Oil price falls on economic fears

Oil prices have plunged 10% as yet more bad economic data sent stock markets sharply lower and undermined hopes of economic recovery.

US light crude fell by $4.61 to $40.15, while London Brent crude dropped $4.14 to $42.21.

Huge losses at US insurer AIG and plans for fund raising by HSBC bank sparked sharp falls in global markets.

And weak manufacturing figures in the UK and eurozone only served to deepen the gloom yet further.

'Weaker demand'

With hopes of an early economic recovery now fading, fears are growing that demand for oil will remain depressed.

Oil cartel Opec has already cut production by millions of barrels a day in an attempt to support oil prices.

"Although, OPEC, by all counts, is doing a good job in complying to its quota levels, it looks like flat price is being driven by the deteriorating global economic environment as reflected in the Dow Jones [industrial average]," said Nauman Barakat, senior vice president at Macquarie Futures USA.

Michael Lynch at Strategic Economic and Energy Research said: "We had the run-up last week, but now people are looking at weaker demand signals," said Michael Lynch at Strategic Economic and Energy Research.

A number of observers, he added, now believe that more supply side cuts will be needed to prop up the oil price.

Algerian Energy and Mines Minister Chakib Khelil said on Sunday that "it is quite possible that OPEC will decide to make a further reduction of production" at its next meeting scheduled for 15 March.

However Iran's Oil Minister, Gholamhossein Nozari, said he did not expect another output cut.

Japanese stocks skirt 26-year low

Japanese stocks traded close to 26-year lows in Tuesday trading as investor concerns about the health of the financial system persisted.

Japan's Nikkei 225 touched 7,088.47 on Tuesday morning, close to the 26-year low that it hit in October. However, it later recovered some ground.

Other Asian markets also fell, with Hong Kong's Hang Seng index down 1.5%.

On Monday, the US Dow Jones share index fell below 7,000 points for the first time since 1997.

ASEAN to sign discounted oil deal: official

Southeast Asian nations are to sign an energy security agreement on Sunday that will allow their members to buy oil at a discounted price during times of crisis, a senior official said.

"Under the agreement, oil exporting states will supply petroleum to a country that is facing a shortage at a lower price," said S. Pushpanathan, deputy secretary-general of the Association of Southeast Asian Nations (ASEAN).


"The high price of oil is not an issue now, but should there be a crisis in the future, ASEAN can provide self-help," he said on Saturday.


It was not immediately clear how large a price reduction the deal would involve, when it would kick in or who would administer the pact.


Pushpanathan said oil price volatility posed a challenge to sustainable economic growth in the 10 ASEAN member states.



The agreement would be signed at the bloc's annual summit in the Thai beach resort of Hua Hin, he added.


"Given that ASEAN is increasingly dependent on petroleum resources from outside the region, it is important for ASEAN member states to enhance the ability to respond to an energy emergency situation by ensuring the physical availability of oil," he said.


Oil prices have slumped since hitting a record high above 147 dollars in July, as the global economic slowdown has hammered world energy demand.



Prices have recently fallen to near five-year lows.

India begins aircraft carrier construction; to go in for more

Joining an elite club of nations capable of building large warships, India on Saturday began the construction of its first indigenous aircraft carrier at the Cochin Shipyard in Kochi and will go in for 2 to 3 more carriers in the heavier class.

Pressing a remote to lower the keel the ship's backbone into the construction dock of the shipyard, Defence Minister A K Antony said, "The Navy's carrier will showcase India's technological prowess and warships' building capabilities to the world. It will be the largest ever warship to be built in India."


The 40,000-tonne carrier will operate nearly 30 aircraft including the Russian MiG-29Ks fighters, Kamov-31 helicopters and the indigenous Light Combat Aircraft (LCA).


"This is a crucial milestone and an occasion to cherish in the shipbuilding traditions and maritime history of the nation. The culmination of this prestigious project, sometime in 2014, will transform India into an aircraft-building nation," Antony said.


He said that India will certainly produce more indigenous aircraft carrier, but in the heavier class category to meet the future challenges and needs of maritime security.



"We hope to operate two to three aircraft carriers simultaneously in the not too distant future," Mukherjee said.



"Our ever expanding maritime responsibilities require enhanced 'blue water' capabilities and to achieve this, integral air cover is a must. Our navy is one of the few carrier-operating navies worldwide," Antony said.


Among the naval powers of the world, only the US, Russia, France and the UK have carrier building capability. Even out of these four, UK is yet to build a carrier with a 40,000 tonne displacement.


India already possesses an aircraft carrier in the 29,000-tonne class, the INS Viraat bought from the British navy and it has seen 50 years of cumulative naval service.



The 45,000-tonne Admiral Gorshkov aircraft carrier was purchased from Russia in 2004 and has been re-christened as INS Vikramaditya and is likely to join Indian Navy in 2012 after repair and refit in the Russian shipyard Sevmash.


