3-Month Petroleum Usage Chart for March, April, May Shows 14 Years of Supply Demand Growth has Vanished

The following chart from reader Tim Wallace shows three-month usage for March, April, May compared to the same three months in prior years.



The chart shows petroleum usage is back to levels seen in 1998. Gasoline usage is back to levels seen in 2002.

This chart is consistent with reports that show petroleum usage in the eurozone is expected to fall to 1996 levels.

For more details and an analysis of tanker rates, please see Oil Tanker Rates Lowest Since 1997 as Demand in Europe Plunges to 1996 Level, Production in US at 13-Year High; IMF Smoking Happy Dope.

14-16 years of petroleum supply demand growth has vanished.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Huge Nannycrat Conflict Coming Right Up; Hollande Lowers Pension Age to 60

The BBC reports France's Hollande to lower state pension age to 60

New French president Francois Hollande has unveiled details of a plan to lower the retirement age to 60 for some workers - a key election pledge.

His predecessor, Nicolas Sarkozy, had faced strong opposition when he raised the retirement age by two years to 62.

The move in 2010 sparked weeks of strikes across the country, mainly by public service workers.

The decision comes as the EU warns that France will struggle to meet its fiscal targets without spending cuts.

Jean-Francois Cope, head of the conservative UMP party, said Francois Hollande was "burying his head in the sand".

Mr Sarkozy's reforms had been welcomed by financial markets and credit ratings agencies concerned about France's ability to cut its debt and deficit levels.

The European Commission warned last week that any changes in the French pension system had to be closely monitored.

Nannycrat Conflict Coming Right Up

The nannycrats in Brussels want to dictate and harmonize everything from tax rates (allegedly Ireland is too low), fiscal policy, immigration policy, work rules, interest rates, retirement age, tariffs, and crop subsidies.

The retirement age in Germany is rising to 67. In France it will be lowered to 60 even though people are living far longer.

Pact for Competitiveness

About a year ago Merkel Blasts Greece over Retirement Age, Vacation

German Chancellor Angela Merkel on Tuesday evening blasted Greece and demanded that Athens raise the retirement age and reduce vacation days. Germany will help, she said, but only if indebted countries help themselves.

"It is also important that people in countries like Greece, Spain and Portugal are not able to retire earlier than in Germany -- that everyone exerts themselves more or less equally. That is important."

She added: "We can't have a common currency where some get lots of vacation time and others very little. That won't work in the long term."

There are indeed significant differences between retirement ages in the two countries. Greece announced reforms to its pension system in early 2010 aimed at reducing early retirement and raising the average age of retirement to 63. Incentives to keep workers in the labor market beyond 65 have likewise been adopted. Germany voted in 2007 to raise the retirement age from 65 to 67 over the next several years.

In January of this year, Merkel proposed a "pact for competitiveness" that would force EU members to coordinate their national policies on issues like tax, wages and retirement ages. A watered-down version of the pact was agreed upon at a summit in March.

Tip of the Nannycrat Iceberg

Retirement age is just the tip of the nannycrat conflict iceberg.

So when is Merkel going to tell Hollande that France should be raising the age to 67? When is Merkel going to tell France that crop subsidies have to end? When is Merkel going to tell Hollande labor reform is needed and there needs to be a provision for firing workers easier?

The equity markets are up today on fluff proposals that Merkel will bend in bailing out Spain, if Spain will relinquish sovereignty on other issues (see Merkel Bends, Equity Markets and Precious Metals Cheer, Bond Market Yawns; Lending to Peter so Peter Can Lend to Paul)

Assuming you believe that shell game will work, what about Ireland's lower tax rate? And pray tell, what about France and this giant step backward on badly needed pension reform?

For more on nannycrats and the nannyzone please see ...

