Reuters News - Exclusive: White House studying potential oil reserve release

Gasoline drips off a nozzle during refueling at a gas station in Altadena, California March 24, 2012. Picture taken March 24, 2012.

Credit: Reuters/Mario Anzuoni

By Jeff Mason

WASHINGTON | Fri Aug 17, 2012 6:15am EDT

(Reuters) - The White House is "dusting off old plans" for a potential release of oil reserves to dampen prices and prevent high energy costs from undermining sanctions against Iran, a source with knowledge of the situation said on Thursday.

U.S. officials will monitor market conditions over the next few weeks, watching whether gasoline prices fall after the September 3 Labor Day holiday, as they historically do, the source said.

It was too early to detail the size of any release from the U.S. Strategic Petroleum Reserve and other international stockpiles if a decision to proceed was taken, the source said.

Oil prices have surged in recent weeks, with Brent crude prices closing in on $120 a barrel, up sharply from below $90 a barrel in June. The United States and other Group of Eight countries studied a potential oil release in the spring but shelved the plans when prices dropped.

As prices rise again, U.S. officials were now collecting information from the market about potential needs and studying futures, production numbers and data on Iranian oil exports.

"The driving force in this is both impact on the economy and impact on the Iran sanctions policy," the source said, noting that Washington did not want rising oil prices to create a windfall for Iran while international sanctions were having an effective impact on its crude exports and revenues.

The United States has not yet held talks with international partners about a coordinated move. The source noted that Britain, France, Germany and other partner nations in the Paris-based International Energy Agency (IEA) were receptive to a potential release a few months ago when conditions were similar.

Those countries were concerned about the impact of high oil prices on the global economy and Iran then, and those concerns remain equally relevant now.

"The logic behind a potential release in the spring is at least if not ... more true today," the source said.

Within the United States, tapping reserves could spark criticism from Republicans, who would cast it as a political move to boost Democratic President Barack Obama's chances in the November 6 election.

The source said the White House had not discussed political ramifications because a decision on a release had not been made.

A White House spokesman declined to comment.

GATHERING SUPPORT

Gathering support from partner nations is likely to be the next step as Washington studies its options.

In May, the G8 put the IEA, the West's energy adviser responsible for coordinating reserves, on standby for action, a sign at the time that Obama was winning support for tapping government-held oil stocks for the second time in two years.

Some IEA nations could object to a release now because market conditions are less tight than they were in the spring, the source said. Saudi Arabia and Iraq were producing more and the supply disruption related to Libya was resolved.

Germany and some other European nations have generally resisted using government-held oil inventories in the absence of a sharp and deep disruption in supplies.

Britain's energy ministry said on Friday it was prepared to ask the IEA to act to deal with high oil prices, but added that no decision had yet been made on any release of stocks.

"The market remains very tight," a UK ministry spokesman said. "This has a knock-on impact on the oil price and therefore the global economic recovery." [ID:nL6E8JH4Q4]

France and the United States are in contact on recent oil price rises.

"We are consulting our American partners on all issues, including containment of oil prices. All options are being studied," an official at the offices of President Francois Hollande told Reuters, speaking on condition of anonymity.

Asian IEA members Japan and South Korea saw no need yet for a release from reserves, government sources said on Friday.

"It is not as if Japan is short of oil," said a Japanese government source who declined to be named due to the sensitivity of the matter. "Stock releases are not done when the price is high but when supply is insufficient. Supplies are sufficient now."

Japan and South Korea are among Iran's top oil buyers and have cut imports to gain waivers from U.S. sanctions. Despite having to rely on costly alternatives to Iranian oil, South Korea did not believe prices were high enough yet to warrant a release, a government source said.

"I don't think any member will agree to the oil release at current price levels, considering the release was not made a few months ago when oil prices hovered at much higher levels," said the source who also declined to be named.

Although the loss of over half Iran's oil exports is about equivalent to the drop in Libyan shipments that prompted IEA action last year, the decline has been relatively gradual and global commercial oil inventories remain relatively well-supplied for this time of year.

Last year, the United States and the IEA announced a coordinated drawdown of 60 million barrels in response to outages in Libya and other places, Brent oil prices fell 6 percent, or nearly $7 a barrel, to about $107 a barrel.

