Oil, Oil, Everywhere

By Kevin Drum

May 7, 2008

OIL, OIL, EVERYWHERE....The price of oil closed at $122 today. But where's it going next? According to this AP dispatch, one analyst thinks it's likely headed up to $200 while another thinks it's probably headed down to $80. Yawn. This reaction, however, grabbed my attention:

"It's not that the genie is out of the bottle — it's that 100 genies are out of the bottle," said Daniel Yergin, chairman of Cambridge Energy Research Associates. Normally known for optimistic forecasts of lowering oil prices, Mr. Yergin's firm now says the price could rise to $150 a barrel this year.

The world's diminished spare production capacity remains the strongest single catalyst for high prices, Mr. Yergin says. The world's safety cushion — the amount of readily available oil that could be pumped in a moment of crisis — is now around two million barrels a day, according to most estimates. That's just 2.3% of daily demand, and nearly all of the safety cushion is in one country, Saudi Arabia. Everyone else is pretty much pumping all they can, which makes the world vulnerable to political or other shocks.

Saying Daniel Yergin is an optimist is like saying Chris Matthews is annoying. Yergin basically thinks peak oil is Luddite crankery and that new technology will allow us to continue increasing production for at least the next several decades. He's the Pollyanna of the oil patch.

Now, I'm sure he'd say that his current pessimism is based not on a fundamental reevaluation of recoverable reserves, but instead on "aboveground" issues: political instability, terrorism, lack of investment, and so forth. Still, if even Daniel Yergin thinks oil prices are headed upward, it's a pretty good guess that oil prices are headed upward.

Way interesting. Oil is well over $120/bbl as I write this. The nature of bull markets is that folks who've been bearish all along start throwing in the towel and getting on the bullish bandwagon late in the game. When you can't find a pessimist; it is a sign the bull market is getting old.

But, as a wise friend pointed out; the end of a bull market is where the most spectacular profits can be made. He pointed out some history on this, especially the NASDAQ tech bubble that happened a few years ago. Check out the chart below:














Half the NASDAQ bubble gains were made in the last four months of its bull market, roughly between November 1999 and March 2000. Prior to that; it built fairly steadily at a minor geometric pace since 1995. This shows up a bit more clearly on the log plot below:
















Using the NASDAQ bubble as a basis to quantify estimates, could Yergin throwing in the towel be a sign we are going to have a "superspike" on oil prices that may double current prices? Possibly only lasting months and followed by a crash down to 25% or so of the peak price? The most amazing profits are made in the last legs of a bull. What separates the men from the boys is: who's got the guts to stick in to get to the peak and who's got the brains to time the sell at close to the peak?

Time will tell. If I really knew the answers to such a question I'd be rich! Sure gets my Spidey Sense tingling though.

Oil Price May Go Up to $250, Warn Experts

Syed Rashid Husain

Crude prices continue to baffle analysts and pundits. With the $100-era a well established fact in our daily life, there is now a growing chatter within the energy fraternity that $200 a barrel may not be a far fetched idea altogether. Is another global oil shock now gathering pace?

With limited additional supplies, alternative fuel still some decades away and demand far from collapsing, Deutsche Bank is pointing to a “huge risk” that oil prices would continue to rise in the near to mid-term.

“There is a huge risk that the oil price simply continues to escalate until it gets to some level (possibly $250) when demand finally collapses because ordinary people can no longer afford to burn as much energy as they are burning now,” Adam Sieminski, Deutsche Bank’s chief energy economist, wrote in a report last Friday.

Pointing to the reasons behind the analysis, Sieminski underlines, “Oil supply growth in non-OPEC countries is struggling at a time when OPEC has been cautious with its production policies.”

In order to analyze the situation further, we need to look at historical facts too. In the early 1980s, oil demand collapsed only after nominal oil prices rose by a factor of 10 between 1970 to 1973 and 1980 to 1983, from about $3.50 a barrel to $35. Based on the empirical example of factor of 10, Sieminski deduces that since oil averaged about $25 a barrel from 2000 to 2003, prices would have to increase to $250 a barrel in 2010 to 2013 to have the same effect on oil users this time around.

Sieminski continues to argue that strengthening of the dollar would take time to stem the flow of investment into commodities, and alternative energies, such as solar power or biofuels, are at least a decade away from contributing to energy supply.

A Bloomberg report also quoted information provider Global Insight as projecting that crude oil could peak in the US at $135 a barrel in the next two months. Oil might rise to $135 as the declining dollar draws investors seeking a currency hedge, before new supplies see prices fall, Global Insight’s Simon Wardell was quoted as saying.

And in the meantime, OPEC president Chekib Khelil too has joined the chorus, hinting at significantly firmer crude markets in the near term. Projecting that oil prices could even hit $200 a barrel, Khelil blamed weakness in the dollar and global political insecurity for the current market woes. Establishing a direct relationship between the sinking dollar and the ascending crude prices, Khelil claimed that with the dollar losing one percent of its value, oil prices rise by $4 a barrel and vice versa.

Talking to Algeria’s El Moudjahid newspaper he argued, “I don’t think that any increase in production could help lower (crude) prices, because there is a balance between supply and demand and the stocks of gasoline in the United States have recorded a surplus and are at their highest level for five years.”

And OPEC has a point. Energy futures fell sharply last Wednesday after surprising jump in the US crude oil and distillate fuel inventories last week. In its weekly inventory report, the US Energy Department’s Energy Information Administration said crude oil inventories rose by 3.8 million barrels, more than double the increase that analysts surveyed by energy research firm Platts had expected.

Meanwhile, inventories of distillates, which include heating oil and diesel fuel, rose by 1.1 million barrels, more than seven times the expected increase.

