Saudi Arabia said it will pump 200,000 barrels a day more oil for the rest of 2008. The FT says on its page one that is “completely negated” by a drop in production by Nigeria, where oil facilities continue to be attacked. Late last week, Chevron and Royal Dutch Shell said attacks would keep nearly 350,000 barrels from reaching the market through July.
But in a surprise move, Saudi Arabia said it will push its production capacity to 15 million barrels a day from 11.4 million. The Journal is skeptical:
A capacity increase of that magnitude would be extraordinary for a country that has never produced more than 11 million barrels a day. To get there, Saudi Arabia would have to squeeze greater quantities of oil primarily from huge fields that have been in production since as far back as the 1940s—far from a simple task.
Bloomberg says oil prices rose anyway.
The Journal reports on A7 that speculation now accounts for 70 percent of trading in benchmark oil, nearly double the total 37 percent it did just eight years ago. That’s according to a congressional subcommittee that’s investigating whether Wall Street speculation is driving the energy-price boom.
Bush administration officials, Wall Street banks and federal regulators have taken the position that speculation has played a minimal role in the recent surge in oil prices. But a diverse chorus of institutions and politicians is taking a different view, including the International Monetary Fund, the Saudi Arabian government, some big oil companies and both major presidential candidates.
The main targets of critics of speculative oil trading are pension funds and investment banks that never take physical custody of oil, but instead invest in oil futures contracts as a way to hedge against inflation and diversify their portfolios.
Obama said he would close the “Enron loophole” that prevents government oversight of energy trading, and push for more regulation of energy markets, the Journal and the Associated Press report. McCain has voted against the loophole.
Candidate of the corn
Speaking of Obama, The New York Times on A1 reports on the Democratic nominee’s advisers’ close ties to the ethanol industry, which his positions have supported.
McCain advocates eliminating the billions of dollars of subsidies that the ethanol industry gets a year, and McCain is right.
As a free trade advocate, he also opposes the 54-cent-a-gallon tariff that the United States slaps on imports of ethanol made from sugar cane, which packs more of an energy punch than corn-based ethanol and is cheaper to produce… Mr. Obama, in contrast, favors the subsidies, some of which end up in the hands of the same oil companies he says should be subjected to a windfall profits tax. In the name of helping the United States build “energy independence,” he also supports the tariff, which some economists say may well be illegal under the World Trade Organization’s rules but which his advisers say is not.
We’re sure the ethanol stance was critical for Obama’s campaign in that it helped him win Iowa, but it’s just bad policy. Good reporting by the Times in raising this issue.
Capital spigot starts to close
The Journal on C1 writes that the capital that investors have poured into troubled banks appears to be drying up. It reports that KeyCorp, for instance, had a difficult time raising capital earlier this month to shore up its balance sheet.
The change in sentiment could have sweeping implications for financial institutions that are trying to shore up their balance sheets by issuing stock and other securities to their investors. Some may be forced to lure investors with sweeter terms, further raising the costs of doing these deals.
The WSJ says most of the rescue capital that’s been dumped into banks has lost value, in some cases by more than 40 percent.
Monolines wipe out
The FT reports on page one that the monoline bond insurers, which were finally downgraded last week by the last of the credit-ratings holdouts, are in discussions with Wall Street about “wiping out” $125 billion of coverage on credit-default swaps in order to contain the fallout from the insurers’ woes.
How would this work? Hard to tell from the FT’s story.
Rumble in the terminal
The New York Times on C1 reports that the relatively recently merged Thomson Reuters is gearing up to take on Bloomberg in financial news and data.