Iraq Restarted Negotiations on Oil Exploration but It Might Not Help Revive the Country's Oil Sector in the Near-Term

Currently trading at 79.1, WTI crude oil price changes little in European morning as investors await the US housing data and consumer confidence index. Stocks in Asia dropped as led by commodity companies.

The MSCI Asia Pacific Index slid -1.5%, the biggest daily fall since October 2. In Japan, the Nikkei 225 Stock Average lost -1.5% to 10212 as driven by -4% declines in Mitsubishi Corp and Mitsui & Co, the largest commodity company in Japan. In China, the Shanghai Composite Index plunged -2.8% to 3021 on profit-taking and investors' concern on the phase out of government's stimulus measures.

US' S&P/Case-Shiller home price index probably rose for the 3rd consecutive month, by +0.5% mom, in August. This would have slowed down annual decline to -12% from -13.3% a month ago. Consumer confidence should have edged higher to 54 in October from 53.1 in September.

Last week, the Oil Ministry of Iraq announced it has reached initial agreements with several foreign oil companies on development of the nation's oil fields.

In June, Iraq failed to secure successful bids for 7 out of 8 oil and gas deposits. The only exception was Rumaila, which was awarded to BP and CNPC at the service fee of $2/bbl. The majority of bidders were discontent as the government tried to squeeze the margin to an unacceptable level.

Bypassing auction, the Ministry negotiated directly with oil companies. Iraq now aims to award development rights for its West Qurna-1 oilfield to Exxon Mobil and OAO Lukoil in 2 weeks. Meanwhile, the government has also reached an initial agreement with Nippon Oil over development of the Nasiriyah oil field. The government will announced offers for 10 fields in December.

The negotiations with oil companies suggest that the country needs outsiders' assistance on technology, capital investments and labors to boost its oil sector. However, we worry that oil production may not be able to ramped up until late 2010.

These initial agreements require review of the Parliament in January 2010 but it's uncertain if they will get approvals as many of the members opposed to the agreements.

Comex gold recovers modestly after briefly breaking below 1040. Concerning others in the precious complex, silver also climbs slightly higher after -3.5% plunge yesterday. For platinum, price continues to fall, probably to catch the correction in silver (silver dropped -5.9% from the new 2009 high of 18.18). However, we believe the fundamental outlook in platinum should be positive for the metal in longer term. The China Association of Automobile Manufacturers reported that car sales increased +83.6% yoy to 1.02M units in September.