• Another Meaningless Nannycrat Rumor: Europe Mulls "Secret Plan for New Europe"
 
• "Multi-Stage" Nannycrat Proposals; Devaluation - The Last Option? Note to Wolfgang Münchau, Martin Wolf, Jeremy Siegel at the Financial Times: Focus on the Obtanium not the Unobtanium

Also see my original post on the "nannyzone" written June 2, 2011, nearly one year ago today: Trichet Calls for Creation of European "Nanny-State" and Fiscal "Nanny-Zone"

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Merkel Bends, Equity Markets and Precious Metals Cheer, Bond Market Yawns; Lending to Peter so Peter Can Lend to Paul

German Chancellor Angela Merkel has worked out a deal with Spain to rescue its banks. Global equity markets and commodities, especially gold and silver, have cheered the news.

However, the bond market has let out a big yawn. The yield on Spanish 10-year treasuries dropped less than 3 basis points to 6.281%, hardly a sustainable rate.

Please consider Germany finalizing face-saving aid deal for Spain

While Berlin remains firm in its rejection of Spain's calls for Europe's rescue funds to lend directly to its banks, the officials said that if Madrid put in a formal aid request, funds could flow without it submitting to the kind of strict reform program agreed for Greece, Portugal and Ireland.

Instead, Spain would only have to agree to new conditions tied to the reform of its banking sector. Berlin is also exploring the possibility of funneling aid to Spain's bank rescue fund FROB to reinforce the message that it is the country's banks and not its public finances which are at the root of its problems.


Berlin is certainly shifting positions. Last week, it signaled it supported granting Spain an extra year to cut its deficit to the EU's 3 percent of gross domestic product threshold, having previously held fast to the notion that austerity drives should not be diluted.

Merkel has also sent the message that she is open to Europe-wide supervision of the banking sector, albeit as a "medium-term" goal, one element of a proposed "banking union" to break the vicious circle of interdependence between Europe's financial institutions and its sovereigns.

But she must tread carefully. Some of her political allies and leading conservative newspapers have come out strongly against other aspects of a banking reform, including the idea of a Europe-wide deposit guarantee scheme.

Multiple sources said the German finance ministry was exploring the possibility of channeling EU aid directly to Spain's Fund for Orderly Bank Restructuring (FROB), but that this would only work under the ESM, which is due to come into force next month.

Lending to Peter so Peter Can Lend to Paul

Got that? Germany is not willing to lend money directly to Spanish banks, but is willing to lend to the FROB so the FROB can lend to Spanish banks.

Eurointelligence explains EFSF to lend directly to the FROB

This would be a straight-forward loan by the EFSF to the FROB, and this loan would raise the Spanish state’s debt. The only relief would come in the form of lower ESM interest rates as opposed to the market interest rates Spain has to pay right now. We doubt that this scheme will have a sustained effect on Spanish spreads.

Any Effect?

Did this sleight-of-hand, shell-game proposal have any effect? Not to the bond market unless you count the small rally in yields from about 6.66% to 6.28% ahead of the news with almost no follow-through today.

While the equity markets are once again willing to settle for ridiculous fluff and promises, the bond markets and gold are not impressed.

How Big is the Sinkhole?

How much money does the FROB need? Estimates range from 30 to 70 billion more euros on top of 80 billion euros of taxpayer money already  wasted.

I suspect the real answer is at least triple the high-end estimate given massive unrealized real-estate losses and the imploding Spanish economy. Whatever the external audit by the IMF shows, figure it to be a lowball estimate designed to make things look better than they really are.

This ploy may be face-saving for Spain but it will cost German and Spanish taxpayers still more money and it will be face-losing for Merkel. 

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Congratulations to Governor Walker in Winning Recall Election; Message From FDR on Public Unions

Congratulations to Wisconsin governor Scott Walker who became the first governor in US history to win a recall vote.

The New York Times reports Walker Survives Wisconsin Recall Vote

Gov. Scott Walker, whose decision to cut collective bargaining rights for most public workers set off a firestorm in a state usually known for its political civility, easily held on to his job on Tuesday, becoming the first governor in the country to survive a recall election and dealing a painful blow to Democrats and labor unions.