Some analysts now believe record gas prices are depressing demand for gasoline. “The demand just isn’t there, and there’s plenty of supply,” admits Phil Flynn of Alaron Trading Corp. in Chicago.

On the other hand, despite the official OPEC insistence on not raising the output any further, most Gulf Arab states have been producing at higher levels recently. As per the Joint Oil Data Initiative (JODI), compiled by the Riyadh based International Energy Forum, Saudi Arabia lifted its rude oil supply in January and February to one of its highest levels in many years, while the UAE, Kuwait and Iran also pumped at near capacity. Qatar, a relatively smaller oil producer but a major gas power, also boosted its crude output to record levels in February.

Saudi Arabia’s output climbed to 9.216 million barrels per day (bpd) in February and an average of 9.205 million bpd in January and December. The February level was the Kingdom’s highest production in more than two years and one of the highest in a decade. And despite this high output over the last few months, Saudi Arabia maintained a spare capacity of 1-1.5 million bpd - as per its commitment as a responsible oil producer. Indeed being at the top position also brings in a number of responsibilities too. And Saudi Arabia seems fully aware of it.

Although March figures were not available yet, independent estimates showed Saudi and the Gulf output remaining almost at the February levels, if not higher.

The UAE also pumped 2.716 million bpd in February, up from around 2.700 million bpd in January. The output is close to the country’s sustainable output capacity and is the highest since the Emirates began commercial crude exports in the early 1960s.

Kuwait said it boosted its production, including output from the Neutral Zone, which it shares with Saudi Arabia, by nearly 200,000 bpd to a record high of 2.797 million bpd in February. Iran also pumped at maximum capacity of around 4.120 million bpd while Qatar raised production to its highest ever level of 862,000 bpd in February.

And the above figures once again brings under focus that the real issue afflicting the crude markets is not the output factor, as claimed by some in the industrialized world. Output may be one of the many important factors but indeed not the main factor. Other factors, much beyond the control of the OPEC seem to be equally responsible for the woes of the market, if not more, one has to concede.

Lower oil production is the real story

By LOREN STEFFY
Copyright 2008 Houston Chronicle

Eleven billion dollars is not enough.

That, at first blush, seemed to explain how Exxon Mobil Corp. could earn that much money in three months and still see its stock fall 4 percent.

Wall Street expected more, and so did Exxon Mobil investors. At a time of record oil prices, America's biggest oil company reported an earnings increase that was the smallest among its peers.

The profit is what captures everyone's attention, but there's a bigger concern hidden amid the numbers of Exxon Mobil's earnings.

The company's worldwide oil production fell 10 percent, to just under 2.5 million barrels a day.

Some of the decline came from Exxon Mobil's dispute over the seizure of assets by the Venezuelan government, but even excluding those assets, the company's production declined. Overall production, including natural gas, fell 3 percent.

While Exxon Mobil boosted production from fields in West Africa and the North Sea, the gains weren't enough to offset declines from aging oil fields, the company said.

The company blamed the decline in part on its contracts with oil-producing countries, which allow those countries to claim a larger share of oil volumes as prices rise. In other words, the higher prices go, the less oil Exxon Mobil gets.

As those countries benefit from higher prices, living standards rise and, as I mentioned last week, their own demand for oil increases. That, in turn, means less oil for companies such as Exxon Mobil over the long term.

The problem isn't unique to Exxon Mobil.

Other major oil companies also offered a stark production picture. BP's was unchanged from a year earlier. Shell reported a gain only because it boosted natural gas production, which offset lower oil output. ConocoPhillips reported an increase but attributed it to its 20 percent stake in Russia's Lukoil.

With national oil companies now holding most of the world's reserves, companies like Exxon Mobil are left with few places to look for new production.

The public, though, has little concern for Exxon Mobil's travails. We only care about what we see from our side of the pump, and that means the price and the profits of the company whose name is atop the sign.

Exxon Mobil has reported earnings between $9 billion and $11 billion in almost every quarter since late 2005, and every time it does, the public outcry grows.

Capitalizing on outrage
Politicians are quick to capitalize on that outrage.

"I believe we should impose a windfall profits tax on big oil companies and use that money to suspend the gas tax and give families relief at the pump," Hillary Clinton said in a statement addressing Exxon Mobil's earnings. A typical family, she claims, would save $70. John McCain already has called for a "gas tax holiday."

A closer reading of Exxon Mobil's earnings statement, though, shows Clinton is missing the point.

Her plan, and McCain's, would essentially lower gasoline prices at the pump. And how will we respond? We'll drive more. We're talking about summer, after all. Time to load up the kids in the land yacht and cruise to Destin at 12 miles to the gallon.

As demand rises, it depletes supply even further, and that, in turn, drives prices up in the world market. Shortages aren't solved by using more.

Barack Obama, by the way, has proposed a broader windfall profits tax on the industry based on crude prices, which the companies don't control. He'd tax oil over $80 a barrel, Bloomberg News reported, even though futures markets are indicating oil will stay above $100 through 2016.

Using this logic, we should tax pizza places because of soaring cheese prices.

They don't like it either
As I've said before, oil companies don't welcome the numbers we're now seeing at the pump. Not only do they cut into refining margins — another reason Exxon Mobil's profit didn't grow as much as expected — they make us start buying Priuses in spite of their bean-pod appearance.

So the public and politicians decry Exxon Mobil's profit while the market frets over a mere 17 percent increase. Both miss the more disturbing numbers, the ones that portend greater problems, not just for the oil companies but for all of us who use their products.

It's not a question of whether $11 billion is too much or not enough. It's a question of whether 2.5 million barrels is.

Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy@chron.com. His blog is at http://blogs.chron.com/lorensteffy/.

