Grover

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