Mr. Walker soundly defeated Mayor Tom Barrett of Milwaukee, the Democrats’ nominee in the recall attempt, with most precincts across the state reporting results. The victory by Mr. Walker, a Republican who was forced into an election to save his job less than two years into his first term, ensures that Republicans largely retain control of this state’s capital, and his fast-rising political profile is likely to soar still higher among conservatives.

The result raised broader questions about the strength of labor groups, who had called hundreds of thousands of voters and knocked on thousands of doors. The outcome also seemed likely to embolden leaders in other states who have considered limits to unions as a way to solve budget problems, but had watched the backlash against Mr. Walker with worry.

Voters went to the polls in droves, and some polling places needed extra ballots brought in as long lines of people waited. One polling location was so swamped, state officials said, that it found itself using photocopied ballots, which later had to be hand-counted. The final flurry of television advertising — with Mr. Walker outspending Mr. Barrett seven to one — seemed to have little impact on the outcome. Nearly 9 in 10 people said they had made up their minds before May, according to exit poll interviews.

Liberal fools and union sympathizers in Madison, Milwaukee, and the extreme Northwestern part of the state voted for the recall, but overall the county vote was 60-12 in favor of Walker.



For an interactive map of percentages, please see Wisconsin Recall Election Results

Public unions survive by coercion, threats, bribes, and vote buying. Cities and states are broke as a result. Even FDR agrees.

Message From FDR

Inquiring minds are reading snips from a Letter from FDR Regarding Collective Bargaining of Public Unions written August 16, 1937.

All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations when applied to public personnel management.

The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations.

Particularly, I want to emphasize my conviction that militant tactics have no place in the functions of any organization of Government employees.

A strike of public employees manifests nothing less than an intent on their part to prevent or obstruct the operations of Government until their demands are satisfied. Such action, looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable.

For more on public union slavery, coercion, bribery, and scapegoating please see ...

• Paul Krugman, Stephen Colbert, Bill Maher, others, Ignore Extortion, Bribery, Coercion, and Slavery; No One Should Own You!
 
• President Obama's Slave Trade; Senator DeMint Says Team Obama Acts Like Thugs; Death of Right-to-Work?
 
• Scapegoating Madness

Finally, actual Wisconsin results prove Union-Busting is a "Godsend"; Elimination of Collective Bargaining is the Single Best Thing one Can do for School Kids

It's time to implement national right-to-work laws and put an end to public union collective bargaining nationally.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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France, Italy, Spain Services PMI Show Continued Sharp Decreases; Eurozone Composite PMI Near 3-Year Low; Germany Services PMI at 6-Month Low

The Markit PMI data from Europe shows still more deterioration led by France, Italy, and Spain. Let's take a look at a few countries.

France: Business Activity Continues Contraction at Marked Pace

Key points:

• Final Markit France Services Activity Index at 45.1 (45.2 in April), 7-month low. 
• Final Markit France Composite Output Index at 44.6 (45.9 in April), 37-month low.

Summary:French service providers registered another sharp decrease in business activity during May. Underlying the weak performance was a second successive fall in incoming new business, while backlogs of work fell further. Companies responded by cutting employment. Input price inflation eased to the slowest for over two years, allowing companies to reduce their charges further.

Italy: Services Activity Continues Contraction at Sharp Rate in May

Key Points:

• Business activity and new work both decrease markedly 
• Employment falls at slowest rate for seven months 
• Cost inflation weakest since last November

Summary:

The health of the Italian service sector deteriorated during May, with steep falls in both output and new business recorded. Confidence with regards to activity in the forthcoming year dipped further, though employment levels fell at a slower rate. Cost inflation meanwhile eased to the weakest in six months, but still contrasted with a sustained drop in output prices.

Spain: Activity and new business both decline at faster rates

Key points:

• Activity and new business both decline at faster rates 
• Job shedding intensifies 
• Sharp cuts in output prices as cost inflation eases

Summary:

The Spanish service sector fell further into contractionary territory during May as the economic crisis showed no signs of easing. Rates of decline in activity, new orders and employment all accelerated during the month. Meanwhile, input prices rose only slightly as companies attempted to reduce costs, and output prices were cut sharply again in response to strong competition and weak demand.

