90 seconds at 9 am: Growing angst

90 seconds at 9 am: BofJ says 'April enough'; emerging markets struggle; Bundesbank vs ECB; US Treasury yields rise; big rise in gas reserves; NZ$1 = US$0.787, TWI = 73.3

12th Jun 13, 8:56am by David Chaston

Here's my summary of the key news overnight in 90 seconds at 9 am, including news of growing angst around the world.

Markets were skittish overnight as the Bank of Japan refrained from adding to its stimulus program, and said what it announced in April was enough. Investors who are hooked on stimulus retreated 'to safety' and that saw equities fall, especially in Japan. It also saw credit risk rise, especially in emerging markets like Brazil and Mexico.

Money is reported to be streaming out of emerging markets, destabilising currencies, sinking stocks and creating headaches for policy makers already worried about faltering growth.

Something to watch in Europe; the German court case being brought by the Bundesbank against the ECB has opened. A Bundesbank win - which seems a bit unlikely - could be highly destabilising for the eurozone.

Yields on US Treasuries also rose - their price fell - as investors absorbed the consequences of the upcoming Fed moves to taper back their stimulus program.

On the energy front, a new US Government report has assessed shale gas and oil reserves in 42 countries and found that the oil component could add more than 10% to world reserves, and the gas component increases reserves by nearly 50%.

While the study is only technical and doesn't assess economic viability, it is getting attention. It found the biggest reserves are in Russia, followed by the US and China. Australia's reserves aren't small either.

The price of natural gas is down almost 2% on the day in late trade.

The NZ dollar was little changed overnight at 78.7 USc, 83.5 AUc, but the TWI fell to 73.3 its lowest of the year on the substantial weakening on the Japanese yen. Of interest also is that the English pound briefly traded better than 2:1 although the kiwi has recovered a bit recently. The NZ currency hasn't been this low against the pound in almost a year.

No chart with that title exists.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

14 Comments

by Stephen Hulme | 12th Jun 13, 11:04am 1370991864

A graphic review has put matters squarely in their place

by Andrewj | 12th Jun 13, 11:40am 1370994014

Loved this comment, times are dangerous.

I lost $132 today, but am convinced it was my best trading performance ever.

by Stephen Hulme | 12th Jun 13, 11:39am 1370993941

Wow - Stuff has a live - chat effort starting at midday with Bankers Association CEO, Kirk Hope - check in here - I doubt I will - live slanging matches with paid spin merchants never end well.

by goNZ | 12th Jun 13, 11:37am 1370993827

Argghhh ! another blow to the Malthusians " On the energy front, a new US Government report has assessed shale gas and oil reserves in 42 countries and found that the oil component could add more than 10% to world reserves, and the gas component increases reserves by nearly 50%.

by steven | 12th Jun 13, 12:15pm 1370996139

Actually its a support if you can do the math. After all this time the best they can do is invent "finding" 10% dodgy oil that has such a bad EROEI its crazy to extract it.

So lets see, that 11% the report says 313billion barrels....thats (roughly) 1 saudi arabia and we need to find a saudi arabia every 3 years just to keep up with the decline from all the other conventional oil fields let alone increase output (present global decrease is 4~7mbpd per annum, masked by new production/wells, for now)

So bright spark thats bought us maybe 3 years, yeah that sounds like a long time doesnt it? and thats before we even think about the cost to extract it.

EROEI on most shale oil is probably < 3 to 1 (under 6 to 1 for alberta) we need 8+ to 1. So that isnt $3 a barrel oil and not $90 either, you are into $120+ and maybe $200 I would think, so we cant afford to extract it. Let alone the water used and poisionous tailings produced (have you looked at the waste land that is alberta's tailing ponds? its like mars, dead, no life, no use, utterly toxic, you dont want to fall in a pond.

So we'll print $s or increase debt our kids will have to pay back or default on to get it out of the ground for us to use today...

