Russian Oil Production Stats
– We seem to be having Oil Production Update Week here at Early Warning, and today it’s Russia (currently the largest oil producing nation in the world). In the 2007, 2008 timeframe it appeared that the Russian resurgence was over with production peaking and starting to go down, as Russia struggled to maintain production from all the worked-over Soviet-era oilfields in West Siberia, with limited new projects to bring on line. But then in 2009 there was another half mbd increase (apparently mainly from East Siberia). Now in 2010, it appears this latest increase has been slowing down again, though I certainly wouldn’t want to call peak on it.
Iranian Oil Production Stats
– The graph above shows Iranian oil production according to four data sources: the Oil and Gas Journal (but only updated through 2008), the International Energy Agency (IEA), the US Energy Information Agency (EIA), and the Joint Oil Data Initiative (JODI). There is considerable dissension over what Iranian production has been doing. The Iranians themselves reported to JODI that their production fell sharply about 0.5mbd when OPEC decided to cut back production to support prices in the great recession. However, the US EIA and the IEA in Paris report that any cutback was non-existent (EIA) or small and uneven (IEA), with production recently presumably being pretty much Iranian capacity. Since the current Iranian regime is clearly dishonest and corrupt about other matters (its nuclear facilities, its presidential elections), I’m inclined to believe the international agencies. Therefore, I wouldn’t expect large increases in Iranian production any time soon.
A Single Trader, JP Morgan, Holds 90% Of LME Copper
– When a week ago we reported
that JP Morgan has denied it owned more than 90% of the copper positions on the LME, we suggested that this could very well
mean that Blythe Master’s firm could just as easily control 89.999% of the copper and still not misrepresent the truth per that non-commital press release. Turns out our unbridled cynicism was spot on as usual. The Wall Street Journal has just reported that in the copper market "a single trader has reported it owns 80% to 90% of the copper sitting in London Metal Exchange warehouses
, equal to about half of the world’s exchange-registered copper stockpile and worth about $3 billion." Oh and yes, while JP Morgan technically is not singled out, we will be delighted to issue a retraction the second JP Morgan approaches us with a refutation that it is not
the trader in question. And while we are at it, we also will repeat our claim that it was indeed JP Morgan that reduced its massive silver position, as per the recent FT article: as above we will immediately issue a retraction and apologize should JPM’s legal department contact us that we are wrong on this. Somehow we don’t think that will be an issue.
Bond Market Rejects Fed’s Unconditional Love – How’s that QE2 working out for you? To answer the question, we first have to establish the goals of a second round of quantitative easing as laid out by Federal Reserve Chairman Ben Bernanke. The Fed’s purchases of U.S. Treasuries “affect the economy primarily by lowering interest rates on securities of longer maturities,” Bernanke explained in a Nov. 19 speech in Frankfurt. Lower rates equate to more “accommodative financial conditions,” he said. Oops. Bernanke went on to say that QE is really a misnomer for what the Fed is doing. Quantitative easing works by increasing the quantity of bank reserves. Treasury purchases, on the other hand, “work by affecting the yields on the acquired securities” and forcing investors to buy higher-yielding, riskier assets, he said. Thanks for the clarification. Based on those metrics, how is QE2 faring? As for the primary intent of QE2, which is to lower long- term interest rates, that hasn’t worked out according to plan. Not so, say some observers, who argue that the rise in long-term rates is prima facie evidence QE2 is working, that higher rates correlate with stronger growth. That was quick. What happened to those “long and variable lags” with which monetary policy is said to operate?
Spanish €3.88 Billion T-Bill Auction Results: Weak Despite China Support
– One look at the overnight EURUSD chart shows a straight vertical line up earlier in the session (at least before an almost comparable and equal line straight down following the Portugal action by Moody’s), which was driven by news that Chinese vice premier Wang Qishan expressed his support for EU efforts to ensure financial stability. Yet the biggest indicator of just how bad sentiment in Europe continues to be, China support or not, are the results from the Spanish T-Bill auction. And after auctioning €3.88 billion in 3 and 6 Month T-Bills off earlier today, the yields rose once again to record highs. The 3-month T-Bill auction for €3Bln came at a bid to cover 2.14 vs. Prev. 2.34, at a yield 1.804% vs. 1.743% previously
. Just as disappointing the 6-month T-Bill for €0.88bln, came at a bid to cover of 5.15 vs. 2.65 previously, importantly at a yield of 2.597% vs. Prev. 2.111%
. In other words, despite billions of ECB sovereign bond purchasing, and despite the recent shift in sentiment that Europe is not in free fall, arrested after Reuters spread false rumors that the IMF would bail out Europe, things are once again turning ugly for the continent, as there is no way that a country can sustain its funding needs when the 3 Month cost of credit is at such a huge differential over 3M Euribor, which today clocked at 1.022%.
Guest Post: America’s Childlike Desire to Avoid Making Trade-Offs
– We want everything and we want it now, and we don’t want to sacrifice anything to get it. Our solution is pathetically childlike: just borrow trillions of dollars every year to buy what we want, so no adult trade-offs are ever required. Just buy our energy from somewhere else so we don’t have to make any sacrifices or balance competing demands…We want abundant, cheap energy, and we want someone else to supply it to us so we don’t have to make any difficult trade-offs. We want all our entitlements and we also don’t want higher taxes. Isn’t this the acme of childish fantasy? When pressed about energy, we want to hide behind fantasies of fusion, or algae-based fuels, or some other technology which has been "10 years away" for the past 30 years or which is 20 years away from scaling up to industrial production, if ever. Our ignorance of the actual science is breathtaking, but we refuse to consider the possibility that breeder reactors and algae-based fuels may not pan out. At some point, probably within the next 5-6 years, the oil exporters will stop shipping their hydrocarbons to us in sufficient quantities to meet our demands, and bond buyers will stop trading their capital for absurdly low rates of return on U.S. Treasury bonds. Once it costs $1 trillion just to pay the interest on existing (and rapidly ballooning) debt, then we won’t be able to borrow enough to fund the Empire and the Savior State and the interest. Trade-off time will finally be forced upon us.