Mexico Racing Against Time at Cantarell Oil Field

MEXICO CITY (Reuters) - Mexico's state energy company Pemex is scrambling to extract what oil it can from its key Cantarell deposit as growing water and natural gas levels in the giant field depress yields of crude.

Cantarell produced more than 2 million barrels per day as recently as 2004, but yield has plunged as the aging field enters its natural decline phase, sending Mexican oil production tumbling to its lowest level since the mid-1990s.

The giant offshore Akal field and several nearby deposits that Pemex groups as Cantarell produced only 713,000 bpd in April, below Pemex's forecast of 756,000 bpd for 2009. Yields from the area have fallen at annualized rates of more than 35 percent in recent months.

Mexico Budget Gap Fuels Debt Sales, Ratings Concern
The deficit in Mexico, while less than half the gap in neighboring U.S. as a percentage of GDP, is more of a concern because 37 percent of the budget is funded by oil, a revenue source that “is very volatile,” Galvan said.

California is preparing to issue IOUs

California is preparing to issue IOUs to its creditors this week

Charts of the slump in capacity utilization by industry. Durable consumer goods are the least likely to regain pricing power right now.

Arizona sales tax revenues in April were (19.8)% below April of last year

City of El Monte, CA considering Chapter 9 Bankruptcy

"So maybe we could summarize the recent strength in the leading economic index this way: The main reason we think the economy is improving is because many of us think the economy is improving."

"Law school is weak on empiricism--unlike, for example, medical school, which is moving in the direction of being ever more evidence-based. Almost every argument in law school is a hypothetical grounded in abstraction and unproved in experience."

The underlying fundamentals are toxic

Great post from John Robb:

When authorities resort to propaganda confidence building instead of substantive action in response to an actual crisis, you know you are in real trouble (Katrina, Iraq, etc.). We are seeing this again today in regards to the global economic crisis, with media amplified whispers of green shoots and bald pronouncements of immanent recovery.

It won't help. The underlying fundamentals are toxic: US gross debt as a percentage of GDP (currently at 375%) is still climbing, housing prices are still falling (wealth destruction as far as the eye can see), un/underemployment is still rising (an inability to service debt), the financial industry is back to its old tricks (bonuses are shooting through the roof again, etc.), China is still manipulating its currency (dashing prospects of future jobs), commodities (higher costs for daily life) are shooting up again, etc.

Oil/Natural Gas Ratio Still Extreme

Looks like the oil/natural gas ratio has begun correcting but is still at an extreme.

The products are not the best of substitutes, but their price movements should be correlated positively instead of negatively as has been the case recently, since they are both derivatives of economic activity.

Seems like oil traders are betting on inflation and gas traders on deflation which is an inconsistency we might be able to take advantage of.

I am looking for a long gas/short oil trade to bet on mean reversion. Suggestions?

Wednesday News Roundup

Strong buying by China has helped lift commodity prices around the world this spring, but growing evidence suggests that a sizable portion of this buying has been to build stockpiles in China, and may not be sustainable.

At least 90 large freighters full of iron ore are idling off Chinese ports, where they face waits of up to two weeks to unload because port storage operations are overflowing, chief executives of shipping companies said in interviews this week. Yet actual steel production from that iron ore is recovering much more slowly in China, and Chinese steel exports remain weak.

Here's good data that indicates that the Chinese buys are for stockpiling.

But we do see signs of change within the White House. Just as Secretary Geithner was finishing his high profile but low substance visit to China, former Federal Reserve Board Chairman Paul Volcker was observed quietly arriving in Beijing for talks with the senior Chinese political leadership. The Chinese have made it clear, we are told, that the opinions of Chairman Volcker are more reliable than the at times sophmoric statements of Secretary Geithner.

The Treasury Secretary, do not forget, is seen in China, Europe and elsewhere as a representative of the largest US banks.

O'bama Accountability Watch

From the Innocent Bystanders blog:

China Governed by Engineers, America by Lawyers

An article from last month's Economist about professional paths to the top sheds light on a major problem facing the United States:

"The prevalence of lawyers in America’s ruling elite (spotted by a Frenchman, Alexis de Tocqueville, in the 1830s) is stronger than ever. Mr Obama went to Harvard Law School (1988-91); his cabinet contains Hillary Clinton (Yale Law, 1969-73) as secretary of state, Eric Holder (Columbia Law, 1973-76) as attorney-general, Joe Biden (Syracuse University law school, 1965-68) as vice-president and Leon Panetta (Santa Clara University law school, 1960-63) as director of the CIA. That’s the tip of the iceberg. Over half of America’s senators practised law."

"President Hu, in contrast, is a hydraulic engineer (he worked for a state hydropower company). His predecessor, Jiang Zemin, was an electrical engineer, who trained in Moscow at the Stalin Automobile Works. The prime minister, Wen Jiabao, specialised in geological engineering. The senior body of China’s Communist Party is the Politburo’s standing committee. Making up its nine members are eight engineers, and one lawyer. This is not a relic of the past: 2007 saw the appointments of one petroleum and two chemical engineers. The last American president to train as an engineer was Herbert Hoover."

I call lawyers the sand in the gears of the economy.