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US apportions blame for BP spill

Systemic failures by the management of BP and other companies led to the Macondo well blow-out in the Gulf of Mexico last year, the official US inquiry has concluded, warning that industry complacency could cause a similar accident again.

A 48-page chapter from the report of the National Commission set up by President Barack Obama after the spill, released this morning, delivers a scathing verdict on the procedures followed by BP and its contractors on the project, Transocean and Halliburton.

An explosion on the Deepwater Horizon drilling rig on April 20 killed 11 men and led to the largest ever offshore oil spill.

The report says: “Most of the mistakes and oversights at Macondo can be traced back to a single overarching failure – a failure of management. Better management by BP, Halliburton, and Transocean would almost certainly have prevented the blow-out.” It warns that “the root causes are systemic” and without significant reform of the industry and its regulation, “might well recur”.

The Commission’s full report, including its assessment of the response to the spill, will be published on Tuesday.

Its conclusions will form part of the basis for legal action against BP and the other companies, including the civil cases being pursued by the US government that could result in tens of billions of dollars in damages.

But the Commission’s report warns that the bill for compensating people who have lost money “is likely just the beginning”. It adds: “BP, its partners . . . and its key contractors (particularly Halliburton and Transocean) face potential liability for the billions more necessary to restore natural resources harmed by the spill.” Read more at www.ft.com

 

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Severe flooding in Australia has interrupted coal production, pushing up prices

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Severe flooding in Australia has interrupted coal production, pushing up prices and threatening to constrain world-wide steel output and lead to higher steel prices in some parts of the world.

Torrential rains in the northeastern state of Queensland, the world's biggest exporter of seaborne coal, have idled dozens of mines and shut rail lines and roads needed to transport coal. The floods have already cost coal companies an estimated $1 billion from lost production, according to the Queensland Resources Council.

Roughly 98 million tons of annual steelmaking-coal capacity, equal to 73% of such coal exported from Queensland, is under force majeure, according to Curt Woodworth, an analyst with Macquarie Capital in New York. That is about 37% of the annual, global seaborne supply of coal used by steelmakers.

Prices for steelmaking coal have already shot up 10% on the spot market to about $250 a metric ton, say analysts. "If the infrastructure issues continue, clearly prices are going to continue to head upward," said Jeremy Sussman, an analyst with Brean Murray, Carret & Co. Read more at professional.wsj.com

 

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US economic recovery not enough to curb QE2

Federal Reserve officials indicated last month that it was too early to consider scaling back their plan to buy a total of $600bn in long-dated Treasury bonds by the end of June, in spite of the acceleration in the US economic recovery.

The US central bank’s resistance to reversing the quantitative easing programme – nicknamed QE2 – came even as officials offered a more encouraging snapshot of the economy. They said growth would pick up “somewhat” in the coming months, citing a better “tone” in the labour market and stronger measures of production and consumer spending.

They also pointed to the $858bn fiscal package signed into law by President Barack Obama last month – which extended Bush-era tax rates, cut the payroll tax and extended unemployment insurance – as supporting recovery. Some also saw the risk of deflation – one of the big concerns ahead of the QE2 plan’s announcement – as “having receded somewhat”.

Indeed, the depressed state of the housing market, the reluctance of businesses to ramp up their hiring, and continued deleveraging by households and companies continued to restrain the US economy, according to the minutes. Fed officials also pointed to the existence of continued “downside risks” to the recovery, including the potential spillover from the sovereign debt woes in Europe. They also said that inflation was expected to remain “for some time” below the level which the Fed believes to be consistent with its mandate, indicating they did not foresee price pressures building rapidly. Read more at www.ft.com

 

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Cold and floods send fuel prices to new highs

Crude oil and thermal coal prices set fresh 27-month highs on the first session of the new year and added to inflationary concerns in developing economies.

The surge came amid a forecast of cold weather in the US, the world’s biggest oil consumer, robust growth in the manufacturing sector in Asia and Europe and heavy flooding in Australia, the world’s second largest thermal coal exporter.

The mix propelled Brent crude, the global benchmark, above $95 a barrel for the first time since October 2008.

Lawrence Eagles, head of oil research at JPMorgan in New York said in a note to clients: “$100 a barrel oil looms.

“Oil sentiment has turned decidedly bullish, partly driven by unusually cold weather, but more due to an increasingly optimistic consensus view on 2011 economic performance, especially for the US.

