Reuters News - White House consults experts as it mulls tapping oil reserve

By Timothy Gardner

WASHINGTON | Fri Sep 7, 2012 3:20am EDT

(Reuters) - Obama administration officials met with a handful of oil market experts on Thursday as the White House considers the merits of another release of emergency oil reserves - potentially one much larger than the last.

The meeting, originally scheduled for August but delayed by summer vacations, did not center entirely on the Strategic Petroleum Reserve (SPR), according to non-government sources who attended the meeting.

Government officials did not reveal any plans they may be making to tap the SPR, but they did voice concern about tightening U.S. fuel supply and sounded out the experts on how energy prices could behave in the coming few months under different scenarios, sources said.

The meeting was still read by some as a sign that President Barack Obama is intent on pressing ahead with an unprecedented second tapping of U.S. government oil supplies.

UK-based oil consultancy Petroleum Policy Intelligence issued a report this week saying that an injection of SPR supplies could occur "within days," but two people who attended the meeting said it would not happen that soon.

"They are still in information-collection mode," said one.

But with benchmark Brent oil futures pushing back above $110 a barrel and threatening to restrain the economies of the United States and Western Europe, it has been clear for weeks that the White House is looking to the SPR for relief.

Reuters first reported last month that the administration was "dusting off" plans that had been shelved in the spring, when prices fell. At that time a source familiar with the talks said officials would be looking closely at whether gasoline prices fell after Labor Day, which was on Monday.

For the moment they remain stubbornly high, after last week's Hurricane Isaac shut down a swath of Gulf Coast refineries and a deadly blast in Venezuela temporarily crippled production in part of the world's second-biggest refinery.

White House officials last held a meeting with outside energy experts in July to discuss the overall energy market issues including China's thirst for oil. Thursday's meeting, which included mid-level officials from the National Security Council, the Treasury and the Department of Defense, was about gathering information and was not expected to result in any immediate decisions.

The White House had no immediate comment on Thursday's meeting.

GO BIG OR ...?

While sources say a wide range of ideas on how to tackle oil prices are on the table, one proposal that has been put forward to the administration is to open the door to a much larger, more prolonged release -- perhaps 100 million to 180 million barrels.

Last year, as civil war in Libya cut the country's oil exports, the Obama administration coordinated with the International Energy Agency to sell 60 million barrels of oil, a move that lowered oil prices but only for a few weeks.

It is unclear whether Washington can again marshal global backing for a measure. It has secured support from the UK and France, media have reported, but officials in Germany, Italy and Japan say they oppose another release.

A much more dramatic measure could put a bigger dent in oil prices, easing gasoline costs just before the U.S. presidential election on November 6 but also likely sparking fierce attacks from Republicans who have long resisted using the SPR for anything other than a supply emergency, like Hurricane Katrina.

Republicans could also be expected to accuse Obama of attempting to use the SPR for his own political benefit as he tries to convince voters weary of high unemployment and a weak economy to give him a second term.

Domestic considerations aside, the administration is nervous about the potential impact on oil markets and the economy in the event that Israel attacks Iran, whether it comes before the November 6 election or in the months after, said another energy expert by cell phone before he entered Thursday's meeting.

Officials also fear that high prices are blunting the impact of new sanctions on Iran, designed to cut funding of the country's nuclear program, which Tehran says is purely for civilian purposes.

SPR DEBATE; GASOLINE TAXES

Using the SPR to aid policy has been a topic of discussion with energy experts going back at least to the administration of George W. Bush.

It was unclear just how seriously White House officials were considering such a large sale, which would likely last months. While angering Republicans, such a measure could also rile Saudi Arabia, which has been pumping at the highest rates in years to replace barrels lost by Western sanctions on Iran.

However some say the idea may have merit. U.S. net oil imports have fallen this year to below 8 million barrels a day, down more than a third from 2005, thanks to an unexpected boom in domestic production - meaning Washington no longer needs to hold quite as much oil in emergency reserve.