The Peak Oil Crisis: The Half-Life For Air Travel

Written by Tom Whipple

Thursday, 01 May 2008

In recent weeks, airlines around the world have been reporting substantial losses, declaring bankruptcy or completely shutting down. So far the losses have been mostly of small airlines, but many of the large ones have started to thrash around for merger partners. At $3.71 a gallon, jet fuel is now the single largest expense an airline faces.

In 2000, the airlines fuel bill was $14 billion. It is now pushing $60 billion and climbing. Southwest, the most profitable carrier, recently announced that this year’s fuel bill will be $500 million more than last year and equal to 2007 profits. During the first quarter of 2008 American airlines lost $328 million; Delta lost $274 million; United lost $537 million; Continental $80 million; Northwest $191 million; and US Airways $236 million. Only Southwest Airlines, which did a better job of hedging its fuel than the others, made a profit.

It is clear we are going to see major changes in air travel shortly.

For some time now, airlines have been eliminating frills, raising prices, filling the planes and effecting whatever other economies come to mind. After the summer flying season ends next September, many airlines are planning to retire 5-10 percent of their least efficient aircraft, thereby reducing their flight schedules by a similar amount.

Knowledgeable observers are expressing doubts these moves will be enough. People are starting to talk about $200 oil which implies that airline fuel costs will double again. Newer aircraft are more efficient, but the improvements are nowhere near what is necessary to keep up with surging fuel costs and, as Continental Airlines concluded this week, there is not enough financial benefit in a merger to keep up with costs.

Airlines are continuing to raise fares -- the average ticket is up 10 percent over last year -- but at some price point the airlines will drive away discretionary travel and they will be left with only essential business and personal travel that is unlikely to fill many planes. On top of the fuel prices is the current economic downturn which is likely to start impacting discretionary travel before the year is out. In short, airplanes simply can’t make money while charging affordable fares at current, much less prospective, fuel prices. The era of 500 mph travel for most people is nearly over.

There is no obvious way out of this dilemma unless there is a major breakthrough in the efficiency of aircraft. Fares will continue to rise. Flights will be cut. Smaller cities will lose their air service. Shorter trips will be eliminated as being too expensive. More seats are likely to be squeezed on planes and one manufacturer is even pondering seat-less planes in which passengers are strapped to boards during the flight.

Ten or 15 years from now, air travel is likely to be significantly reduced; will be patronized by business travelers or the very wealthy; and will be limited to trans-oceanic or long-distance flights between major population centers.

Consolidation of the major airlines and the demise of the smaller regional carriers has already started. After a number of rounds of consolidation, we will be down to only a handful of national or multi-national airlines probably subsidized by governments on “national security” grounds.

While the demise of inexpensive discretionary air travel has ramifications for many industries, in the first instance tourism is likely to be hit the hardest.

Ignoring for the minute the likely effects of $4 or $5 gasoline in California this summer, Las Vegas reports that nearly half of its tourists arrive by air. To make matters worse, resort operators have recently spent billions upgrading their facilities to the $300 a night places that are less likely to attract drive up customers. The same pattern can be repeated at air-dependent tourist attractions all over the world.

There is still a remarkable amount of denial in the airline business. This week Airbus released a forecast showing that the number of large commercial aircraft will grow from 15,000 to 33,000 in the next 20 years and that the number of passengers will triple.

If there is to be a long-term future for air travel, it is unlikely to be with liquid fuel powered turbines driving heavier than air devices. The U.S. Air Force is currently embarked on a campaign to convince the Congress to buy it a multi-billion dollar facility to convert coal to jet fuel and a couple of airlines are busy demonstrating that their planes will run on biofuels.

While limited use of coal to liquid fuel or biofuels for aircraft may see limited use, neither of these replacements is likely to produce enough affordable fuel to keep Airbus’s 33,000 large transport jets in the air 20 years from now.

Over the longer run, the development of hydrogen powered aircraft might prove feasible or perhaps lighter-than-air dirigibles might be developed to the point where they can move people and goods efficiently over long distances. In any case, the day of the ubiquitous kerosene-powered jet transport which revolutionized travel for many of us in the second half of the 20th century is likely to be shorter than most realize.

Food crisis looms for Japan as prices rise

By Julian Ryall, in Tokyo

Last Updated: 1:04AM BST 02/05/2008

Japan is facing its first food shortages in almost 40 years, with supermarkets close to running short of stocks.

n the last month, the price of milk, soy sauce, bread, noodles, pasta and cooking oil have all risen as makers are forced to pass on rising costs.

Butter has already begun to disappear from supermarket shelves as surging global grain prices make it impossible for Japan's dairy farmers to increase milk production. Retailers warn that other goods could follow soon.

With the global food crisis beginning to bite in one of the world's most powerful economies, more than 80 per cent of Japanese said that increasing prices were having an impact on their household spending. Many shoppers said they were switching to cheaper brands or buying in greater bulk.

Article continues

This is of particular note:

A major concern for Japan's government is that its farmers can produce only about 40 per cent of the food consumed each year by its 128 million inhabitants. This is the lowest proportion for any industrialised nation and also adds to transport costs, which have become a larger burden than elsewhere.

The Coal Crunch is Coming

The Coal Crunch is Materializing

Posted by Luis de Sousa on May 1, 2008 - 1:00am in The Oil Drum: Europe

In recent days a series of media articles surfaced pointing to a concerning situation in China. The New Scientist reported:

At the end of a cold and stormy winter, the country has just 12 days of coal reserves at most power stations. Some provinces, including Hebei, bordering Beijing, have less than a week's coal left. This is a record low, the state electricity regulatory commission revealed on Tuesday.

It continues:

China relies on burning coal for 70% of its electricity. Even though Chinese coal production in the first quarter of this year was up almost 15% on the same period last year, it has apparently not been enough to meet rapidly growing demand.

[...]