The surge in oil and thermal coal prices adds to already rising inflation in emerging countries, some of which are big importers of energy commodities. China, where the central bank has raised interest rates to fight rising prices, is the world’s second largest importer of both oil and thermal coal. India is also a large buyer.

In London, ICE February Brent surged to an intraday peak of $96.47 a barrel on thin trade becaiuse of a UK public holiday. It later traded up 87 cents to $95.62.

The price of coking coal, used in making steel, has also soared. Australia accounts for about two-thirds of the global seaborne market for coking coal.

Elsewhere in commodities markets, precious metals rose amid strong demand from investors, partly exacerbated by New Year’s money allocation shifts.

Agricultural commodities prices also rose, with strong gains for wheat and oilseeds, on the back of bad weather in key growing regions in Australia, Indonesia and Latin America. Meteorologists have blamed the bad weather on la niña, a recurring phenomenon, caused by a fall in water temperature in the tropical Pacific.

The phenomenon could alter rainfall and temperature patterns across some of the world’s most important tracts of agricultural land, and has triggered unusually strong downpours in Australia and Indonesia and drought in Argentina and Brazil.

In Paris, Euronext February rapeseed rose above the €500 per tonne level for the first time in almost three years. It hit an intraday high of €506.0 per tonne, up 1.8 per cent. Rapeseed prices peaked €521.5 a tonne in March 2008. Read more at www.ft.com

 

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Untitled

Amplify’d from www.ft.com

Cold and floods send fuel prices to new highs

Crude oil and thermal coal prices set fresh 27-month highs on the first session of the new year and added to inflationary concerns in developing economies.

The surge came amid a forecast of cold weather in the US, the world’s biggest oil consumer, robust growth in the manufacturing sector in Asia and Europe and heavy flooding in Australia, the world’s second largest thermal coal exporter.

The mix propelled Brent crude, the global benchmark, above $95 a barrel for the first time since October 2008.

Lawrence Eagles, head of oil research at JPMorgan in New York said in a note to clients: “$100 a barrel oil looms.

“Oil sentiment has turned decidedly bullish, partly driven by unusually cold weather, but more due to an increasingly optimistic consensus view on 2011 economic performance, especially for the US.

The surge in oil and thermal coal prices adds to already rising inflation in emerging countries, some of which are big importers of energy commodities. China, where the central bank has raised interest rates to fight rising prices, is the world’s second largest importer of both oil and thermal coal. India is also a large buyer.

In London, ICE February Brent surged to an intraday peak of $96.47 a barrel on thin trade becaiuse of a UK public holiday. It later traded up 87 cents to $95.62.

The price of coking coal, used in making steel, has also soared. Australia accounts for about two-thirds of the global seaborne market for coking coal.

Elsewhere in commodities markets, precious metals rose amid strong demand from investors, partly exacerbated by New Year’s money allocation shifts.

Agricultural commodities prices also rose, with strong gains for wheat and oilseeds, on the back of bad weather in key growing regions in Australia, Indonesia and Latin America. Meteorologists have blamed the bad weather on la niña, a recurring phenomenon, caused by a fall in water temperature in the tropical Pacific.

The phenomenon could alter rainfall and temperature patterns across some of the world’s most important tracts of agricultural land, and has triggered unusually strong downpours in Australia and Indonesia and drought in Argentina and Brazil.

In Paris, Euronext February rapeseed rose above the €500 per tonne level for the first time in almost three years. It hit an intraday high of €506.0 per tonne, up 1.8 per cent. Rapeseed prices peaked €521.5 a tonne in March 2008. Read more at www.ft.com

 

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Eurozone manufacturing improves markedly

Europe’s manufacturing sector shrugged off market concerns about public debt levels in December, with a marked improvement in a key indicator extending to some of the troubled “peripheral” countries for the first time.

The eurozone purchasing managers’ index rose to 57.1 in December, up from 55.3 in November and 0.2 points higher than an earlier estimate. A reading above 50 indicates growth in manufacturing output.

The revised data released on Monday showed that although the German-led “core” of the eurozone remains the engine behind its economic recovery, there are signs that the troubled “periphery” is also improving.

welcome signs of recoveries were also evident in the periphery, where export sales helped boost output growth in all cases except Greece, where the rate of decline at least moderated

the small increase in the periphery will help ease fears of a “two-speed Europe” which emerged in 2010 as Germany powered ahead while much of southern Europe remained stuck in the mire.