The stockpile currently holds about 696 million barrels, which in theory could be reduced to 500 million barrels in the coming years, according to energy consultant Philip Verleger, who was an energy advisor to former President Jimmy Carter.

"What's clear right now is there's a shortage of gasoline and that oil product markets are tight," said Verleger, who was not attending Thursday's meeting.

Verleger said that tapping SPR crude reserves now would do little to solve a problem of falling U.S. gasoline supplies, which last week dipped below 200 million barrels, or around 10 million barrels lower than the same week of 2011.

U.S. refineries might not quickly ramp up making gasoline even if more crude were offered from the SPR, he said.

Other ideas beyond tapping reserves would also likely be discussed, one expert who attended the meeting said before the talks.

One would be to give drivers a holiday from the federal fuel taxes, which could push gasoline dramatically lower for a while. In 2008 Senator John McCain, who was then running against Barack Obama for the presidency, suggested a suspension of the federal gasoline tax for the summer months, but the idea faded.

(Additional reporting by Patrick Rucker and Matt Spetalnick in Washington and Joshua Schneyer in New York; Editing by Jim Marshall and Lisa Shumaker)

Swissinfo.ch - Switzerland remains most competitive economy

Switzerland is the most economically competitive country in the world for the fourth year in a row, according to an annual World Economic Forum (WEF) report.

Education is one factor that explains Swiss competitiveness (Keystone)

The Global Competitiveness Report, released on Wednesday, cites Swiss innovation and its efficient labour market as the country’s greatest strengths, followed by its sophisticated business sector.

The quality of Switzerland’s research institutions, the high level of collaboration between the academic and business sectors and its high rate of product patenting also contributed to the ranking.

Training and education play a role in Switzerland’s economic success as well, with a wealth of on-the-job training opportunities and a strong correlation between employee education and employer needs. Government and institutions are among the most transparent and effective worldwide, ensuring business confidence and supporting economic output.

Switzerland’s university enrolment rate remains low compared to many other innovative countries, however. Although it has been improving in recent years, the report states that the Swiss will have to boost enrolment to stay competitive.

Globally, the report noted a “fragile” economic environment and highlighted a growing divide between the top and bottom ranked countries, particularly in Europe.

Northern European countries such as third-place Finland, fourth-place Sweden, fifth-place Netherlands and sixth-place Germany have become economic powerhouses, while much of the rest of Europe continues to struggle with recession and unemployment problems.

Singapore finished second thanks to its strong public and private institutions as well as its quality infrastructure.

The United States slipped in the rankings for the fourth year in a row, to seventh as a result of growing concern in the business community over its divisive political climate and slow economic recovery. However, the US was lauded for its innovation outputs and efficient markets.

The Global Competitiveness Report is generated annually by comparing economic data surrounding 12 key categories known as “pillars of competitiveness”. Together, those pillars, ranging from infrastructure and education to market efficiency and business sophistication, make up an economic picture of each country ranked in the report and provide an overall score.

A similar study released by the Lausanne-based IMD business school in May ranked Switzerland third in global competitiveness, behind Hong Kong and the US. The study praised Switzerland’s stable political environment and management of public finances, but cited the strong franc as a concern.

swissinfo.ch and agencies

Reuters News - Draghi to deliver bond plan at crunch ECB meeting

By Eva Kuehnen

FRANKFURT | Thu Sep 6, 2012 1:20am EDT

(Reuters) - European Central Bank chief Mario Draghi faces the most decisive moment of his presidency on Thursday when he tries to heal divisions among policymakers and deliver on his promise to save the euro.

Investors want to hear how the ECB will start a new bond-buying program to help bring down the borrowing costs of Spain and Italy, after disagreements on the Governing Council over the plan were played out in public last week.

Renewed ECB intervention in the euro zone's bond markets is crucial for buying governments time to come up with a longer-term response to the bloc's debt crisis.