A week later the prices were back to about where they had been, though analysts say the drawdown could have stopped prices from going even higher.

(Additional reporting by Timothy Gardner in Washington; Matthew Robinson in New York; Meeyoung Cho in Seoul; Osamu Tsukimori in Tokyo; Karolin Schaps and Christopher Johnson in London; Editing by Russ Blinch, Sandra Maler and Alison Birrane)

BBC News - Wen Jiabao warns China's growth is under pressure

China's Premier Wen Jiabao has warned that the country's economy is under pressure and that it is facing problems that may last for some time.

The uncertain global economic environment has hurt demand for Chinese goods

However, he said that Beijing will be able to meet its growth target, despite those issues.

He said that easing inflation had given more room to policymakers to introduce measures to spur growth.

China has been hurt by slowing global demand for its exports and lacklustre growth in domestic consumption.

"We have the conditions and capabilities, and will be sure to fulfil this year's economic and social development targets," Premier Wen was quoted as saying by the Xinhua news agency.

Further easing?

Premier Wen's comments comes amid worries of a sharp slowdown in China's economy, the world's second-largest.

Its gross domestic product grew at an annual rate of 7.6% during the April-to-June period.

While that may be healthy compared to many developed Western economies, it was the slowest pace of expansion for China in three years.

Data released earlier this month showed a sharp decline in export and import growth during July, indicating that both external and internal demand were slowing.

The economic conditions in the eurozone and the US, two of China's biggest markets, continue to remain weak, adding to fears that China's growth may slow further in the near term.

That has triggered calls for easing of monetary policy.

China's central bank, the People's Bank of China, has already cut its key interest rates twice since the start of June.

It has also cut the reserve ratio requirement, the amount of money the country's banks must keep in reserve, three times in past few months, in a bid to boost lending.

Analysts said Mr Wen's comments indicated that Beijing was likely to ease policies further to sustain growth.

"We continue to believe that a reserve ratio requirement cut is more likely than a rate cut and expect a move soon," said Dariusz Kowalczyk, a senior economist & strategist, at Credit Agricole CIB in Hong Kong.

BBC News - Brazil changes tack with new stimulus plan

By Joao FelletBBC Brasil, Brasilia

Brazil's government is set to launch the first in a series of measures that could inject up to $50bn (£32bn) into the economy over the next five years.

President Rousseff will launch the initiative personally

The first part of the plan, to be announced on Wednesday, includes privatising about 14,000 kilometres of railways and roads.

The privatisation of ports, lower energy costs and incentives for industry will soon follow.

The package is designed to boost what have been disappointing growth levels.

President Dilma Rousseff has invited 50 leading Brazilian businessmen to the capital Brasilia where she will personally launch the new strategy.

In May, she brought the businessmen to the presidential palace - the Planalto - to ask them what was needed to stimulate the economy.

Growth in Brazil is predicted to be under 2% this year, the weakest annual performance since 2009 and a sharp slowdown from an impressive 7.5% rise in 2010.

Rising debt rates

Prior to these measures, the government had been counting mainly on rising levels of domestic consumption - fuelled by credit growth and rising income among poor Brazilians - alongside investments by state companies.

Although the previous strategy had helped Brazil become the sixth largest economy in the world in 2011, overtaking Britain, the government has not been able to maintain high growth rates.

The recent weak growth has been attributed mainly to rising debt rates among the population and the global downturn, which reduced demand for Brazilian products.

Expensive energy, poor infrastructure and increasing labour costs - known here as 'Custo Brasil' or the 'Brazil Cost' - have also weighed on growth, analysts say.

Now the government will increase the role played by private investors, who were seen to have lost ground during the government of Luiz Inacio Lula da Silva, Brazil's president from 2003-2010.

President Rousseff was his chosen successor, but she is seen as a tough and pragmatic decision maker when it comes to economic policy.

In February, the government granted three of the largest airports in the country to private companies, hoping to improve overstretched facilities before the 2014 Football World Cup.

Boosting investment

Now roads, railways, ports and perhaps other airports will also be privatised. President Rousseff hopes these concessions will also help to improve the country's much-criticised infrastructure.

