Good morning and welcome back! Situational awareness: President Trump tweeted this morning, ahead of next week's OPEC meeting: “Oil prices are too high, OPEC is at it again. Not good!”
And, June is the month in 1970 when Rod Stewart released "Gasoline Alley," so a cut from the really awesome phase of his career (yup) gets us going today...
1 big thing: IEA sizes up trade and supply risks
Breaking Wednesday: The International Energy Agency offered its first forecast of global oil demand in 2019 — predicting the world will use 1.4 million more barrels per day than it did in 2018. With a caveat: Trade battles could change the mix.
- "Of course, there are downside risks: these include the possibility of higher prices, a weakening of economic confidence, trade protectionism and a potential further strengthening of the US dollar," IEA said in its monthly oil market report.
Why it matters: The report is a closely watched analysis of global markets, and this month's offers extended commentary on global trade tensions.
- It calls trade tensions the "main risk" to their oil demand forecast, citing European plans to slap tariffs on some U.S. products in response to White House penalties on steel and aluminum imports.
- "The risks associated with escalating retaliations are not negligible. The outcome of the recent G7 meeting appears to be very negative," IEA said.
What they're saying:
- "A prolonged slowdown in trade would negatively affect world GDP growth and oil demand, as a significant part of oil consumption is linked to trade activities (bunker fuel demand, diesel used by trucks, aviation etc.)."
- "Any punitive duties would also affect the trade of petrochemical feedstocks and products, potentially slowing the development of the petrochemical industry in particular in the US."
On the other hand: CNBC's piece highlights other parts of the analysis, noting...
- The IEA "believes a recent spike in the oil price could soon start to ease, helping to alleviate concerns that surging prices could hurt demand and global economic growth."
OPEC's role in potential supply gap: IEA also warns of a possible steep combined supply loss from Venezuela and Iran in which — depending on how sanctions shake out — their output is 1.5 million barrels per day lower by the end of 2019.
- OPEC's Middle East members would be needed to fill a potential "supply gap," IEA said. The report comes just ahead of OPEC's next meeting.
- Per Reuters, "The report serves as a stark warning to the world’s largest oil exporters, who meet next week in Vienna to discuss supply policy."
(We've got more on the OPEC meeting below)
2. Petro news: Trump's tweet, OPEC, Exxon
OPEC, part 1: As seen above, Trump tweeted early this morning, complaining about OPEC and oil prices.
- Why it matters: His statement comes ahead of next week’s OPEC meeting, where the cartel and Russian officials could relax their production limiting deal. His latest volley comes even though oil prices have slipped back from higher levels in recent weeks.
- Quick take: Veteran Reuters analyst John Kemp noted on Twitter that Trump is "sending a not-so-subtle message to Saudi Arabia that it expects the kingdom to start opening the taps."
- Flashback: This marks the second time this spring that Trump has gone public with pressure on the cartel, when he previously tweeted during a monitoring committee meeting between OPEC and non-OPEC producers (notably Russia) on their production-limiting pact.
OPEC, part 2: Per Bloomberg, "Russia plans to propose that OPEC and its allies be allowed to return production to October 2016 levels, rolling back most but not all of their output cuts within three months, according to a person familiar with Moscow’s thinking."
- Why it matters: Their reporting previews the delicate talks around the future of the production-limiting deal at next week's meeting.
ExxonMobil, part 1: Via The Houston Chronicle, "Exxon Mobil said Tuesday it plans to create a joint venture with Houston's Plains All American Pipeline to construct a multibillion-dollar pipeline stretching from west of Midland to the Houston and Beaumont areas that would carry oil and condensate."
- Why it matters: It's among the efforts to ease infrastructure bottlenecks are a growing problem for energy producers in the prolific Permian basin.
ExxonMobil, part 2: The company yesterday announced that it has commenced drilling its offshore acreage in Guyana, which is thought to hold massive resources, in order to commence production in 2020.
- Why it matters: Guyana could soon be the world's newest petro-state. The company and its partners eventually plan to produce over 500,000 barrels per day from what's known as the Stabroek Block, where the company has thus far discovered what it says are 3.2 billion barrels of oil-equivalent.
Oil sands: Via The Globe and Mail, "Canada’s oil sands producers expect to boost their production by 60 per cent over the next 17 years despite concerns about lack of pipeline capacity and more onerous environmental regulations."
3. Breaking Wednesday: New Pruitt allegations
New claims: Per the Washington Post, "Environmental Protection Agency chief Scott Pruitt last year had a top aide help contact Republican donors who might offer his wife a job, eventually securing her a position at a conservative political group that has backed him for years, according to multiple individuals familiar with the matter."