Germany: German Composite Output Index in Contraction

Key points: 

• Final Germany Services Business Activity Index(1) at 51.8 in May, down from 52.2 in April.
• Final Germany Composite Output Index(2) at 49.3 in May, down from 50.5 in April.

Summary:

May data pointed to a renewed slowdown in German service sector growth, as falling levels of incoming new work continued to weigh on business activity levels. At 51.8, down from 52.2 in April, the final seasonally adjusted Germany Services Business Activity Index pointed to the slowest pace of expansion since November 2011. Higher levels of output have now been recorded for eight months running, but the pace of expansion in May was below the average seen since the survey began 15 years ago (53.0).

Eurozone: Composite PMI near-three year low in May

Key Points:

• Final Eurozone Composite Output Index: 46.0 (Flash 45.9, April 46.7) 
• Final Eurozone Services Business Activity Index: 46.7 (Flash 46.5, April 46.9) 
• Widespread weakness across the currency union, with output falling across the big-four nations

Summary:

At 46.0 in May, down from 46.7 in April, the Markit Eurozone PMI® Composite Output Index signalled the steepest rate of decline in manufacturing and services output in the single currency area since June 2009. The headline index came in slightly above its flash estimate of 45.9, but remained below the neutral 50.0 mark for the fourth month running.

Comment:

Chris Williamson, Chief Economist at Markit said: "The final Eurozone PMI edged up on the flash reading in May, but nevertheless indicates that the economy is contracting at the fastest pace for around three years. Companies report business activity to have been hit by heightened political and economic uncertainty, which has exacerbated already weak demand both in the euro area and further afield. Based on these numbers, it would not be surprising to see GDP for the region contract by 0.5% in the second quarter, though an even steeper decline could be seen if the June data disappoint."

If the ECB is looking for an excuse to cut rates, it sure has one.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Gaming the Odds of a Greek Euro Exit With and Without Contagion

A key question on trader's minds is who will win the June 17th Greece election and whether it results in a Greek exit of the eurozone.

Deutsche Bank gives it assessment in a report called Probability weighting EUR views on Greece

Under a variety of assumptions, the market pricing looks consistent with: a) significant odds in favor of Greece remaining part of the EUR zone and EUR/USD trading between 1.25 and 1.30; and, b) a worst case Greek exit global contagion scenario taking EUR/USD to 1.10, but not to levels as low as parity.

After the Greek elections, there are 6 main scenarios that are worth considering:

1. A EUR friendly coalition probably led by New Democracy (ND) that does enough to keep Greece in the EUR. 
2. A EUR friendly coalition probably led by ND that still leads to a Greek exit, but not a major global contagion event. 
3. A EUR friendly coalition probably led by ND that still leads to a Greek exit (probably with a delay) because Greece fails to comply with the Troika program and this ends up in a major global contagion event 
4. An anti-austerity led government, probably led by Syriza, that nonetheless compromises sufficiently, that Greece remains in the EUR at least through 2012. 
5. An anti-austerity led government, that ends with Greece leaving the EUR but where contagion is relatively well contained. 
6. An anti-austerity led government, that ends with Greece leaving the EUR which becomes a major global contagion event.

Deutsche Bank Probability Chart

click on chart for sharper image

Odds Not 50-50

Deutsche Bank thinks the probability that New Democracy or Syriza wins is equal, 50% each.

I think the odds Syriza wins is about a 2-1 favorite as explained in Greek Polling Ban In Effect Until Election; Latest Results Show SYRIZA Support at 31.5 percent, Well in the Lead Over New Democracy; Why I expect Syriza to Win

For an update, please see "Terror-Mongering" in Greece About to Backfire? Will Greeks Vote for "Complete Idiots"? Four Possibilities

Note that Deutsche Bank thinks that even if Syriza does win, Greece is as likely to remain in the eurozone as not. That strikes me as being far too optimistic. Even if  Syriza stays in for a while, it will eventually run out of money.