"The government realized that privatisations are a way to boost investment", says Felipe Salto, an economist at Tendencias, a leading consulting firm in Brazil.

The concessions are expected to attract up to $50bn in investments in five years.

Rousseff is also preparing to lower the price of energy for industry with the abolition of some federal taxes, which could cut the price by 10%.

Further extensive reductions would depend on tough negotiations with governors and politicians across the country.

Economists are worried, however, about a new round of tax reductions for industry that should be announced in the coming weeks.

"Without structural changes, they could even generate demand and short-term growth, but also cause higher inflation", says Mr Salto.

The measures, he says, would also affect the fiscal balance.

"Comprehensive stimulus measures could harm the efforts to bring down public debt, leading to imbalance in government accounts."

Late diagnosis

For economist Silvia Matos, professor at Getulio Vargas Foundation, "the new package shows that the government is convinced that the economy faces a structural problem.

"The diagnosis is correct, but took too long to be made."

According to Ms Matos, previous economic steps taken by the government this year, such as reducing taxes on cars, were not enough to lift GDP.

Not even the recent devaluation of the currency, the real, and the progressive reduction in interest rates, have produced significant effects so far.

According to the National Confederation of Industry, 11 of the 19 industrial sectors they were tracking suffered a drop in capacity in 2011, indicating a cooling in industrial activity.

Ms Matos believes the new package will tackle some key economic problems, but says Brazil faces other serious issues such as increased public spending and an inefficient tax system.

Without reforms in these areas, she says, the country's economy will remain vulnerable.

Reuters News - Euro zone economy shrinks despite German growth

A worker walks along rolls of Mercedes cars at a shipping terminal in the harbor of the German northern town of Bremerhaven, March 8, 2012.

Credit: Reuters/Fabian Bimmer

By Ben Deighton and Sarah Marsh

BRUSSELS/BERLIN | Tue Aug 14, 2012 7:03am EDT

(Reuters) - The euro zone's debt-ravaged economy shrank in the second quarter, having flatlined in the first, despite continued German growth which economists said could soon be snuffed out.

The 17-nation currency bloc contracted by 0.2 percent on the quarter, data showed on Tuesday. Germany eked out growth of 0.3 percent, marginally beating forecasts, but its forward-looking ZEW sentiment index slid for a fourth month running, undercutting even the lowest estimate in a Reuters poll.

Economists said worse is likely to come and even Europe's largest economy is unlikely to defy gravity for long unless decisive action is taken to tackle the bloc's debt crisis.

"Growth turned out to be pretty solid. But this could be the last positive piece of news out of Germany for some time," said Joerg Kraemer at Commerzbank. "The German economy could contract in the summer. It is fundamentally in good structural shape, but can't decouple from the recession in the euro zone, plus the global economy has also shifted down a gear."

Aside from a downward blip in the last three months of 2011, the euro zone has posted pretty consistent, albeit anemic, growth over the past three years although some of its debt-laden members have been in recession for some time.

"It was a touch better than we expected, but I think overall it confirms the idea that the euro zone is in a recession phase," Aline Schuiling, economist at ABN AMRO, said of Tuesday's data.

"What we see is a vicious circle of budget cuts, high interest rates in the periphery and sovereign debt rising," she said. "Policymakers are moving very slowly. There are limited prospects for growth in the euro zone. We expect another contraction in Q3."

For France, it was the third consecutive quarter of zero growth. The central bank has already said it expects a mild contraction in the third quarter.

"These figures are not excellent, but at the same time France is not in recession while the majority of its European partners are," Finance Minister Pierre Moscovici told Europe 1 radio.

Safe-haven German Bund futures fell and European stocks rose after the slightly stronger than expected German and French GDP reports but the euro dipped against the dollar after the ZEW survey came in worse than expected.

The think tank's monthly poll of economic sentiment slid to -25.5 from -19.6 in July. ZEW economist Christian Dick said the German economy would slow due to weak growth in its main export markets, but would not deteriorate sharply.

Austria and the Netherlands almost matched Germany's performance, each posting growth of 0.2 percent. Economists surveyed by Reuters had expected the Dutch economy to shrink 0.3 percent.