The uncertainty, conflict and threats from maritime terrorism, piracy, narcotics, smuggling and low-intensity conflict were perpetrated by both state and non-state actors, he said, adding "the security of the sea lanes and offshore infrastructure will have to be ensured for sustainable development".



Designed by the Navy's Design Organisation since January 2003 after the government sanction came, the project had gained stream in 2006 when the construction of the warships' building blocks began.


The shipyard has already completed about 8,100 tonne of work with steel, developed by DRDO and produced by SAIL.


"The Project-71, as the integrated aircraft carrier is called in the Navy parlance, was initially sanctioned Rs 3,260 crore by the government, but the project cost was likely to increase as the warship construction progressed," Cochin Shipyard's (CSL) Chairman and Managing Director Commodore (retired) M Jitendran told reporters earlier in the day.


Jitendran said the CSL had already built around 400 blocks of the total 874 blocks that would form the fully constructed carrier when it would be delivered in 2014.


He said the Navy and the CSL had jointly designed the carrier, but taken help from Russia's NBD for the aviation aspects of the warship and Italy's Fincantieri for the propulsion system integration.


Asked about the carrier's contract, Jitendran said they were expected to complete work on the warship by December 2010 and launch it into the water, but the delivery would take place on schedule in the middle of the next decade.


On plans for construction of heavier aircraft carrier in the future, he said the CSL currently did not possess the construction dock to build warships heavier than 40,000 tonnes, but if the government intended to give it the orders, expanding the shipyard was possible.



India 'safe' in the hands of armed forces: Antony


Addressing a function in Kochi after laying the keel of India's first Indigenous Aircraft Carrier (IAC), he said this was his last public function as the Defence Minister.


He said, "when I look back, I feel satisfied that I tried my level best to protect national interest and security. I got total support and cooperation from all my colleagues."


Stating that rapid industrial growth was increasing country's dependence on sea route he said "this necessitates security of our sealink communication and offshore infrastructure".


"The task of defending seafront security of the offshore installations and safeguard of the sealines make the task extremely challenging".


" Indian Navy has to take the lead in safeguarding the nation's vital security interest," he said.


Praising the Indian Naval designers, he said they proved that they could design a world class aircraft carrier.



Neither Chief Minister, V S Achutanandan, nor any of his Cabinet colleagues attended the function.


Replying to a query, Antony said "there is no proposal with the government to privatise the Cochin Shipyard Ltd."



He added that any such move would be opposed.

US increases stake in Citigroup

Citigroup and the US Treasury have reached a deal that sees the government substantially increase its stake in the ailing bank from 8% to 40%.

The deal does not require extra taxpayer investment, but is dependent on Citi raising extra private capital.

Citi shares ended down more 39% as investors worried about their stake in the bank being diluted by the move.

As one of the banks hardest hit by the continuing credit crisis, Citi has already gained $45bn in Treasury cash.

It also has guarantees protecting it from the bulk of losses on $306bn (£216bn) of risky investments.

The latest agreement involves the government converting some of its preferred stock in Citi to common shares.

As part of the deal, the bank will suspend paying dividends and will also install new independent directors on its board.

Battered

The bank made an $8.29bn loss in the final three months of 2008, and was forced to split into two new firms.

The government will only raise its stake to match that put up by private investors, and it has said it preferred banks to remain in private hands.

The treasury's Capital Assistance Programme allows banks such as Citi to borrow money from the government if they need more capital.

Last week, Citigroup's share price fell below $2 to an 18-year low.

In November, the US Treasury announced a $45bn rescue plan for the bank, accompanied by a $306bn guarantee for Citi's most risky loans, as part of its Troubled Asset Relief Program (Tarp).

At present the government's preferred shares represent a 7.8% holding in the company.

The move means Citi shareholders will see their stakes diluted and the government will have a much larger influence over the bank.

Citigroup, which two years ago was worth $273bn and is now worth about £20bn, was brought to its knees by five quarterly losses in a row.

It has been battered by the meltdown in sub-prime mortgages - made to people on low incomes or with poor credit ratings.

A cost-cutting exercise last year resulted in some 52,000 jobs being slashed, bringing the Citi workforce down to about 323,000 people.

Avoiding sell-off

Analyst Peter Kenny, managing director at Knight Equity Markets in New Jersey said he did not think shares would be too badly hit by the announcement.

"We are talking about a form of nationalisation, and to the extent that the market is going to accept it," he said.

"The problem is that there is so much going on in terms of trying to manage the continuing and unfolding drama around the credit crisis.

The bottom line is that it's not like the government has much of a choice. Citi wasn't negotiating. The government was saying, 'This is what you have to do.'

"The government didn't want to have to take any more than it had to. This is the least they can do, and the most they can do without causing a wholesale sell-off."