The coal mining industry, and the rail network needed to bring the coal to the power plants, are both struggling to keep up with the drive to build ever more generating capacity. The strains raise questions about how much longer China's breakneck industrialization can continue.

China Stakes presents even grimmer details:

The Vice-President of the State Electric Power Supervisory Commission, Wang Yeping, said that in Hebei, Anhui, and Chongqing, the stockpile of coal for power generation was not even enough to last 7 days. This situation is quite similar to the one that existed in January 2008. Theoretically, a stockpile that is smaller than 7 days supply has reached an “urgent level”.

This scenario is even more concerning coming during the Spring when electricity demand is at the lowest. Air conditioning is not needed yet and most of the country should by now be through with home heating. The coming Summer can indeed have some hardships reserved for China.

While the hard winter brought all sort of disruptions to the regular life of Chinese folk during the weeks prior to the New Year festivities, production kept strong during the first months of 2008, setting new records. These facts show that the difficulties felt during January and early February were mainly caused by shipping disruptions.

While cold weather continued for the rest of the Northern Hemisphere, China was granted some relief in March with some warm temperatures:

Temperature anomalies in March of 2008. Source University of Alabama in Huntsville.

Although out of season frosts returned to China in April, the southern provinces of the country are now well into Spring. So why these dwindling stocks now? China Daily have it by the numbers:

The General Administration of Customs said on Thursday that China exported 8.75 million tonnes of coal for $630 million [during January and February], up 13.5 percent and 39.7 percent, respectively, year-on-year.

Prices averaged $72.2 per tonne. For February only, exports were 3 million tonnes, down 32.1 percent.

Imports were 7.06 million tonnes, down 18.2 percent year-on-year. These shipments were valued at $450 million, up 13.1 percent. The average price was $63.3 per tonne. For February only, imports were 2.82 million tonnes, down 28.2 percent.

Putting it simply, China is importing a smaller volume of Coal than last year, but actually spending more money doing it. Especial attention should be taken to the prices per tonne, in the order of $60 – 70.

At the same time prices in Europe are well above $100 /tonne and Indonesian Coal is expected to reach a $150 /tonne, this kind of Coal was below $50 /tonne last year.

Apparently the international Coal market is getting tight enough for a country like China to feel the pinch. While Europe and North America are still able to import their usual share with prices triple of those last year, China isn't. Volumes available for export in South East Asia, Australia and New Zealand are being diverted away from local buyers with lower purchasing power.

Partially this problem is rooted on extreme weather events that have been affecting Australia's production. Floods during the first months of the year brought hard cooking coal prices to a spike of $400 /tonne [hat tip Big Gav]. Still, the same article indicates long term contracts being celebrated at $300 /tonne, and thermal coal also bound to go over $100 /tonne this year.

With the Coal Crunch the world is stepping into is just another dimension of the present energy crisis that is being triggered by anaemic oil production. Either by pushing demand up for other energy sources or supply down for minerals, food and other commodities, oil is building an economic whirlwind that has the potential to transform the face of our societies. Ready to ride?

Hybrids and I'm Not Talking Cars Here........

Interesting article. I guess it's a morbid fact that a chimp-human hybrid can be created. Yuck. No doubt the resulting individual would need some back waxing. I thought the items at the bottom of the article on hybrids amoungst other animals were interesting and are quoted below the whole article link:

http://realitysandwich.com/the_cryptic_cosmology_synchromysticism

EVEN though hybrids of humans and animals have never been created, many other creatures have been crossed successfully.

Lions and tigers have been bred to create ligers, the world's largest cats.

And there are also zorses (zebra and horse), wholphins (whale and dolphin), tigons (tiger and lion), lepjags (leopard and jaguar) and zonkeys (zebra and donkey).

As well as these hybrid mammals, there are also hybrid birds, fish, insects and plants.

Many hybrids, such as mules, are sterile, which prevents the movement of genes from one species to another, keeping both species distinct. However, some can reproduce and there are scientists who believe that grey wolves and coyotes mated thousands of years ago to create a new species, the red wolf.

More commonly, hybrids mate with one of their parent species, which can influence the genetic mix of what gets passed along to subsequent generations.

Hybrids can have desirable traits, often being fitter or larger than either parent.

Most hybrid animals have been bred in captivity, but there are examples of the process occurring in the wild.

This is far more common in plants than animals but in April 2006 a hunter in Canada's North-west Territories shot a polar bear whose fur had an orange tint.

Research showed that it had a grizzly bear father, and it became known as a pizzly.

In 2003, DNA analysis confirmed that five odd-looking felines found in Maine and Minnesota were bobcat-lynx hybrids, dubbed blynxes.

OK now it really gets weird. No shit. You can't make this stuff up:

Scientist sent to Africa in Stalin's plan for species that felt no pain

THE controversial fascination with crossing humans and chimpanzees has a colourful history.

Records suggest that in 1926 the Russian dictator Joseph Stalin decided he wanted to try to create a new species of superhuman.

Kirill Rossiianov, of the Russian Academy of Sciences in Moscow, has studied Soviet archives that detailed the wor

His findings, published in the journal Science in Context in 2002, outlined how Russia's leading animal breeding scientist, Professor Ilya Ivanov, was ordered to turn his skills to the quest for an ultimate soldier by crossing humans with apes.

Stalin reportedly told the scientist: "I want a new invincible human being, insensitive to pain, resistant and indifferent about the quality of food they eat."

Ivanov was sent to French West Africa and on 28 February, 1927, he wrapped two female chimps in nets and inseminated them with sperm from a local man. On 25 June, he inseminated another chimp with human sperm, this time using a special cage and knocking her out with ethyl chloride.

None of the three became pregnant, and at that point he changed tack. He reportedly went on to ask the authorities whether he could, instead, inseminate native women with the sperm of a dead male chimpanzee in a local hospital.