Finland, one of Germany's northern European allies in pushing for austerity, suffered a 0.7 percent year-on-year fall in GDP.

SOUTHERN PAIN

For the currency bloc's members at the sharp end of its debt crisis, the picture is bleaker still and as economies shrink, so do tax revenues, making deficit-cutting even harder to achieve.

That has fostered a growing debate inside and outside Europe about the sense of austerity drives.

Bailed-out Portugal's recession deepened with GDP diving by 1.2 percent on the quarter and Cyprus contracted by 0.8 percent.

Figures released on Monday showed deficit-cutting measures helped to shrink Greece's economy 6.2 percent year-on-year in the second quarter. Economists say the slump will persist as the government scrambles to secure billions in additional cuts to keep bailout funds flowing.

Italy's second quarter data last week showed the economy contracted 0.7 percent quarter-on-quarter, compounding the difficulties for Mario Monti's technocrat government as it tries to avoid a bailout.

Spain's economy shrank 0.4 percent over the same period, pushing it deeper into recession, according to figures out two weeks ago.

The big unanswered question is whether a weakening economy will make Germans, the EU's paymasters, less likely to support government rescue efforts for the broader euro zone.

German Chancellor Angela Merkel has said repeatedly over the past year that she will do everything to save the euro, most recently after the European Central Bank signaled it would intervene in the bond market to lower Spanish and Italian borrowing costs.

Not all Germans support that course and the chancellor's room for maneuver appears to be shrinking at a time when both Greece and Spain may soon require new rescues. However, if ordinary Germans start to feel real economic pain, their response could be to demand their leaders sort out the crisis that is now finally knocking at their door.

Spanish and Italian bond yields have steadied since ECB President Mario Draghi promised to do whatever it takes to save the euro zone. It is quite possible that Madrid and Rome will seek help from the euro zone's rescue funds and the ECB before the year is out.

"It remains decisive whether the euro crisis can be controlled. We expect that the ECB has initiated a turning point with its signal of bond purchases," said Christian Schulz, economist at Berenberg Bank. "After a weaker summer the German economy will be able to grow faster again from the fourth quarter."

(Additional reporting by Daniel Flynn in Paris. Writing by Mike Peacock, editing by Jeremy Gaunt and David Stamp)

Reuters News - Kenya sees stable food supply, global prices a concern

NAIROBI | Tue Aug 14, 2012 7:17am EDT

(Reuters) - Kenya expects a stable supply of food until December after its production of staple crops increased this year, but prices could rise due to pressure from soaring grain prices on international markets, the Agriculture Ministry said on Tuesday.

East Africa's biggest economy has benefited from a stable supply of food since the start of this year, aided by favorable weather. That has eased inflationary pressure and kept prices steady for staples including rice, maize and wheat.

"The food situation is relatively stable both in terms of supply and pricing, and we expect this (stable supply) to carry on for the rest of year," Agriculture Ministry Permanent Secretary Romano Kiome said in an interview.

"Crop production has been good in all parts of the country except the Northeastern area, where we have challenges of poor weather."

Year-on-year inflation fell to 7.74 percent in July, a 17-month low, from 10.05 percent in June, due to drops in the cost of food and transport, and is expected to fall further in coming months.

Maize prices, the east African nation staple food, have eased to an average 2,400 to 2,600 Kenyan shillings ($28.67-$31.06) per 90-kg bag this year on improved output, compared with last year's high of 3,600 shillings when poor weather affected production in some parts of the country.

"The (maize) supply outlook remains good because we have 8 million 90-kg bags as we enter a new harvest season in September, where we expect a significant build-up of stocks," Kiome said.

Kiome warned, however, that soaring food prices in international markets could hit the country in the short term.

Following a July surge in food prices due to drought in the United States and some other producers, the United Nation's food agency last week warned of a possible repeat of the 2007/08 crisis, when a spike in food prices triggered public demonstrations in Kenya and riots in some other countries.

A monthly global food price index by the Food and Agriculture Organisation (FAO), which measures price changes on cereals, oilseeds, dairy, meat and sugar, rose 6 percent in July to levels higher than in 2008.