However, Germany's Bild newspaper reported that Jens Weidmann, who heads the Bundesbank, considered quitting over the disputed plan although he was dissuaded from doing so by his country's government. His predecessor Axel Weber resigned last year over the ECB's first bond purchase program.

Investors are looking for Draghi to back up his promise on July 26 to do "whatever it takes" to preserve the euro, when he speaks after the Governing Council meets on Thursday.

"This meeting is absolutely crucial, because expectations are extremely high. If the ECB does not deliver, we will get into another bad patch," said Gilles Moec, senior European economist at Deutsche Bank.

Spanish and Italian government bond yields have fallen significantly since Draghi said on August 2 that the ECB would buy bonds issued by Madrid and Rome.

However, the debt purchases - which would succeed the ECB's Securities Markets Programme that has been dormant since March - would resume under strict conditions and only if the countries first sought help from the euro zone rescue fund.

Markets have been expecting Draghi to unveil a bold plan after Thursday's monthly policy meeting. But while he is likely to deliver a framework for new bond purchases, he will give no details of planned amounts or explicit targets for yield spreads or levels of interest rates, two central bank sources told Reuters.

"A number of investors expect that the button will be pushed without further ado, but it is a bit more complicated than that," Deutsche Bank's Moec said.

SECURING MAJORITY SUPPORT

Securing majority support on the Council for a plan Weidmann can live with represents the biggest balancing act Draghi has faced since he took over the ECB presidency on November 1 last year.

Weidmann has expressed concern that intervening in the bond market to reduce the borrowing costs of struggling euro zone countries such as Spain and Italy - which had reached levels that were unaffordable in anything but the short term - would break the ECB taboo of financing euro zone member states.

Other ECB policymakers see a greater urgency to help Spain and Italy to prevent the euro zone crisis from deepening.

One of the sources said the ECB is keen to attach strict conditions to its new programme. These will be enforced by the International Monetary Fund - which has a reputation for being tougher than European Union institutions - to keep up the pressure for reform.

Due to the paperwork involved in requesting such intervention, the source added that the ECB is unlikely to start buying bonds as soon as Thursday.

The Governing Council would decide on a case-by-case basis and keep close tabs on the programme, one source said, while the other source ruled out a shock-and-awe approach, in which the ECB would start off by buying huge amounts to impress markets.

The ECB was prepared to waive its senior creditor status on bonds it purchased - meaning it would be treated equally with private creditors in case of default.

"There is a problem if central banks insist on the preferred creditor status, because the more the public sector intervenes in the bond market, the less interest private investors will have," said one of the sources, who has seen preparatory documents for the Council meeting.

ALL ABOUT BOND BUYS

The terms of ECB intervention, which Draghi is expected to lay out when he reports the Council's decisions at a news conference at 1230 GMT, will determine whether Spain seeks help.

Prime Minister Mariano Rajoy said on Sunday that Spain, the euro zone's fourth largest economy, would consider seeking extra aid on top of an up to 100 billion euro rescue of its banks, but he wanted to see details of the ECB's programme before deciding.

"I do not think that the involvement of the IMF would weigh on the decision," said Javier Amador, economist at BBVA Research. "The IMF is being directly or indirectly involved in the different programs already in place."

Spain is in recession and a quarter of its workers are out of a job, meaning tax revenue is falling and this is undermining the government's austerity drive.

Economies in the euro zone are drifting further apart with troubled countries such as Greece, Portugal and Spain at one end of the scale and Germany still growing at the other. This means the ECB's record low interest rate of 0.75 percent is too high for some and too low for others.

One of the sources said the meeting would focus on bond buying, which meant there "would be no time to discuss interest rates".

"It's all about the bond programme," the source said.

The Council, however, is expected to broaden the list of securities banks can pledge as collateral at the ECB in return for cash, something that will be particularly important for Spain's ailing banking sector.