He even suggested the experiment could be carried out without the women's knowledge because he was concerned they would resist.

According to records, the authorities refused permission because the studies would be taking place in a hospital.

Instead they suggested the procedure could be done outside, where no regulations existed, but Ivanov was apparently offended, believing his research should take place in a clinical setting.

It is believed that Ivanov left Africa with a number of primates and went to the Soviet Republic of Georgia.

There, it is thought he worked in a government primate station, where rumour has it he attempted to arrange further experiments on the artificial insemination of women volunteers. No evidence exists that these experiments actually took place.

No evidence, eh? A quick google search yielded this nugget and many more to boot:

http://tinyurl.com/5wt78v

Mass Murder of Young Men?

I don't normally follow crime stories but this is pretty interesting. Sounds like it is straight out of the Chris Carter series Millenium :

DETECTIVES: Chris Jenkins murder connects dozens around country

Could there be a calculated, cross-country plot to kill young college men, including some in Minnesota? It seems a little hard to believe, but two New York detectives say they can prove it.

Now, they are revealing years of their evidence for the first time to 5 EYEWITNESS NEWS...

Click above for article and TV report

Oil demand destruction, where is it?

Oil is close to $120/barrel, "peak oil" is everywhere you look, so where’s the demand destruction? The latest EIA figures actually show a 0.57% increase in US gasoline demand year on year over the last week. The week prior also showed an increase in gasoline demand, but the 4-week average still shows a 0.5% decrease because of lower demand in 2008 for the weeks ending 4/4/08 and 3/21/08. Regardless of which statistic one chooses, this is hardly a convincing case for demand destruction.

Click above for whole story

Good question; where is the demand destruction? I thought we'd see clear signs of it by now.

Analysts Divided Over Cause of Food Price Increases

AGRICULTURE: What is Really Causing ‘Agflation’?

By Mario Osava

RIO DE JANEIRO, Apr 25 (IPS) - The old laws of the marketplace are no longer working. Food prices have been rising for six years because of surging demand, and increased production is not restoring the balance as it used to in the past. In fact, prices have been going up even faster over the last year.

The so-called "financialisation" of commodities markets, that is, the influx of investment funds seeking safer and more lucrative assets, has intensified the trend and "at the moment impinges more than the law of supply and demand," said analyst Fernando Muraro of AgRural, a consultancy firm in Brazil.

There is no way to measure the influence of speculative forces on "agflation," the new term coined to describe inflation provoked by the agricultural sector, he said.

>>>>>>>>>

There is a global excess of dollars, and holders are transferring them to markets and products wherever sustained price increases indicate good prospects for making profits, he said.

>>>>>>>>>

In contrast, Sergio Vale, a consultant with MB Asociados, said "it’s not true that a financial bubble exists for agricultural commodities." The price increases are "concretely based" on sustained growth of demand in China, India and other Asian countries, as well as in Latin America, he told IPS.

Click on title block for whole article. I'm not certain either; they both may be partly correct.

Japanese Bond Panic

JGBs sell off

Published: April 25 2008 09:38 | Last updated: April 25 2008 18:52

It takes a lot to rattle Japanese government bonds. But on Friday, the world’s biggest bond market went into freefall. The yield on 10-year JGBs jumped 12.5 basis points to 1.6 per cent. Futures trading screeched to a halt – the first enforced stoppage since new systems were introduced at the start of the year.

Part of the rush for the exits can be explained by global concerns about higher inflation. The $6,700bn JGB market has a habit of selling off when US interest rates bottom. Many expect a cut next week by the US Federal Reserve to be the last in this cycle. Against this backdrop, foreigners were keen to reduce their positions.

SPECULATING IN HUNGER

ARE INVESTORS CONTRIBUTING TO THE GLOBAL FOOD CRISIS?

by Ellen Brown, April 28th, 2008

http://www.webofdebt.com/articles/global-food-crisis.php

Investment newsletters are now featuring headlines like "How You Can Profit from the Global Food Crisis." The recommended investments include agribusiness stocks and exchange-traded funds (ETFs) that speculate in agricultural commodities. These investments will no doubt do very well in the global food crisis; but before you put your money down, you may want to explore whether you will be helping to alleviate the problem or contributing to it. Do you really want to "invest" in starvation? In an April 23 article in the German news source Spiegel Online called "Deadly Greed: The Role of Speculators in the Global Food Crisis," Balzli and Horning note, "Many investors . . . are simply oblivious to the fact that by investing in the global casino, they could be gambling away the daily food supply of the world's poorest people."1

Jean Ziegler, UN Special Rapporteur on the Right to Food, has called the exploding food crisis "a silent mass murder." In an interview in the French daily Liberation on April 14, he said, "We are heading for a very long period of rioting, conflicts [and] waves of uncontrollable regional instability marked by the despair of the most vulnerable populations." He blamed globalization and multinationals for "monopolizing the riches of the earth," and said that a mass uprising of starving people against their persecutors is "just as possible as the French Revolution was." In some places, this is already happening. In Haiti, where the cost of rice has nearly doubled since December, the prime minister was fired this month by opposition senators after more than a week of riots over the cost of staple foods. Violent protests over food prices have also been set off in Bangladesh, where rice has also doubled; in the Ivory Coast, where food prices have soared by 30 to 60 percent from one week to the next; and in Egypt, Uzbekistan, Yemen, the Philippines, Thailand, Indonesia and Italy.

