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OIL DEMAND RISES FROM ROCK BOTTOM: The worst of the oil market crisis appears to be over, as demand recovers with the phased opening of some economies.
“Oil prices moving up nicely as demand begins again!” President Trump tweeted Tuesday.
Crude oil prices have rallied in recent days, recovering about one-fifth of the collapse since early January.
The Brent crude price, the international benchmark, hit $30 per barrel for the first time since April 15, while the West Texas Intermediate U.S. benchmark rose 13% to $25.78 per barrel as of this writing.
Hands on the wheel: The biggest driver of the demand recovery in the U.S. appears to be people driving again (pun intended).
Patrick De Haan, an oil and refined products analyst for GasBuddy, tweeted that gasoline demand was up 7.74% Monday from a week earlier, reaching the highest level since March 16. He said pump prices have reached “bottom” and will rise soon.
“Demand is rising, supporting the rally in oil,” De Haan tweeted. “Big states opening soon (Cali). While some states may continue to fall (higher priced states- West Coast) others will rise.”
Richard Meyer, managing director of energy analysis at the American Gas Association, tweeted data from S&P Global showing U.S. traffic has returned to 80% of pre-pandemic levels.
The supply glut is also easing: That’s thanks to the OPEC+ production cut agreement that started this month, and a wave of production shut-ins that have already totaled 1 million barrels per day (Bloomberg has a good rundown of new curtailment announcements in the Permian Basin).
“The greatest mismatch in supply/demand is probably behind us,” Morgan Stanley analysts wrote in a note Tuesday. “The rebalancing will likely be drawn out and have its fits-and-starts.”
Bob McNally, president of Rapidan Energy Group and a former top oil official in the George W. Bush administration, warned of a long and unpredictable recovery, because of the sheer scale of the oil demand loss — falling as much as 30 million barrels per day off of 100 million barrels per day in normal times.
Pump the brakes: “The oil market is starting to approach a bottom as demand trickles back as supply cuts take effect,” McNally said. “But it will be a rocky bottom with unusually high uncertainty.”
McNally reminded Josh that a “tsunami of oil” unleashed onto the global oil market last month, primarily from Saudi Arabia, is going to land in May, and storage inventories will likely keep building toward record highs.
With the trajectory of the virus uncertain, analysts are predicting “horrendous macroeconomic damage” in the second quarter, which could trigger “oil price swoons this summer,” McNally said.
It’s also unclear if oil demand will ever return to normal levels, as routine changes (work from home, etc.) may become, yes, routine.
“This is the not the beginning of the end of the crisis, it’s the end of the beginning,” said Sarah Ladislaw, director of the Energy Security and Climate Change Program at the Center for Strategic and International Studies.
“At the very best it will be a long recovery period to get back to pre-crisis levels of energy demand. Under the worst, we will never get there,” Ladislaw told Josh.
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MANDATED OIL PRODUCTION CUT IN TEXAS IS OFFICIALLY DEAD: The Texas Railroad Commission confirmed the expected Tuesday, officially killing a motion forcing companies in the nation’s largest producing state to cut their output.
“I don’t believe pro-rationing is the magic bullet that will save the industry,” said Wayne Christian, the commission’s chairman, at a remote hearing. “I refuse to implement an antiquated policy simply because it exists. It could actually make things worse.”
Christian teamed with Christi Craddick to oppose the idea of pro-rationing, a tool last used by Texas oil regulators in 1973. Ryan Sitton, the third member of the all-Republican commission, championed the idea along with two Texas shale producers, and accused his counterparts of not seriously considering the concept and instead reflexing to “free-market” ideology for political reasons. Most oil companies, however, opposed pro-rationing.
Christian and Craddick noted that companies are shutting-in their production voluntarily due to low prices and little demand, and the prospect of a mandate was injecting “uncertainty” in the marketplace.
“The industry and market move a lot faster than we can as a regulatory body,” Craddick said.
THE LATEST OIL MAJOR TO SET A NET-ZERO GOAL: Total’s 2050 goal includes a target that the French oil major will be completely net-zero, across its operations and products, in Europe by midcentury. The company will also target net-zero emissions from its worldwide operations by 2050 and seek to cut the carbon intensity of the energy products it sells globally by 60%, which Total says is the strongest target among oil majors for scope 3 carbon intensity.
Total announced the steps in a joint statement with institutional investors Tuesday. It’s the fourth European oil company in recent months to target net-zero, following Repsol, BP, and Shell.
“We recognize that the trust of our shareholders, and society more widely, is essential to Total remaining an attractive and reliable long-term investment,” said Patrick Pouyanne, chairman of Total’s board, in a statement.
Total will also scale up its investments in renewable energy, committing to double the percentage of its capital expenditures dedicated to low-carbon energy (to 20%) by 2030 and setting a target to build 25 gigawatts of renewable capacity by 2025.
The new goal comes as Total revealed its first-quarter losses: The French major’s first-quarter net profits were $1.8 billion, a roughly 35% drop from the previous year. Total will hold its dividend stable, though, compared to Shell, which announced last week it would cut its dividend for the first time since World War II.