"The drought conditions in the western countries such as the U.S. are affecting global food prices, and the pressures could be felt here," Kiome said. ($1 = 83.7000 Kenyan shillings)

(Reporting by Kevin Mwanza; editing by Jane Baird)

BBC News - Pentagon helps build Meshworm reconnaissance robot

Engineers have created a robot that mimics a worm's movements - crawling along surfaces by contracting segments of its body.

The Meshworm moves itself along by squeezing each of its segments in turn

The technique allows the machine to be made of soft materials so it can squeeze through tight spaces and mould its shape to rough terrain.

It can also absorb heavy blows without sustaining damage.

The Pentagon's Darpa research unit supported the Meshworm project, suggesting a potential military use.

Work on the machine was carried out by researchers at the Massachusetts Institute of Technology and Harvard University in the US, and Seoul National University in South Korea.

Details are published in the journal IEEE/ASE Transactions on Mechatronics.

"[The] soft body, which is essentially compliant, exhibits large strains and enables the robot to traverse small openings and reconstitute shape, and survives from large impact force on falling," the engineers wrote.

They added that using a worm-like motion helped reduce the noise such machines produce, making them suitable "for reconnaissance purposes".

Squeezed segments

Previous attempts to create such a robot have used gears and air-powered or pneumatic pumps. But these added to the bulk of the machines making them less practical for real-world uses.

The Darpa-supported team instead moved their machine by using an "artificial muscle" made out of nickel and titanium wire designed to stretch and contract with heat.

The Meshworm is made out of a tube created from polymer mesh around which a metal wire is wrapped to create an "artificial muscle"

By wrapping this wire around a mesh-like tube the engineers replicated the circular muscle fibres of an earthworm, creating different segments in the process.

When a current was applied to part of the wire it contracted, squeezing the tube.

The team created algorithm to send a contraction wave across each of the machine's five segments in turn, squeezing the tube and propelling it forward. This mimics the movement of its biological counterpart.

They were able to make the robot move at a rate of about 5mm per second (0.2 inches/sec).

Two additional "muscles" were added to the sides of the machine to pull it left and right, allowing its direction to be controlled.

Attack resistant

The engineers said that the Meshworm remained functional even after being hit with a hammer

"You can throw it, and it won't collapse," said Sangbae Kim, assistant professor in mechanical engineering at MIT.The researchers said that the soft nature of the robot's body allowed it to be subjected to hammer blows and be trod on without sustaining any damage because its shape changed to help absorb the blows.

"Parts in Meshworms are all fibrous and flexible. The muscles are soft and the body is soft... [and] we're starting to show some body-morphing capability."

The Meshworm is just one of several animal-inspired projects being funded by Darpa.

Other examples include a robotic "cheetah" that can run at speeds of 18mph (29km/h), a micro-aircraft equipped with a camera that looks like a hummingbird, and AlphaDog - a four-legged robot designed to carry soldiers' gear.

Reuters News - German economy faces recession fear in threat to euro zone

A protester writes ''Kapitalismus toetet'' (Capitalism kills) on a sidewalk during an anti-capitalism demonstration in downtown Frankfurt July 28, 2012.

Credit: Reuters/Ralph Orlowski

By Michelle Martin

BERLIN | Fri Aug 10, 2012 8:08am EDT

(Reuters) - Three years into the euro zone debt crisis, the gravity-defying German economy has stalled and some fear it could fall into recession in the second half of this year.

Over the past week, Europe's largest economy has been hit by a series of increasingly gloomy data releases, showing declines in manufacturing orders, industrial output, imports and exports.

In an unusually stark warning on Friday, the economy ministry said these figures and a sharp drop-off in business sentiment in recent months pointed to "significant risks" to Germany's outlook.

Next Tuesday, gross domestic product data for the second quarter is expected to show modest growth of about 0.2 percent. But the danger of recession in the second half of the year is growing, leading economists say, at a time when Europe's single currency bloc desperately needs growth from its economic powerhouse.

The slowdown carries risks for German Chancellor Angela Merkel, who will seek a third term in an election one year from now, and could influence public opinion on her crisis-fighting strategy especially if a nascent rise in unemployment accelerates.

"The German economy is losing momentum - there's no doubt about that - and in the third quarter the economy will shrink compared to the second quarter," said Joerg Kraemer, chief economist at Commerzbank.