In an April 21 Wall Street Journal article titled "Load Up the Pantry," Brett Arends observed that the food riots now seen in the developing world could soon be affecting Americans as well. Rocketing food prices are not a passing phase but are actually accelerating. He recommends hoarding food – not because he is actually expecting a shortage but as an investment, because "food prices are already rising here much faster than the returns you are likely to get from keeping your money in a bank or money-market fund." Arends goes on:

The main reason for rising prices, of course, is the surge in demand from China and India. Hundreds of millions of people are joining the middle class each year, and that means they want to eat more and better food. A secondary reason has been the growing demand for ethanol as a fuel additive. That's soaking up some of the corn supply.2

That's the rationale published in the Journal of Wall Street, the financial community that brought you the housing bubble, the derivatives bubble, and now the commodities bubble, producing the subprime crisis, the credit crisis, and the oil crisis. The main reason for the food crisis, says this author, is that the Chinese and Indian middle classes are eating better. Really? Rice has been the staple food of half the world for centuries, and it is hardly rich man's fare. Moreover, according to an April 2008 analysis from the United Nations' Food and Agriculture Organization, food consumption of grains has gone up by only one percent since 2006.3 That hardly explains the fact that the price of rice has spiked by 75 percent in just two months. The price of Thai 100 per cent B grade white rice, considered the world's benchmark, has tripled since early 2007; and it jumped 10 percent in just one week. The fact that corn is being diverted to fuel, while no doubt a contributing factor, is also insufficient to explain these sudden jumps in price. World population growth rates have dropped dramatically since the 1980s, and grain availability has continued to outpace population.4 Biofuels have drained off some of this grain, but biofuels did not suddenly happen, and neither did the rise of the Asian middle class. If those were the chief factors, the rise in food prices would have been gradual and predictable to match.

Another explanation for the sudden jump in grain prices is not mentioned by this Wall Street Journal writer but is suggested by other analysts. William Pfaff wrote in the April 16 International Herald Tribune:

[M]ore fundamental is the effect of speculation in food as a commodity – like oil and precious metals. It has become a haven for financial investors fleeing from paper assets tainted by subprime mortgages and other toxic credit products. The influx of buyers drives prices and makes food unaffordable for the world's poor. "Fund money flowing into agriculture has boosted prices," Standard Chartered Bank food commodities analyst Abah Ofon told the media. "It's fashionable. This is the year of agricultural commodities."5

The "hot money" that has fled the collapsed real estate bubble is now moving into the commodities bubble, and that includes food. "Hot money" is an influx of speculative capital in search of high rates of return, quickly moving from one market to another. It moves, however, not because the products are better (the traditional justification for price-setting according to "free market forces") but because the speculative "spread" is better. Money is invested not in making real goods and services but simply in making more money. Food prices are being driven by speculators, and today that includes ordinary investors like you and me, who can now gamble in agricultural futures through ETFs that have opened up a lucrative market formerly available only to big investment players.

Conventional economic theory says that prices are driven up when "demand" exceeds "supply." But in this case "demand" does not mean the number of hands reaching out for food. It means the amount of money competing for existing supplies. The global food crisis has resulted from an increase, not in the number of mouths to be fed, but simply in the price. It is the money supply that has gone up, and it is investment money in search of quick profits that is largely driving food prices up. Much of this seems to be happening in the futures market, where fund managers seek to maximize their profits by using futures contracts. Balzli and Horning explain:

The futures market is a traditional tool for farmers to sell their harvests ahead of time. In a futures contract, quantities, prices and delivery dates are fixed, sometimes even before crops have been planted. Futures contracts allow farmers and grain wholesalers a measure of protection against adverse weather conditions and excessive price fluctuations. . . . But now speculators are taking advantage of this mechanism. They can buy futures contracts for wheat, for example, at a low price, betting that the price will go up. If the price of the grain rises by the agreed delivery date, they profit. Some experts now believe these investors have taken over the market, buying futures at unprecedented levels and driving up short-term prices. Since last August, this mechanism has led to a doubling in the price of rice.

The authors quote grain wholesaler Greg Warner, who says what is happening now in the grain futures market is unprecedented. "What we normally have is a predictable group of sellers and buyers -- mainly farmers and silo operators." But the landscape has changed since the influx of large index funds into the futures market. "Prices keep climbing up and up." Warner calculates that financial investors now hold the rights to two complete annual harvests of a type of grain traded in Chicago called "soft red winter wheat." He calls these developments "stunning" and points to them as "evidence that capitalism is literally consuming itself."6

What about investing in agribusinesses such as Monsanto, which have promoted the "Green Revolution" through the bioengineering of foods and the production of GMO (genetically modified) seeds, synthetic fertilizers, and herbicide and pesticide sprays? Won't these corporations, at least, help to alleviate the global food crisis?

To the contrary, say critics, these businesses too are just driving food prices up. Monsanto's patented GMO seeds have been genetically engineered so that they cannot reproduce but must be purchased every year from the company. Small farmers who have fallen for the hype of greater productivity and subjected their land to these seeds and chemicals have found that not only have their yields been reduced but that the land will no longer bear anything except GMO seeds.7 Farmers who can no longer afford the seeds are priced out of the market, handing monopoly control over to the agribusiness giants that can then raise prices to whatever the market will bear; and in the case of food, it will bear a lot, right up to the point of slavery. As Henry Kissinger once famously said, "Who controls the food supply controls the people; who controls the energy can control whole continents; who controls money can control the world."