(editing by David Stamp)

BBC News - Moody's lowers EU rating outlook to 'negative'

Moody's has lowered its outlook for the European Union's AAA credit rating to "negative" and warned that the bloc's rating could be downgraded.

France and Germany are among EU members whose rating outlook has been put on negative outlook

It said the move reflected the negative outlook for the ratings of the EU's key budget contributors.

Earlier this year, Moody's put ratings of Germany, France, Netherlands and the UK on a negative outlook.

It said that these nations were all exposed to the region's debt crisis, hurting their creditworthiness.

The ratings agency said that in case of "extreme stress", the AAA-rated member states were more likely to service their own debt obligations rather than "prioritise their commitment to backstop the EU debt obligations".

It added that if the AAA-rated member states were to default on their debt obligations, there were likely to be defaults on the loans that back the EU's debt and the bloc's cash reserve was also likely be stressed.

"Hence, it is reasonable to assume that the EU's creditworthiness should move in line with the creditworthiness of its strongest key member states," the agency said.

Germany, France, Netherlands and the UK together account for about 45% of the EU's budget revenue.

Moody's warned that if the credit ratings of these member states were downgraded, it could have a knock-on effect on the EU's rating.

"Additionally, a weakening of the commitment of the member states to the EU and changes to the EU's fiscal framework that led to less conservative budget management would be credit-negative," it added.

Reuters News - Government sees rebound in oil and gas production

By Karolin Schaps and Guy Faulconbridge

LONDON | Tue Sep 4, 2012 9:25am BST

(Reuters) - Oil and gas production, one of the main pillars for growth in Britain's 1.5 trillion pound economy, could increase this year after the worst annual decline in output since the 1960s, Energy Minister Charles Hendry told Reuters in an interview on Monday.

UK oil output fell 17 percent last year to an average 1.04 million barrels per day (bpd), below a record of 2.9 bpd in 1999, while gas production plummeted 21 percent to 45.2 billion cubic metres (bcm), less than half of its peak reached in 2000.

When asked whether production would continue to decline this year, Hendry said: "I wouldn't expect that at all. My expectation is that we will now see things beginning to move back up again."

"It may be plateauing but I would certainly expect us to see, from the discussions I have with the industry, some pretty positive feelings about the way in which the industry can move forward," he said. "I don't believe that the decline last year was a trend."

The dramatic fall in oil and gas production shaved at least half a percentage point off UK economic growth in 2011, a major difference for an economy that is stagnating as businesses struggle with the gravest economic crisis since the Great Depression.

The Bank of England last month slashed its outlook for economic growth to zero for 2012, posing a difficult electoral problem for Prime Minister David Cameron's government, which had been betting on growth well before a 2015 national vote.

"The new licensing round, which was launched three months ago, has had more bids in it than any previous licensing round since the 1960s, so there is a huge interest in taking this forward," said Hendry, a Conservative MP.

Britain's North Sea oil and gas, long a driver of British prosperity and boon for now dire public finances, has been in decline for over a decade, but Hendry said the scope and speed of the decline depended on finds west of the Shetland Islands - a group of islands off the northern coast of Scotland.

"It depends on the extent of the discoveries west of Shetland primarily - that is where the hope and the scope is for major new finds," Hendry said in an interview in his office in London's Westminster.

"We think there is another 20 billion barrels equivalent that we can still get out from the North Sea. West of Shetland is an important part of that process. Business as usual would be less than half of that."

Britain is seeking hundreds of billions of dollars of investment into its electricity and gas sectors, also attracting the attention of Chinese investors, who could bid to build two new nuclear power stations in Britain.

"The Chinese have got significant expertise in building nuclear plants and they've been building them on time and on budget," Hendry said.

China Guangdong Nuclear Power Corporation Holding (CGNPC) and State Nuclear Power Technology Corporation (SNPTC) have both expressed an interested in snapping up the Horizon nuclear project, which was put up for sale by its German owners E.ON and RWE in March.