Rocket science....

regards

by steven | 12th Jun 13, 12:55pm 1370998514

PS Saudi can do 12MBPD as its easy oil. The tight oil will be lucky to do 1/3rd of that output per day. Thats good of course cause it will last longer, not good because a 4% drop in output can cause a 4 fold jump in price, $4+ a litre gas anyone? ppl paying $150 a week now at $2 are complaining, how will $300 a week go at $4 a litre go do you think?, $450 a week on petrol?

regards

by Ms de Meanour | 12th Jun 13, 2:02pm 1371002570

Any economist will of course agree with the general proposition that the immediate consequence of a reduction in supply is likely to be an increase in price, followed by an adjustment on either or both of the supply or the demand side. But I am interested to know the basis of the figures used here. Specifically, what is the source of the statement that a 4% drop in output can cause a 4-fold jump in price?

by steven | 12th Jun 13, 2:53pm 1371005619

I think the discusion comes from there are two types of demand, elastic and in-elastic. So the USA summer driving season is optional ie for pleasure, its elastic. Driving to work far less so, in-elastic, you have to get to work. So the decline in use of the developed world was the in-elastic demand being retired...the Q is can that developed world use decline continue atthat pace, the above suggests not, not without severe pain.

The actual 4% supply drop resulting in a 4 fold increase I read as a US govn what if exercise, or war scenario. Ive googled and cant find that as a reference however. I will keep looking....I probably have it somewhere...

Note the gulf has 17mbpd going through it, of 86mbpd total so if that shuts its far more than a 4% drop, 20% ish in fact, what that would do to the oil price is mind boggling, worse than July 2008.

regards

by steven | 12th Jun 13, 3:29pm 1371007781

cant find the piece I read but Ive found this from MIT,

web.mit.edu/ceepr/www/publications/reprints/Reprint_214_WC.pdf

page 12 / p155

"the pattern of what seems like a

relatively small shock causing a substantial rise in world oil prices is clear."

by Ms de Meanour | 12th Jun 13, 12:21pm 1370996487

To save PDK time, all of the following is to be ignored by all right thinking people because I am cranially impaired, scientifically illiterate and have never learned to think.

Whether this news damages the Malthusian case, depends on what you think "the Malthusians" position is.

If it is simply that fossil fuels are not physically infinite, then that case is not altered by the discovery of more reserves. Fossil fuels are still finite, and it's still the case that it will not be physically possible forever to go on extracting them.

If it is that we will soon be unable to extract all of the fossil fuels that we want, the definition of "soon" may have to change in the light of this information; but then "soon" hasn't been defined anyway.

Perhaps more relevantly though, it is already, and always has been, the case that we can't extract all of the fossil fuels that we want - that is why fossil fuels have a price. We can, however, extract all the fossil fuels that we are prepared to pay for. That is because the amount that we are prepared to pay for reduces as the price goes up, and the price goes up as the difficulty of finding and extracting reserves goes up.

This new information, if confirmed and correct, doesn't necessarily change that dynamic; it depends on the cost of extracting the new reserves.

Nor does it change the need to reduce fossil fuel consumption in order to address climate change.

by Ergophobia | 12th Jun 13, 1:48pm 1371001697

MdM. AND what if oil is not "fossil"; rather a product of the earth's core reactions that picks up fossil markers as it rises? Professor Tom Gold and the Russians thought so.

Ergophobia

by steven | 12th Jun 13, 2:39pm 1371004779

Old wives tale, that has long been disproven on 2 counts. 1) The ultra deep oil was a result of "shallow" oil bearing rocks being driven very deep and have a fold of deep rock over them in a specific circumstance, plate tutonics wasnt as well understood then as it is now. 2) There was even a deep drilling experiment done to prove the oil was there, came up dry.

maybe 3) I seem to recall someone doing DNA tests and saying its animal in origin, but I'd have to go looking for that proof, not sure.

regards

by dh | 12th Jun 13, 3:26pm 1371007561

Regarding 3) Oil has compounds of organic origin in it, but measured DNA has I think come from bacteria (bacteria that live in and eat oil is active area of research among oil companies).

by waymad | 12th Jun 13, 12:53pm 1370998435

A neat summary in the Torygraph of the economic stupidity of rent (and, deep in the article, planning) controls...required reading for the Normal Russians of our funky l'il plot.