What can you invest in, then, that actually would help relieve the global food crisis? One possibility is local organic farming. "Community-supported agriculture" (CSA) is a model of food production, sales, and distribution aimed at increasing the quality of food and the care given to land, plants and animals, while reducing losses and risks for producers. A variety of CSA systems are now in use worldwide, allowing small-scale commercial farmers and gardeners to have a successful, small-scale closed market while providing their customer-members with a regular delivery or pick-up of healthy local produce. The USDA provides a list of CSA addresses and websites.8

That still leaves the problem of speculation in food futures. How can parasitic profits to non-producing middlemen be eliminated while still protecting farmers? The futures market was first created for farmers, who needed to be able to lock in a price today that would cover their costs and return a reasonable profit later. One interesting proposal is to return to the policy of "farm parity pricing" enacted during the 1930s. It ensured that the prices received by farmers covered the prices they paid for input plus a reasonable profit. If the farmers could not get the parity price, the government would buy their output, put it into storage, and sell it later. The government actually made a small profit on these transactions; food prices were kept stable; and the family farm system was preserved as the safeguard of the national food supply. With the push for "globalization" in later decades, farm parity was replaced with farm "subsidies" that favored foods for export over local markets, and large corporate farms engaged in chemical farming over sustainable farming, forcing thousands of family farmers out of business.

Farm parity pricing could help, but a complete solution to the problem of global inflation would require an overhaul of the private central banking system that has created one bubble after another for the last century. (See E. Brown, "Market Meltdown: The End of a 300 Year Ponzi Scheme," webofdebt.com/articles, September 3, 2007.)

And if you want to invest in the commodities boom without guilt? You can buy gold, which is no one's staple food or fuel.

___________________
1 Beat Balzli, Frank Hornig, "Deadly Greed: The Role of Speculators in the Global Food Crisis," Spiegel Online (April 23, 2008).
2 Brett Arends, "Load Up the Pantry," Wall Street Journal (April 21, 2008).
3 "2007–2008 World Food Price Crisis," Wikipedia.
4 Ibid.
5 William Pfaff, "Speculators and Soaring Food Prices," International Herald Tribune (April 16, 2008).
6 Balzli & Hornig, op. cit.
7 William Engdahl, Seeds of Destruction (Global Research 2007), summarized by Stephen Lendman in "Unleashing GMO Seeds: 'Food is Power'", Global Research (January 19, 2008).
8 "Alternative Farming Systems Information Center," USDA.gov. See "Community-supported Agriculture," Wikipedia.

China stock exchange investors suffer from spectacular bear market

China's stock market has lost half its value since October in one of the most spectacular bear markets of the last half century, eliminating $2.5 trillion (£1.25 trillion) of paper wealth.

The Shanghai Composite briefly fell below the key psychological level of 3,000 yesterday, down 50pc from its peak.

...

Food costs make up roughly a third of China's inflation index, so the spiralling cost of rice, corn, poultry and milk is playing havoc with price stability.

The inflation rate is nearing levels that set off urban riots in the late 1980s and caused workers to come out in sympathy with the students in the Tiananmen Square protest.

more here

Japan: Where has all the butter gone?

Where is the butter? — cry Japanese consumers who have been hunting everywhere for the dairy product. The drastic reduction in raw milk production, complicated by hikes in the price of grain as well as changes in the global patterns of dairy product consumption, have caused a serious butter shortage in Japan. Empty shelves in the dairy section of grocery stores across the country have not seen a shipment of butter for days, and stores are posting signs apologizing for the shortage.

more here

Food Rationing Confronts Breadbasket of the World

April 21, 2008 Edition

BY JOSH GERSTEIN - Staff Reporter of the Sun

April 21, 2008

URL: http://www2.nysun.com/article/74994

MOUNTAIN VIEW, Calif. — Many parts of America, long considered the breadbasket of the world, are now confronting a once unthinkable phenomenon: food rationing. Major retailers in New York, in areas of New England, and on the West Coast are limiting purchases of flour, rice, and cooking oil as demand outstrips supply. There are also anecdotal reports that some consumers are hoarding grain stocks.

At a Costco Warehouse in Mountain View, Calif., yesterday, shoppers grew frustrated and occasionally uttered expletives as they searched in vain for the large sacks of rice they usually buy.

"Where's the rice?" an engineer from Palo Alto, Calif., Yajun Liu, said. "You should be able to buy something like rice. This is ridiculous."

The bustling store in the heart of Silicon Valley usually sells four or five varieties of rice to a clientele largely of Asian immigrants, but only about half a pallet of Indian-grown Basmati rice was left in stock. A 20-pound bag was selling for $15.99.

"You can't eat this every day. It's too heavy," a health care executive from Palo Alto, Sharad Patel, grumbled as his son loaded two sacks of the Basmati into a shopping cart. "We only need one bag but I'm getting two in case a neighbor or a friend needs it," the elder man said.

The Patels seemed headed for disappointment, as most Costco members were being allowed to buy only one bag. Moments earlier, a clerk dropped two sacks back on the stack after taking them from another customer who tried to exceed the one-bag cap.

"Due to the limited availability of rice, we are limiting rice purchases based on your prior purchasing history," a sign above the dwindling supply said.

Shoppers said the limits had been in place for a few days, and that rice supplies had been spotty for a few weeks. A store manager referred questions to officials at Costco headquarters near Seattle, who did not return calls or e-mail messages yesterday.

The curbs and shortages are being tracked with concern by survivalists who view the phenomenon as a harbinger of more serious trouble to come.

"It's sporadic. It's not every store, but it's becoming more commonplace," the editor of SurvivalBlog.com, James Rawles, said. "The number of reports I've been getting from readers who have seen signs posted with limits has increased almost exponentially, I'd say in the last three to five weeks."

Spiking food prices have led to riots in recent weeks in Haiti, Indonesia, and several African nations. India recently banned export of all but the highest quality rice, and Vietnam blocked the signing of a new contract for foreign rice sales.

"I'm surprised the Bush administration hasn't slapped export controls on wheat," Mr. Rawles said. "The Asian countries are here buying every kind of wheat." Mr. Rawles said it is hard to know how much of the shortages are due to lagging supply and how much is caused by consumers hedging against future price hikes or a total lack of product.