Critics have voiced concerns about Chinese companies owning important British infrastructure assets, but Hendry said the government would not allow unreliable investors into the sector.

"We will have to be satisfied that anybody coming here can satisfy us on security, on safety, on efficiency grounds," he said.

SHALE GAS

The government is also in the process of determining whether to allow the continuation of shale gas fracking work, which unleashed a number of earthquakes near Blackpool last year.

The shale gas boom has caused significant turmoil in the U.S. gas market, where prices have tumbled and production companies are gearing up to export excess resources on liquefied natural gas vessels.

"We can't ignore what's happened in the States when the States has a gas price which is a quarter of ours. This is now a massive economic driver for the United States," Hendry said.

He added that a decision on whether to give the green light to fracking was not imminent and that his department was considering expert evidence collected over the past months.

"We should be looking at where those resources could be harnessed safely and in an environmentally acceptable way," he said.

"We will apply exactly the same stringent regulations to fracking and to onshore gas development we apply to offshore. We will not cut corners."

While Britain's domestic production levels are shrinking, the country is increasingly dependent on imports, through pipelines and via LNG ships.

Hendry said the UK was trying to secure long-term supply contracts rather than relying on spot prices.

"We have developed this concept of energy diplomacy, the major contracts should be supported actively by government," he said, adding that the government was keen to support more contracts than those recently signed with Qatar and Norway.

As the United States is considering to dust off plans for an emergency oil stocks release, Britain said it stands ready to ask the International Energy Agency to take action to deal with high oil prices.

Hendry said he was constantly speaking to his oil consumer nation peers but that talks were confidential.

"We talk the whole time about a whole range of issues. The nature of these events (emergency oil stocks release) is better to be in a coordinated way," he said.

(Editing by Leslie Gevirtz)

BBC News - China manufacturing dips to a nine-month low in August

China's manufacturing activity fell to a nine-month low in August, adding to fears that its economy is slowing faster than estimated.

Manufacturing and export sectors have been key drivers of China's economic growth

The official Purchasing Managers' Index (PMI) fell to 49.2, the lowest reading since November 2011, data released over the weekend showed.

PMI is a key gauge of manufacturing activity and a reading below 50 shows contraction.

Analysts said China was being hurt by a slowdown in global and domestic demand.

"China's manufacturing sector continues to struggle, weighed down by a significant domestic slowdown, a wholly unsupportive external climate and a completely insufficient policy response," Alistair Thornton of IHS Global Insight said in a note after the data was released.

'Behind the curve'

China's economy saw robust growth in the past few years, boosted in part by record lending by Chinese banks.

However, the credit boom resulted in a surge in property prices leading to fears over asset bubbles and concerns over whether credit-fuelled growth was sustainable in the long run.

That prompted policymakers to introduce various measures to curb lending.

Analysts said that while the moves had helped to keep asset prices in check, they had impacted the country's economic growth.

China's economy grew at an annual rate of 7.6% in the second quarter, the slowest pace of growth in three years.

"The government has underestimated the pace of the slowdown and is behind the curve," said Mr Thornton at IHS Global Insight.

Less effective tools?

Prompted by fears of a sharp slowdown in the economy, China has taken some measures to ease its policies in a bid to spur growth.

China's central bank, the People's Bank of China has lowered the amount of money banks must keep in their reserves, thrice in the past few months, in a bid to boost lending in the country.

It has also cut interest rates twice since June this year, to bring down the cost of borrowing for businesses and consumers.

However, those measures seem to have had little impact on growth.

Analysts said this was because Chinese banks were not too keen to lend money, not least due to fears over slowing growth.

"Banks are not willing to make any large, long-term loans. They are worried about the health of the economy," Mark Matthews of Bank Julius Baer told the BBC.