Joblessness in the eurozone has remained at 10 per cent since spring in spite of a pick-up in economic output. Now the PMI survey shows hiring intentions at their highest level in more than a decade.

But the good news was partly tempered by sluggish growth for consumer goods manufacturing, a sign that shoppers remain cautious. Economists worry that the scope for economic recovery in Europe will be limited without a marked pick-up in consumer spending, particularly in Germany.

Julian Callow of Barclays Capital termed it a happy new year’s message from the manufacturing sector: “[It] provides further evidence that, contrary to the tensions in the debt markets, the business sector has continued to exhibit economic improvement.” Read more at www.ft.com

 

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Amplify’d from www.economist.com

After the break-up of the Soviet Union, the kroon was restored in 1992, a symbol of independence regained.

Now the kroon, too, is destined to become a museum piece, though this time its abolition is voluntary. On January 1st Estonia adopts the euro, with mixed emotions among the numismatists in the museum shop. Most Estonians accept the government’s view that giving up the kroon will strengthen Estonia economically and politically. Pegged from the outset to the D-mark and then the euro, the kroon has hardly been independent. Abandoning it, say ministers, will end speculation about devaluation, reduce transaction costs, lower interest rates and boost investment. To many Estonians, the euro also means security. For this small country of just 1.3m people, the single currency is a further step towards “Europe” and away from Russia. With its membership of NATO, the EU, the Schengen free-movement zone and now the euro, Estonia thinks of itself as one of the most integrated countries in Europe. As for the euro zone,

Having shrunk by nearly 14% in 2009, the economy has rebounded and is forecast to grow by 4.4% in 2011. The newest and poorest member of the euro zone will have its smallest public-debt ratio: 8% of GDP.

For Jürgen Ligi, Estonia’s finance minister, the essence of this success is discipline in maintaining balanced or surplus budgets in good times, and courage in making swift and deep cuts in bad. Estonia’s accumulated reserves, and its exports, cushioned the blow. Not everything is rosy. Inflation is rising. Unemployment, which this year averaged 17.5%, is high; analysts worry about a brain-drain

austerity is too not hard to bear after the experience of communism and late Soviet-era inflation. “Nobody would take to the streets flying the red flag,” says Mr Ligi. Toomas Ilves

Estonia’s president, suggests another factor: “Maybe it’s our peasant mentality.” Noting the thick snow outside his window, he says northern peoples are thrifty by necessity; they must save food in the summer to survive the winter.

Estonia’s medicine may be harder for other euro-zone countries to take. With big public-sector debts (the euro-zone average is 84% of GDP), restoring fiscal health could take decades of austerity, especially if growth is sluggish. Recession and, worse, deflation, would exacerbate the debt ratio. Still, Mr Ligi is impatient with the timidity of reforms in southern Europe. “Recession is much less painful than bankruptcy,” he says bluntly.

Is Estonia joining a moribund currency? The vital signs are worrying. The euro has fallen in recent months against the dollar, and bond spreads between its strongest and weakest members are still wide. The EU has kept it alive, averting, for now, default by Greece and Ireland, and the risk of another round of bank failures. The emergency room should continue to operate beyond 2013: a recent European summit agreed the wording of a treaty change to make permanent the EU’s bail-out funds, worth some €500 billion ($660 billion). The European Commission, meanwhile, is pressing ahead with plans for close monitoring of members’ budgets and economies, with punishments for those that do not follow its therapy. This will help long-term prevention.

The summit declined to adopt the most frequently proposed treatments: common euro bonds to pool part of the euro zone’s debt; bigger bail-out funds; or even their more flexible use, say, to extend short-term loans.

In December it requested a near doubling of its capital, presumably to counterbalance its risky assets.

Some see hope in China’s promise to buy bonds and make “investments” in troubled European countries. Yet Chinese medicine is no more than a palliative. This year’s prognosis, then, is for a chronic condition punctuated by crises.

Such is the sickly currency that Estonia is joining. It says the euro’s demise is unthinkable. And it is right in saying that self-help—austerity and structural reform—offers the most lasting remedy. But what if the cure kills the patient? Then Estonia will hope to inherit a share in a successor currency, perhaps a “northern euro”. That makes the gamble worth taking.

Baltic bet

Why fiscally prudent Estonia wants to join the troubled euro Read more at www.economist.com

 

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