"There have been so many stories about worldwide shortages that it encourages people to stock up. What most people don't realize is that supply chains have changed, so inventories are very short," Mr. Rawles, a former Army intelligence officer, said. "Even if people increased their purchasing by 20%, all the store shelves would be wiped out."

http://www2.nysun.com/pf.php?id=74994&v=2508878021

Good-Bye, Cheap Oil. So Long, Suburbia?

http://www.businessweek.com/magazine/content/08_18/b4082056979063.htm

The suburban landscape has been marred by foreclosures and half-built communities abandoned in the subprime aftermath. But James Howard Kunstler, author of a dozen books, including The Geography of Nowhere: The Rise and Decline of America's Man-Made Landscape, thinks there's a bigger threat to those far-flung neighborhoods: the scarcity of oil. As Kunstler sees it, oil wells are running dry and the era of cheap fuel is over. Given the supply constraints, he says the U.S. will have to rethink suburban sprawl, bringing an end to strip malls, big-box stores, and other trappings of the automotive era.

Not Guzzling So Much Gas

From http://calculatedrisk.blogspot.com/:

Without the strong world economy, oil prices would probably already be falling. From BusinessWeek: Not Guzzling Quite So Much Gas

Traffic levels are trending downward nationwide. Preliminary figures from the Federal Highway Administration show it falling 1.4% last year. Now, with nationwide gasoline prices having recently passed the inflation-adjusted record of $3.40 a gallon set back in 1981, the U.S. Energy Information Administration (EIA) is predicting gas consumption will actually fall 0.3% this year. That would be the first annual decline since 1991. Others believe the falloff in consumption is actually steeper than the government's numbers show.

The supply and demand curves are both very steep for oil, so a small decline in consumption would usually result in a significant decline in price. However, right now global demand is more than making up for any decline in domestic consumption.

How Cuba Solved Hunger

"Unable to import food or fertilizer, Cuba saw the calories and protein in the average diet drop by almost a third, from 3,000 calories a day to 1,900 calories between 1989 and 1994."

Click above to read the article to get the good news of how they fixed it.

A house price crash or soaring inflation

This is the corner the Americans and Brits have backed themselves (and everyone else into by proxy)

Bank of England's dilemma: A house price crash or soaring inflation
By Edmund Conway, Economics Editor

Last Updated: 1:07am BST 25/04/2008

Which would you rather face: a recession and house price crash or years of soaring seventies-style inflation?

Whole article here

Hmmmm. Might put oil prices down if they opt for the price crash route. Something to keep an eye on.

WSJ Recommends Food Hoarding

http://online.wsj.com/article/SB120881517227532621.html?mod=googlenews_wsj

Load Up The Pantry

Wall Street Journal

4-23-8

I don't want to alarm anybody, but maybe it's time for Americans to start stockpiling food.

No, this is not a drill.

You've seen the TV footage of food riots in parts of the developing world. Yes, they're a long way away from the U.S. But most foodstuffs operate in a global market. When the cost of wheat soars in Asia, it will do the same here.

Reality: Food prices are already rising here much faster than the returns you are likely to get from keeping your money in a bank or money-market fund. And there are very good reasons to believe prices on the shelves are about to start rising a lot faster.

"Load up the pantry," says Manu Daftary, one of Wall Street's top investors and the manager of the "I think prices are going higher. People are too complacent. They think it isn't going to happen here. But I don't know how the food companies can absorb higher costs."

Stocking up on food may not replace your long-term investments, but it may make a sensible home for some of your shorter-term cash. Do the math. If you keep your standby cash in a money-market fund you'll be lucky to get a 2.5% interest rate. Even the best one-year certificate of deposit you can find is only going to pay you about 4.1%, according to Bankrate.com. And those yields are before tax.

Meanwhile the most recent government data shows food inflation for the average American household is now running at 4.5% a year.

And some prices are rising even more quickly. The latest data show cereal prices rising by more than 8% a year. Both flour and rice are up more than 13%. Milk, cheese, bananas and even peanut butter: They're all up by more than 10%. Eggs have rocketed up 30% in a year. Ground beef prices are up 4.8% and chicken by 5.4%.

These are trends that have been in place for some time.

And if you are hoping they will pass, here's the bad news: They may actually accelerate.

The reason? The prices of many underlying raw materials have risen much more quickly still. Wheat prices, for example, have roughly tripled in the past three years.

Sooner or later, the food companies are going to have to pass those costs on. Kraft saw its raw material costs soar by about $1.25 billion last year, squeezing profit margins. The company recently warned that higher prices are here to stay. Last month the chief executive of General Mills, Kendall Powell, made a similar point.

The main reason for rising prices, of course, is the surge in demand from China and India. Hundreds of millions of people are joining the middle class each year, and that means they want to eat more and better food.

A secondary reason has been the growing demand for ethanol as a fuel additive. That's soaking up some of the corn supply.

You can't easily stock up on perishables like eggs or milk. But other products will keep. Among them: Dried pasta, rice, cereals, and cans of everything from tuna fish to fruit and vegetables. The kicker: You should also save money by buying them in bulk.

If this seems a stretch, ponder this: The emerging bull market in agricultural products is following in the footsteps of oil. A few years ago, many Americans hoped $2 gas was a temporary spike. Now it's the rosy memory of a bygone age.

The good news is that it's easier to store Cap'n Crunch or cans of Starkist in your home than it is to store lots of gasoline. Safer, too.

Write to Brett Arends at brett.arends@wsj.com

On a related story, FOX News report on "food rationing" in the US at Sam's Club and Costco. Click below; when I played this it buffered slow so may be a wait. Note the "alarmist" site that this is hosted on.

http://www.vloggingtheapocalypse.com/viewVideo.php?video_id=518&title=FOX_NEWS_ON_FOOD_RATIONING_AT_COSTCO_AND_SAM_S