"Things will go downhill from here. The German economy is not faring as badly as the rest of the euro zone but it can't disconnect itself, especially as growth in China has slowed and continues to do so."

Germany is known for its export-driven growth, but the euro crisis has hit its biggest market. Roughly 40 percent of the country's exports go to its partners in the currency zone and 60 percent to those in the broader European Union.

China, one of Germany's fastest growing markets representing roughly 7 percent total exports, is also slowing. Chinese data this week showed factory output rising at is slowest pace in three years, new loans at a 10-month low and export growth grinding to a halt.

DOMESTIC DISAPPOINTMENT

The hope heading into 2012 was that private consumption would compensate for the widely expected decline in German exports. Low interest rates, a robust labor market - German unemployment stood at just 6.8 percent in July - and strong wage rises for both the public sector and manufacturing industry were expected to fuel domestic demand.

But recent data has been disappointing, with retail sales falling back.

Last month, the chief executive of Germany's Metro (MEOG.DE), the world's No. 4 retailer, said retail conditions were worsening, with worries over the debt crisis overshadowing other factors that might encourage Germans to spend.

Markus Schrick, head of Korean carmaker Hyundai's German division, told Reuters he expected a sharp slowdown in sales in the second half of 2012 as customers became more cautious about spending.

"The situation is difficult at the moment, there's no doubt about that," he said. "We're bracing for more difficulties ahead."

Peter Bofinger, one of five 'wise men' who advise the German government on the economy, said recent industrial output data suggested the country was on the verge of a technical recession.

"It's not the case that Germany can counter the weaker international economic situation with its own dynamism," Bofinger told Reuters.

It is too early to predict how the looming slowdown could affect Merkel's prospects for 2013 or influence the intense debate in Germany over giving aid to struggling euro partners such asGreece and Spain.

A poll for public broadcaster ARD earlier this month showed 63 percent of Germans believe the economy is in good shape.

The main reason for that is the robust labor market. Figures published on Friday showed youth unemployment in Germany stood at just 7.9 percent in June, compared to a European average of 22.6 percent.

Still, signs are emerging that a nearly uninterrupted six-year drop in unemployment is coming to an end.

Seasonally adjusted joblessness has risen, albeit modestly, for the past four months. And big German companies - from Deutsche Bank (DBKGn.DE) to energy firm RWE (RWEG.DE) and steel distributor Kloeckner (KCOGn.DE) - are pressing ahead with thousands of job cuts.

"We expect the economic slowdown to start pushing up corporate insolvencies from the autumn," Christoph Niering, head of the VID insolvency association, said.

The same poll in which nearly two in three Germans said they were happy with the current economic climate also showed a sharp spike in the number of respondents who believe the economy will deteriorate over the coming year.

At 56 percent, that total is now at its highest level since early 2009, shortly after the bankruptcy of Lehman Brothers triggered the global financial crisis and plunged Germany into its deepest recession in the post-war era.

The ARD survey showed that 84 percent of Germans believe the worst of the debt crisis is still to come.

EURO RESCUE IMPACT

The unanswered question is whether a weakening economy will make Germans less likely to support government rescue efforts for the broader euro zone.

Merkel has said repeatedly over the past year, most recently in a statement with French President Francois Hollande last month, that she will do everything to save the euro.

But not all Germans support that course and the chancellor's room for maneuver appears to be shrinking at a time when both Greece and Spain may soon require new rescues.

"The stabilization of the currency union should not be a goal in and of itself, regardless of the costs associated with that course," Otto Kentzler, president of the German Confederation of Skilled Crafts, wrote in a position paper published by the Handelsblatt newspaper on Friday.

Klaus-Peter Schoeppner, head of the Emnid polling group, said he did not expect a weakening economy to damage Merkel or her party for now.

But he described her rescues of Greece, Ireland, Portugal and Spain as the government's "Achilles heel".

"This will only get bigger as the government's ability to dole out new money comes under strain" from a weakening economy, he said. "They will have to be very careful going forward."

(Writing by Noah Barkin and Michelle Martin; Additional reporting by Chris Cottrell and Andreas Cremer in Berlin, Victoria Bryan in Frankfurt; Editing by Giles Elgood)