US economy suffers sharp nosedive

The US economy shrank by 6.2% in the last three months of 2008, official figures have shown, a far sharper fall than had previously been reported.

Plunging exports and the biggest fall in consumer spending in 28 years dragged the annualised figure down from an earlier estimate of 3.8%.

The decline was much worse than analysts had expected, sending US stocks spiralling lower.

In 2008 as a whole, the economy grew by 1.1%, the slowest pace since 2001.

The blue-chip Dow Jones industrial average dropped 119.15 points, or 1.66%, to 7,062.93. The broader Standard & Poor's 500 Index fell 2.36% to 735.09 - a 12-year low.

Recession warning

Consumer spending, which accounts for about two-thirds of domestic economic activity, fell by a rate of 4.3% in the final quarter - the biggest fall since the second quarter of 1980. This was a revision of the earlier figure of 3.5%.

With rising unemployment, sliding home values, increasing numbers of repossessions and the slumping value of investments, observers say many US consumers are hanging on to whatever disposable cash they have.

Meanwhile, exports - which had until recently been supporting the economy - fell at the sharpest rate since 1970 at an annual rate of 23.6%, down from 19.7%.

Earlier this week, Federal Reserve chief Ben Bernanke warned Congress that without the right policies from the government, the US recession could last into 2010.

But he said if the Obama administration and the central bank can restore some measure of financial stability, 2010 could be a year of recovery.

President Obama recently signed a $787bn (£556m) recovery package of increased government spending and tax cuts, and unveiled a $75bn scheme to stem repossessions.

No good news

The latest GDP figures were "just awful" said Matt Esteve, a currency trader at Tempus Consulting in Washington DC. "It shows the weak state of the world's largest economy."

And Boris Schlossberg, director of currency research at GFT Forex said there was "doom all over".

He predicted that the dollar would not weaken too much against the euro because "there's no good news on the other side of the Atlantic, either".

Japan's industrial output plunges

Japan's industrial production fell by 10% in January - the biggest monthly drop since records began more than half a century ago, the government says.

It is the fourth successive month that factory output has fallen, as the world's second-biggest economy suffers its worst recession in decades.

The latest figures come days after the government said exports plunged 45.7% in January compared with a year ago.

Japan's economy is suffering because of falling demand for its products abroad.

Consumers around the world afraid of losing their jobs in the global downturn no longer want to buy Japanese electronic gadgets and cars, the BBC's Roland Buerk in Tokyo says.

The country's car production plunged a record 41% year-on-year in January, according to the Japan Automobile Manufacturers' Association.

It said 576,539 vehicles were produced in January compared with 976,975 for the same month of 2008.

Painfully exposed

The Japanese themselves are also shopping less, with average household spending falling 5.9% in January compared with the same month a year ago, our correspondent says.

Jobs are also being slashed - the number of people unemployed rose by more than 200,000.

"The recession is having an increasing impact on the real economy," Finance Minister Kaoru Yosano said.

Japan was once seen as relatively immune to the global crisis because its banks were not as exposed to bad loans as those in the US and Europe, our correspondent says.

But he says that Japan's reliance on foreign markets to drive its economy out of a long slump in the 1990s has left it painfully exposed.

Oil prices slide in Asian trade

Oil prices slid in Asian trade on Friday as investor pessimism returned after the release of more weak US economic data, dealers said.

New York's main contract, light sweet crude for April delivery, fell 69 cents to USD 44.53 a barrel.


Brent North Sea crude for April delivery shed 45 cents to USD 46.06.


Oil prices fell due to "an over-reaction to gasoline stocks in the past few days... and fresh weak economic data out of the US that dented market sentiment," said Mark Pervan, senior commodities analyst for ANZ bank in Melbourne.


Pervan said the US Durable Goods report released late Thursday showed a plunge in orders of goods for the transportation sector, which dampened sentiment amongst oil traders.


US data also released on Thursday showed jobless claims surged to 667,000 in the past week, the highest jump in over 26 years.


Oil prices had surged in recent days in reaction to the rise in US gasoline stocks and indications of production cuts by the Organisation of the Petroleum Exporting Countries (OPEC).

Indian economy in sharp slowdown

India's economy grew by less than expected in the last three months of 2008, official figures have shown.

The country's gross domestic product (GDP) grew by 5.3%, compared with 7.6% in the previous three months and 8.9% in the same period a year earlier.

Agriculture, which makes up about a fifth of the economy was one of the sectors to see growth fall.

The global recession has cut demand for exports, and economists are calling for further measures to boost growth.

These have included a clamour for further interest rate cuts.

The data saw India's main stock exchange index, the Sensex fall by 2% on Friday.

Domestic demand

Observers say the data will come as a blow to the Congress-led government, which faces general elections by May.