Also adding to banks' concerns are fears that the record lending over the past few years may result in a rise in bad loans and hurt their profits.

"Past experience has taught us that a bad loan crisis usually came three years after a period of abnormal credit surge," Wei Guoxiong, chief risk management official with the Industrial and Commercial Bank of China was quoted as saying by the Xinhua news agency.

"There will be a notable rise in bad loans in the banking sector this year."

Mr Matthews of Bank Julius Baer said these worries had made the banks "even more cautious about lending in an uncertain economic environment".

He explained that until the banks start to lend money to businesses, the central bank's tools may prove to be ineffective.

Reuters News - European shares lifted by central bank hopes

. A cameraman stands in front of the DAX board at the Frankfurt stock exchange August 29, 2012.

Credit: Reuters/Remote/Lizza May David

By Richard Hubbard

LONDON | Mon Sep 3, 2012 4:58am EDT

(Reuters) - European shares crept higher on Monday after weak factory data highlighted the poor health of the world economy, keeping alive talk of fresh stimulus from major central banks.

However, with U.S. investors out for the Labor Day holiday, markets were likely to trade in a limited range.

Expectations that central banks would take steps to boost growth increased after two Chinese surveys showed factory activity in world's second largest economy slowing more than expected in August.

"I think we're going to see more stimulus from pretty much every central bank on the face of the planet," said Michael Ingram, market analyst at BGC Partners.

"You know we're living in a globalised economy. It's a globalised slowdown so policy makers have to step up to the plate."

The FTSEurofirst 300 index .FTEU3 of top European shares was up 0.5 percent in early trade on Monday to 1,088.42 points, adding to gains of 0.5 percent on Friday.

The euro stood at $1.2575, just below an eight-week peak of $1.2638 set on Friday when U.S. Federal Reserve Chairman Ben Bernanke left the door open for further stimulus.

But any move from the Fed is not expected until its next meeting in mid-September at the earliest and will be heavily influenced by the August payrolls report due out this Friday.

The European Central Bank meeting on Thursday is the market's main focus. The ECB could cut rates after new data showed the euro zone's manufacturing sector contracted faster than previously thought in August.

Markets are also expecting the ECB to release details of its new bond-buying plan to ease the region's debt crisis, which many central banks say is the prime cause of the global slowdown in economic activity.

EURO ZONE RECESSION

The final reading of August's Manufacturing Purchasing Managers' Index (PMI) for the euro area showed it had fallen from an initial estimate of 45.3 to 45.1, notching its 13th month below the 50 mark separating growth from contraction.

The data showed that a downturn which began in the smaller peripheral members of the 17-nation bloc is now sweeping through Germany and France and the situation remained dire in the region's third and fourth biggest economies of Italy and Spain.

"Larger nations like France and Germany remain in reverse gear... the (manufacturing) sector is on course to act as a drag on gross domestic product in the third quarter," said Rob Dobson, senior economist at data collator Markit.

Other central bank policy meetings this week include the Reserve Bank of Australia on Tuesday, the Bank of Canada and Bank of Thailand on Wednesday, and the Bank of England and Bank Negara Malaysia on Thursday.

The MSCI world equity index .MIWD00000PUS was barely changed at 322.40 points but it ended seven straight down days on Friday when investors interpreted the Fed chief's latest comments as a sign further stimulus measures were likely.

In oil markets Brent crude edged lower after the latest surveys on Chinese factory activity pointed to a further slowdown in the world's No.2 oil consumer although hopes of central bank action limited the losses.

Brent October futures were down 7 cents at $114.50 per barrel, steadying after jumping nearly $2 on Friday. U.S. crude futures eased 15 cents to $96.32.

"The Chinese data is very gloomy and suggests that the world economy is slowing," said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt. "But the market impact is rather limited as it raises hopes of more economic stimulus measures."

(Additional reporting by Jonathan Cable and Christopher Johnson; Editing by Anna Willard)