Why it matters: The story is sure to intensify criticism of the embattled EPA boss who is already facing a suite of overlapping ethics controversies. But he has retained Trump's public support thus far.
4. Why FERC just made Trump's coal plan tougher
On Capitol Hill: Federal Energy Regulatory Commission members said they don't see the type of threats to the electric power system that Trump administration officials are citing as justification for plans to aid economically struggling coal-fired and nuclear plants.
The intrigue: Here's AP's take on yesterday's Capitol Hill appearance by the five FERC commissioners:
- "The comments before the Senate Energy and Natural Resources Committee contradict a recent White House directive ordering action to keep coal-fired and nuclear power plants open as a matter of national and economic security."
Why it matters: The high-profile hearing signals political, procedural and even legal roadblocks that would face Energy Department-led efforts to aggressively intervene in power markets on the grounds that emergency action is warranted.
"FERC’s newest statements will make it very hard for DOE to win the court appeals that follow any emergency declaration," electricity consultant Alison Silverstein told me in an email.
One level deeper: Silverstein notes that if DOE goes forward with a subsidy plan, it would fall to FERC to come up with specifics on which plants to assist, how much to pay them and other determinations.
- FERC's processes are set under statute and regulation, so the commission likely wouldn't be able to grant anything with the speed the plant owners want, she added.
"And since FERC has a statutory obligation to set rates that are demonstrably just and reasonable, if it has already said repeatedly that there is no reliability or resilience emergency, it’s possible they could declare that no plant subsidies can be found [just and reasonable]," Silverstein said.
Good read: Utility Dive breaks down the hearing and its ramifications in this story.
5. Biofuels clear aviation market hurdle
Axios' Amy Harder reports ... A fuel derived from ethanol is now approved for use in jets, the Energy Department’s national lab in Washington State said Monday.
Why it matters: The global aviation sector is particularly difficult to decarbonize given the sheer energy required to move planes through the sky over long distances.
- Some airlines have been using for years other types of biofuels in airplanes, but the approval reported Monday represents a significant step toward providing more options, including more affordable ones derived from ethanol.
More details: The department’s Pacific Northwest National Laboratory worked on the technology with LanzaTech, a company focused on producing fuel from waste products.
- ASTM International, one of the world's largest international standards developing organizations, approved the ethanol-derived fuel for use in jets from any feedstock earlier this year, a lab spokeswoman said.
6. Tesla announces layoffs and its stock rises
ICYMI: Tesla is planning to cut around 9% of its employees, or around 3,300 people, according to a companywide email sent by CEO Elon Musk yesterday.
- Musk added that the layoffs are not expected to affect the automaker's Model 3 production schedule.
- Reaction: Tesla stock rose slightly over 3% yesterday.
More: Read the full story in the Axios stream.
Between the lines: The often brash Musk, who has strongly attacked the media and sparred with Wall Street analysts in recent weeks, acknowledges in the email that some of the commentary about the firm has merit.
“What drives us is our mission to accelerate the world’s transition to sustainable, clean energy, but we will never achieve that mission unless we eventually demonstrate that we can be sustainably profitable. That is a valid and fair criticism of Tesla’s history to date," he writes.
Flashback: Musk has said that the company will become profitable later this year and will not need to return to capital markets for more money in 2018.
The big picture: The New York Times notes that Tesla has lost money every year since its 2003 founding, and the layoffs are a sign that Musk "is pulling out all the stops to end that streak."
7. The U.S. is on a hot streak
Axios' Andrew Freedman reports ... With May 2018 ranking as the warmest such month on record in the continental U.S., beating out the Dust Bowl May of 1934, the country has extended a much longer heat streak. According to the National Oceanic and Atmospheric Administration, the country has had its warmest 3-year, 4-year, and 5-year periods on record through May 2018.
Why it matters: The unusually mild temperatures are one way that global warming is affecting the U.S., as long-term temperatures trend higher. Even if individual months fail to break a heat record, such as April 2018, the long-term trend is clear.
What they found: Recently released NOAA data show that May 2018 was 5.21 degrees Fahrenheit above the long-term average in the U.S., taking the top spot.
- Every state in the lower 48 had above average temperatures for the month, and 8 states set monthly records.
- During the month, there were more than 8,590 daily warm temperature records set or tied, compared to just 460 daily cold temperature records during the same period.
The NOAA report also shows that the past 36 months, from June 2015 through May 2018, had a temperature anomaly of 2.6 degrees Fahrenheit above average, qualifying as the warmest 36-month period since reliable instrument records began in 1895.
- The past 48 months, from June 2014 through May 2018, have also been the warmest such period on record.
- The same is true for the past 60 months, dating back to June 2013.
Go deeper: Read his full story in the Axios stream.