It has predicted that the economy, which grew by 9% overall to March 2008, will expand by 7.1% in the 12 months to March this year.

However analysts say this will probably be revised down.

The sharp slowdown in both China and India, which have been among the world's fastest-growing economies, will have a significant impact on the world economy, with the major industrial countries already mired in recession.

India's economy is Asia's third-largest, and is largely driven by domestic demand. It has seen strong growth of 9% or more in the past three years.

But the slowdown has "dismissed speculation India is more resilient in this global turmoil because its economy is more domestically oriented," said Sherman Chan, an economist at Moody's Economy.com.

Meanwhile Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai said the growth figure was "way below my pessimistic expectations".

"Whatever the government is doing is not going to be very effective as large scale demand stimulus across the world has not proved to be effective in restoring business confidence."

Obama unveils his $3.6tn budget

President Barack Obama has unveiled a $3.6tn (£2.5tn) budget for 2010, aiming to pull the US out of financial crisis.

He has predicted the budget deficit for the current year will be $1.75tn, which is 12.3% of annual output and the biggest since World War II.

Planned spending includes $634bn to pay for healthcare reform and an extra $250bn to be set aside, in case it is needed to bail out US banks.

Mr Obama hopes to save money by cutting subsidies and tax breaks.

These announcements are an overview. There will be more details in April.

The $3.6tn of planned spending is still well below the spending of $3.7tn, which is forecast for the year to the end of September 2008 and includes economic stimulus packages.

Eliminate waste

The president promised to roll back tax cuts for the very wealthy and businesses that move jobs overseas.

He added that instead, he would bring in tax cuts that would benefit 95% of hard-working families. "There are some hard choices that lie ahead," he said, adding that there were areas where the government would like to spend money in normal economic times, but would be unable to at the moment.

"Each and every one of us has to compromise on certain things we care about, but which we simply cannot afford right now," he said.

He predicted that some of his decisions would be unpopular with special interest lobbying groups in Washington.

Healthcare subsidies

He also promised that his budgets would be an honest accounting of the country's economic situation and include "the full cost of fighting in Iraq and Afghanistan".

He projected spending of $200bn to fight those two wars over the next 18 months.

There are expected to be savings from the winding-down of the war in Iraq, but increased spending as a result of sending more troops to Afghanistan.

The president said he would introduce a scheme to give a subsidy to recently-unemployed people to help them maintain their healthcare funding.

Providing easier access to healthcare was one of his key election promises.

He has promised to halve the budget deficit by the end of his term in 2013 and said one of the ways he would do so would be by cutting back on waste in government.

"We're going to go through our books page by page, line by line to eliminate waste and inefficiency," he said.

"This is a process that will take time, but in the last 30 days alone, we have already identified $2tn in deficit reductions that will help us cut our deficit in half by the end of my first term."

Eastern Europe banks get bail-out

The banking sectors in Central and Eastern Europe are to get a 24.5bn euro ($31bn; £21.8bn) rescue package to support them in the economic crisis.

The European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB) and the World Bank have pledged the investment.

The funds are particularly aimed at helping small firms survive.

Countries such as Latvia and Hungary have seen their economies particularly hit by the global economic slump.

The two-year joint initiative will include equity and debt financing, and access to credit and risk insurance aimed at encouraging lending, the three groups said in a joint statement.

This initiative is on top of national government responses and was designed to "deploy rapid, large-scale and coordinated financial assistance... to support lending to the real economy through private banking groups, in particular to small-and medium-sized enterprises."

'Diverse challenges'

The EBRD will provide up to 6bn euros for the financial sector, the EIB will put up 11bn euros of lending facilities, while the World Bank will provide about 7.5bn euros.

"The response takes into account the different macroeconomic circumstances in, and financial pressures on countries in Eastern Europe, acknowledging the diversity of challenges stemming from the global financial retrenchment," the groups added.

Founded in 1991, the EBRD aims to assist the transition of former communist nations to market economies - investing across 30 countries including Ukraine, Moldova and Russia.

"The institutions are working together to find practical, efficient and timely solutions to the crisis in eastern Europe," said EBRD President Thomas Mirow.

"We are acting because we have a special responsibility for the region and because it makes economic sense.

"For many years the growing integration of Europe has been a source of prosperity and mutual benefit, and we must not allow this process to be reversed."

Exposure outgrown?

Earlier this week, ratings agency Moody's said that faltering economic conditions in Eastern and Central Europe would hit the local subsidiaries of Western banks.

Austria, whose banks have large exposure to Eastern Europe, has seen the cost of insuring its debt rocket.

On Friday, the country's Erste Group Bank signed a long-expected deal to get up to 2.7bn euros of government support.

But the talks to secure the funding have been going on since October, with some analysts saying that the mounting problems in emerging Europe meaning Erste's exposure may already have outgrown the government injection.