Contagion Scenarios

Finally, please note that the Deutsche Bank contagion scenarios total a mere 28%.

What does "contagion" even mean? As I have explained before, Spain has problems of its own making not related to Greece at all.

Spain is not going to exit the eurozone solely or even significantly because of Greece.

True Contagion

The true contagion scenario is not what people think but rather the reverse. Greece exits the eurozone, recovers, and other countries decide to do the same.

In the context of the Deutsche Bank article, I fully expect Spain to exit the eurozone. Is that contagion? It depends on why and how you define the word.

Finally, even if New Democracy wins, the odds of a Greek exit do not drop to a mere 5% as the above table shows. I would say they are still 50% minimum and depending on your timeframe as high as 85%.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Oil Tanker Rates Lowest Since 1997 as Demand in Europe Plunges to 1996 Level, Production in US at 13-Year High; IMF Smoking Happy Dope

Bloomberg reports Oil Tankers Squeezed as Rates Drop to Lowest Since ’97.

Aframaxes, already this year’s worst- performing oil tankers, are poised for the lowest annual rates in at least 15 years as Europe’s economic stagnation curbs demand, the region’s most-accurate shipping analysts said.

The 800-foot vessels will make about $12,000 a day in 2012, the least since 1997, said Anders Karlsen, an analyst at Nordea Markets in Oslo. His recommendations on the industry returned 25 percent in the past year, more than any shipping analyst in Europe tracked by Bloomberg.

The vessels are struggling to win cargoes on all sides of the Atlantic, with European oil demand contracting for a sixth year at a time when the U.S. push for energy independence is driving down crude imports to the lowest since 1999. That’s drawing more South American and West African supply to Asia on routes favoring very large crude carriers, displacing smaller Suezmaxes which in turn are competing with Aframaxes.

“With the situation in Europe, the picture for Aframaxes is just abysmal,” said Erik Nikolai Stavseth, an Oslo-based analyst at Arctic Securities ASA who anticipates an annual average of $10,000. “VLCCs are taking out Suezmaxes, and Suezmaxes are taking out Aframaxes,” said Stavseth, whose recommendations returned 24 percent in the past year, the second-best performance in the region.

European oil demand will decline 2 percent to 14.7 million barrels a day this year, the lowest since at least 1996, the Paris-based International Energy Agency estimates. The region’s refineries are shutting at the fastest pace in three decades as economies stagnate or contract and competition from U.S. rivals using cheaper grades of crude intensifies. Aframaxes get 48 percent of their cargoes from Europe, Clarkson estimates.

The U.S. is producing the most crude in 13 years after prices rose almost fourfold in a decade, Energy Department data show. Companies were drilling 2,329 wells last month, the most in a quarter century, the data show. Aframaxes rely on North America for about 14 percent of their cargoes, the same order of magnitude by which imports carried on the vessels will fall this year, according to Clarkson.

The slump in European demand may reverse as its economies strengthen, with the International Monetary Fund predicting 2013 growth of 0.9 percent in the 17-nation euro zone, from a 0.3 percent drop in 2012.

Comments From Tim Wallace

Reader Tim Wallace says ...

Hello Mish

EU demand is dropping along the same lines as USA, six consecutive years of decline, now equal to 1996 levels. USA oil consumption is at 1998 levels.

How can anyone not see the global economy never recovered from 2008? Only government debt spending has kept the economy from the abyss. As you know that is nothing but a misguided can-kicking exercise.

IMF Smoking Happy Dope
 
To that I would add the IMF is smoking "happy dope" to believe the eurozone will contract a mere .3% in 2012 and expand at .9% in 2013.

Moreover, the US economy is clearly slowing rapidly and is likely in recession right now.

I will have the latest US 3-month oil usage charts from Tim Wallace shortly.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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