FYI | Jun 16 2008
By Greg Peel
News reports flowing in over the weekend suggest that Saudi Arabia has agreed to an oil production increase of 200kbpd from July, to a level of 9.7mbpd. While initial reports were unconfirmed, it appears the Saudis agreed to the increase following a direct appeal from UN secretary-general Ban Ki-moon. While the Saudis have previously made small production increases in light of the rocketing oil price, those were only to be in place until the June 22 meeting of OPEC oil ministers. The production increase is set for a period of one month.
Thereafter it was unclear what might happen, but to date OPEC has staunchly resisted calls for production increases, arguing it is greedy Western speculation that is pushing up the oil price, and not supply/demand. It is now unclear as to how this Saudi announcement will fit in with OPEC’s quota policy. But one presumes Ban Ki-moon has been able to appeal on behalf of third world countries experiencing civil rioting, and the Saudis have listened. Only a couple of months ago George Bush made the same pilgrimage to Riyadh to appeal to the longstanding US ally, only to return red-faced and empty-handed.
The G8 finance ministers meeting in Osaka this weekend, also made appeals to oil producers to increase production and alleviate the crisis facing the world at present – an oil price crisis which has also affected the food price crisis. But like the Arabs, some European members argued that speculation was the problem that needed to be addressed, which is a clear shot over the US bow. This appears to be about as much as the G8 managed to achieve over the weekend, and there was apparently no official line on US dollar intervention. However, in another month the G8 leaders will also meet in Japan.
There are some important data in the US this week, beginning with the New York state manufacturing index for June on Monday, along with the NAHB June housing index and April long term TIC flows (flows in and out of US dollar assets). Tuesday sees May housing starts, building permits, industrial production and capacity utilisation, along with the first quarter current account measure.
On Wednesday it’s June mortgage applications, and Thursday brings the Philadelphia Fed economic activity index for June and leading economic indicators for May. Thursday is also weekly jobless claims day – a figure that has taken on even more significance since the big jump in unemployment announced last Friday week.
In Australia it’s all about learning more of the RBA’s thinking this week, although speeches made last week generally supersede this week’s releases. On Tuesday we see the RBA minutes from the June meeting at which rates were left on hold. Tuesday also brings first quarter dwelling commencements.
On Wednesday it’s leading economic indicators for April (which seem old but are good predictors of the economy 3-6 months hence), and on Thursday the RBA’s monthly bulletin is released.
With the US dollar being firmly in the frame the world will be closely watching the release of the EU May CPI tonight, with the UK following on Tuesday.
