Daily Reading – Thursday, February 24, 2011

Gregor.us: Spare Capacity Theory

In truth, the spare capacity that the world cares about—that the oil futures market cares about—is not the inventory level. But rather, actual production capacity that can be brought on immediately. You can see the problem, from a price standpoint. If the world loses Libya’s 1.5 mbpd production for 90-120 days, and starts drawing down above-ground inventories, this only makes the inventory cushion that much thinner for any new supply disruptions. The question on the mind of the oil market therefore is not Mr. Fyfe’s 1.6 billion barrels of crude, but whether countries like Kuwait, the U.A.E. and especially Saudi Arabia or even Russia can lift supply. Immediately.

FT Alphaville: Why you really can’t swap Libyan oil for Saudi

Apart from the prospect of $220 a barrel…

Much discussion on Wednesday of whether Opec could pump more oil from the Arabian peninsula to make up for Libya going offline — so we thought these pointers from Barclays Capital’s Amrita Sen might help…

FT Alphaville: Scrambling to swap Libyan crude for Saudi

Hitting the wires at pixel time — an astonishing promise…


FT Alphaville: Nomura’s $220-a-barrel crisis oil call

Talk about an oil shock.

Nomura’s commodity analysts, led by Michael Lo, are calling for oil at $220 a barrel, ifboth Libya and Algeria were to stop oil production. Oil’s currently around $108.

FT Alphaville: Eurozone bond buybacks, unmoored

Portuguese government bond yields — still unmoored…

FT BeyondBRICs: Asian emerging markets and $120 oil

When BarCap put out a note in mid-January on what $120 oil would mean for Asia’s emerging economies, it seemed like a distant prospect. Cue the unrest in the Middle East and North Africa, and crude has now jumped to over $110 in London trading. Now the question seems a lot more relevant.

China Financial Markets: Zaiteku and China’s January inflation

So why did corporate deposits drop? My guess is that large businesses may be finding it much more profitable to lend money to other businesses, especially those who don’t have easy access to bank credit, than to deposit cash in the bank at such negative real rates. Both the Credit Suisse report and an email I got last month from a friend of mine at Bank of China suggests that there may be an increase in intercompany lending, and to me this would be a very plausible consequence of negative real deposit rates. And of course for those worried about systemic risks this would be very worrying news. As Japan showed us in the days of zaiteku, when corporations turn to speculative financial transactions as a source of earnings they tend to increase systemic risk.

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