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We like to think that when we deposit a dollar at the bank, it goes into a big vault and we can pull out that same dollar at any time. But that¿s not how the U.S. banking system works. Banks take that money and invest it to make money themselves, so cash gets spread around. This, naturally, leads to a big risk: What happens if those investments go sour? Well, you¿d be out of luck. You can¿t get your dollar back.
The Federal Reserve doesn¿t like that scenario, so it prohibits banks from putting all the cash it has on deposit on the line. In fact, the Fed forces banks to keep a portion of their assets at the Federal Reserve itself, to make sure that some of your assets won¿t get squandered if the bank¿s bets go south. These are called ¿reserves,¿ (hence, Federal Reserve. Got it? Good), and usually amount to 10% of the total cash kept in checking accounts.
These reserves are never exactly 10%, and banks like to keep a little extra in reserve ¿ not, as you might think, to make you more comfortable that they¿re in good financial shape, but rather so they can take that excess and lend it to other banks and make money off it. (They¿re banks, they can¿t help themselves.) The rate at which they make these loans is called the Federal Funds rate, which is set by the Federal Reserve¿s Federal Open Market Committee.
When you hear people chattering about how the Fed cut or hiked interest rates, this is what they¿re talking about: the interest rate banks can charge for lending money from their reserves. This begs the question: If these are essentially loans between banks, why is the Fed Funds rate so important for the rest of the economy?
Well, simply put, because loans make the financial world go round. Bank A lends Bank B $10,000 at a Fed Funds rate of 5%. Bank B then lends out $10,000 to a small business at 7%. The small business then takes that money and expands the business and hires new workers. Now someone is employed, Bank B has made interest off the loan, and Bank A is the richer for making it all happen. It¿s perhaps overly simplistic, but you get the idea. When you want the economy to thrive, you make lending cheaper.
Of course, sometimes you don¿t want the economy to thrive. In fact, you might want it to cool down, mostly to avoid money flooding the system and causing inflation. In that case, the Fed raises interest rates, making it difficult to lend or borrow.
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Friday, May 09, 2008
Platts Survey: OPEC Pumps 31.87 Million Barrels per Day of Crude Oil in April, Down 350,000 b/d
Comtex
LONDON, May 09, 2008 (PR Newswire Europe via COMTEX News Network) ----The 13 members of the Organization of Petroleum Exporting Countries (OPEC) pumped an average 31.87 million barrels per day (b/d) of crude oil in April, a 350,000 b/d decrease from March, according to a Platts (http://www.platts.com/) survey of OPEC and oil industry officials released Friday. The sharp drop was largely the result of steep output losses in Nigeria.
Excluding Iraq, the 12 members which participate in output agreements pumped an average 29.49 million b/d, 360,000 b/d down from an estimated 29.85 million b/d in March.
"OPEC production has been relatively steady in recent months, but the sharp fall in Nigerian output shows how vulnerable overall supply from the group can be to developments in one country," said John Kingston, Platts global director of oil. "Given that spare capacity is also relatively tight, any disruption has a bigger impact on markets."
Ongoing losses in Nigerian supply as a result of continuing strife in the Niger Delta were exacerbated by a week-long pay strike at ExxonMobil, which shut down most of the company's 800,000 b/d of production and forced it to declare force majeure on exports from the 400,000 b/d Qua Iboe terminal.
Other smaller decreases came from Angola, Iran, Qatar, Saudi Arabia and Venezuela.
Iraqi volumes were a shade higher at 2.38 million b/d, with a slight dip in exports offset by slightly higher internal supply. Libyan output also edged up, to 1.75 million b/d from 1.74 million b/d in March.
The latest estimates show the OPEC-12 missing their 29.673 million b/d output target by 183,000 b/d.
Platts OPEC Survey 2008 Country April March February January Target Algeria 1.390 1.390 1.390 1.390 1.357 Angola 1.850 1.900 1.900 1.850 1.900 Ecuador 0.500 0.500 0.490 0.500 0.520 Indonesia 0.860 0.860 0.860 0.830 0.865 Iran 3.940 3.960 3.930 3.980 3.817 Kuwait 2.550 2.550 2.550 2.550 2.531 Libya 1.750 1.740 1.740 1.740 1.712 Nigeria 1.800 2.020 2.100 2.100 2.163 Qatar 0.830 0.840 0.830 0.830 0.828 Saudi Arabia 9.100 9.150 9.150 9.200 8.943 UAE 2.590 2.590 2.590 2.590 2.567 Venezuela 2.330 2.350 2.400 2.400 2.470 OPEC-12 29.490 29.850 29.930 29.960 29.673 Iraq 2.380 2.370 2.400 2.290 N/A Total 31.870 32.220 32.330 32.250
For more information on OPEC, go to the "Platts Guide to OPEC" at http://www.opec.platts.com.
About Platts:
Platts, a division of The McGraw-Hill Companies (NYSE: MHP), is a leading global provider of energy and commodities information. With nearly a century of business experience, Platts serves customers across more than 150 countries. From 17 offices worldwide, Platts serves the oil, natural gas, electricity, nuclear power, coal, emissions, petrochemical, shipping and metals markets. Platts' real time news, pricing, analytical services, and conferences help markets operate with transparency and efficiency. Traders, risk managers, analysts, and industry leaders depend upon Platts to help them make better trading and investment decisions. Additional information is available at http://www.platts.com.
About The McGraw-Hill Companies:
Founded in 1888, The McGraw-Hill Companies (NYSE: MHP) is a leading global information services provider meeting worldwide needs in the financial services, education and business information markets through leading brands such as Standard & Poor's, McGraw-Hill Education, BusinessWeek and J.D. Power and Associates. The Corporation has more than 280 offices in 40 countries. Sales in 2007 were US$6.8 billion. Additional information is available at http://www.mcgraw-hill.com.
Web site: http://www.platts.com http://www.mcgraw-hill.com http://www.opec.platts.com
Kathleen Tanzy, +1-212-904-2860, Kathleen_tanzy@platts.com; or Europe: Shiona Ramage, +44-207-1766153; or Asia: Casey Yew, +65-653-06552
Copyright (C) 2008 PR Newswire Europe
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