Analysts expect oil companies will continue to focus on climate: Valentina Kretzschmar, Wood Mackenzie’s vice president of corporate research, said energy transition within the oil and gas sector “will accelerate in a post-coronavirus world.” European-based companies will especially feel the pressure, due to the European Union’s Green Deal and the United Kingdom’s goal to be net-zero by 2050, she added in a statement.
CALIFORNIA SUES OVER GAS PRICE MANIPULATION: The state’s attorney general’s office says two energy trading companies — Vitol, Inc., and SK Energy Americas — engaged in “manipulative trades” to increase their profits, ultimately driving up prices at the pump for Californians.
The lawsuit filed Monday is the result of an investigation spanning more than a year, which was prompted after Gov. Gavin Newsom and more than a dozen state lawmakers raised concerns of price gouging. A May 2019 report from the California Energy Commission found that consumers in the state paid an average of 30 cents more per gallon of gasoline than the rest of the country.
“Price gouging, whether it’s toilet paper or gasoline, stinks,” said California Attorney General Xavier Becerra, a Democrat, announcing the lawsuit Monday. “Every once in a while we get to fight back. That’s what today’s lawsuit is about. No one is above the law.”
DEMOCRATS SLAM EFFORTS TO LIMIT FOSSIL FUEL LIABILITY: “Shielding carbon polluters from proper accountability is an irrelevant and dangerous distraction from the task at hand,” 60 House Democrats wrote in a letter Monday. “It has no place in federal legislation—we think never, but especially not now.”
The group of Democrats was led by Maryland Congressman Jamie Raskin, and included progressive New York Congresswoman Alexandria Ocasio-Cortez and Florida Congresswoman Kathy Castor, who chairs the House select climate committee. In their letter, the lawmakers say fossil fuel companies reportedly “sought sweeping legal immunity” during negotiations over the CARES Act and are continuing “to lobby hard for language that would absolve them of any accountability for their part in the climate crisis.”
THE CARBON BIAS OF TRADE POLICY: Countries around the world apply lower tariffs on carbon-intensive products as compared to cleaner goods, according to a working paper released Monday.
The study by University of California, Berkeley, economist Joseph Shapiro comes as presumptive Democratic nominee Joe Biden has proposed implementing “climate tariffs,” or taxing imports of carbon-intensive goods.
Biden’s climate plan calls for pressuring China and other countries that are “failing to meet their climate and environmental obligations” to “bear the full cost of their carbon pollution” by imposing “carbon adjustment fees or quotas.”
Such a policy could counter the existing bias in trade policy against cleaner goods, Shapiro suggests.
“It’s rare to find a systematic pattern that happens in many countries with broadly similar magnitude, but that’s what happens here,” Shapiro said. “This suggests that when countries go negotiate their trade policies, there is scope for that to have important large effects on the environment.”
Trade penalties are generally less for products used in manufacturing for consumer goods, such as steel and aluminum. The process for making these raw materials is usually more fossil fuel-intensive than other cleaner inputs, such as software or design, Shapiro says.
Shapiro estimates that trade policies create an “implicit subsidy to CO2 emissions” that amounts to $550 billion to $800 billion per year.
USDA THROWS A BONE TO BIOFUELS PRODUCERS: The Agriculture Department will make up to $100 million available in grants to help scale up biofuels infrastructure, as part of its Higher Blends Infrastructure Incentive Program, the department announced Monday. It comes as ethanol producers, hard hit by the pandemic, have repeatedly asked the Trump administration for relief. Biofuels producers were left out of a $19 billion aid program the Agriculture Department announced last month.
“American ethanol and biofuel producers have been affected by decreased energy demands due to the coronavirus, and these grants to expand their availability will help increase their use during our economic resurgence,” Agriculture Secretary Sonny Perdue said in a statement about the new grants.
FIRST THINGS FIRST: The Senate returned to business Monday, voting 87-0 to confirm Robert Feitel to be inspector general of the Nuclear Regulatory Commission.
Feitel is the first new inspector general at the NRC in more than 25 years, noted Sen. John Barrasso, chairman of the Environment and Public Works Committee. He comes to the NRC after working as an attorney at the Department of Justice and FBI.
“We need to ensure that our nation’s nuclear industry is held to the highest standard,” said Sen. Tom Carper, top Democrat of the EPW Committee. “Mr. Feitel is well qualified and prepared to take on this important responsibility.”
The Rundown
Wall Street Journal Saudi Arabia, hit with oil collapse and coronavirus, tosses lifelines
Washington Post Iraq’s economy is collapsing under the double blow of sinking oil prices and coronavirus lockdown
New York Times Billions could live in extreme heat zones within decades, study finds
Associated Press Dominion expects bills to rise to pay for renewable mandates
Calendar
TUESDAY | MAY 5
The Senate is in session. The House hopes to return soon.
WEDNESDAY | MAY 6
10 a.m. 106 Dirksen. The Senate Environment and Public Works Committee holds a business meeting to consider water infrastructure legislation. (Note: Senate office buildings are not open to the public at this time, and in-person visitors won’t be allowed at the hearing, per the committee.)
