Jun 14, 2019

Axios Generate

Happy Friday! Today's Smart Brevity count: 1,121 words, ~ 4 minute read.

Tomorrow marks 40 years since Dire Straits released "Communiqué," so let's head into the weekend with some amazing guitar work...

1 big thing: A crude tug of war

Iranian navy boat tries to control the fire on Norwegian-owned Front Altair tanker on June 13. Photo: Tasmin News/AFP/Getty Images

Two big forces are tugging on the global oil market: the weakening global economy and rising geopolitical tensions over tanker attacks in the Gulf of Oman.

Where it stands: The weakening economy is carrying a lot of weight despite the spike in tensions from the U.S. blaming Iran for yesterday's violence near the Strait of Hormuz, which is the world's biggest oil choke point.

  • Prices, which rose after the attacks, dipped Friday as the International Energy Agency cut its estimate for 2019 oil demand growth to 1.2 million barrels per day.
  • They've since recovered some ground but are still down overall this week.

Why it matters: The muted price response despite the tanker attacks is likely a sign of the faltering global economy.

  • "World trade growth has fallen back to its slowest pace since the financial crisis ten years ago," IEA noted in its closely watched monthly report.

What to watch: Whether the economic headwinds or the threat of more and wider conflict will hold more sway. RBC Capital Markets' Helima Croft summed up the competing forces in a CNBC interview yesterday.

  • The question this summer, she said, will be this: "What war is going to dominate the market? A trade war or a shooting war?”

What's next: Looking at 2020 for the first time, IEA sees demand growth recovering to 1.4 million barrels per day, "supported by solid non-OECD demand and petrochemicals expansion."

  • But there's more than enough barrels to meet it thanks to growth from the U.S., Brazil and elsewhere.
  • The report sees non-OPEC supply rising 2.3 million barrels per day in 2020.
  • But, but, but: Demand growth would be lower if U.S.-China trade battles worsen.

What they're saying: "A clear message from our first look at 2020 is that there is plenty of non-OPEC supply growth available to meet any likely level of demand, assuming no major geopolitical shock," IEA said.

  • They call this "welcome news" for consumers and the vulnerable global economy, "as it will limit significant upward pressure on oil prices."

Winners and losers: As Bloomberg notes, the report underscores OPEC's struggles. IEA sees demand for OPEC's crude falling to 29.3 million barrels daily next year, which is 650,000 barrels below May's output.

2. Big Oil's Vatican meeting

Axios' Amy Harder reports ... Top executives of Big Oil and investment companies ended a meeting Friday with Pope Francis at the Vatican by signing a joint statement on carbon pricing and transparent investments, according to BP, which attended the meeting.

Where it stands: The joint statement supports carbon pricing and investment risk disclosure as it pertains to climate change, but additional details, including all the signatories, weren’t immediately available.

Driving the news: Earlier Friday, the Pope “warned executives that a ‘radical energy transition’ to clean, low-carbon power sources is needed to stave off the effects of a rapidly warming planet,” per AP.

Go deeper: With the agenda and attendees of the two-day Vatican meeting

3. Arctic melt goes into overdrive
Expand chart
Adapted from Rick Thoman's analysis using data from the National Snow & Ice Data Center; Chart: Chris Canipe/Axios

Axios' Andrew Freedman reports ... Earlier this year, we saw the unprecedented disappearance of sea ice from the Bering Sea during a time of year when it should be gaining ice.

What's new: This trend toward plummeting sea ice in the Alaskan and Canadian Arctic continues, this time centered in the Chukchi and Beaufort seas.

Why it matters: Sea ice loss is disrupting the balance of heat in the Northern Hemisphere, and that's reverberating throughout ecosystems.

  • It's causing everything from plankton blooms near the Arctic Ocean surface to mass haul outs of walruses in Russia and Alaska.
  • It may also be disrupting weather patterns across the Northern Hemisphere.

The big picture: Across the entire Arctic, sea ice extent is at a record low for this point in the year, and depending on weather conditions during the summer, it's possible that 2019 could set a new record low ice extent.

Threat level: "The Arctic is a regulator of Northern Hemisphere climate, and while the ice that is melting now isn't going to affect whether you get a thunderstorm tomorrow, in the long term, these are going to have profound effects on your weather and climate down the road that you will have to take action on, like it or not," says Rick Thoman of the University of Alaska at Fairbanks.

4. China and Chile form electric bond
Chinese-made electric buses in Santiago, Chile. Photo: Claudio Reyes/AFP/Getty Images

Axios Expert Voices contributor Paul Sullivan writes ... A recent delivery of 200 electric buses from Chinese manufacturers BYD and Yutong, with more orders to come, is advancing Chile's goals for electric-powered public transit — 80% by 2022 and 100% by 2040.

Why it matters: Chile is electrifying transportation to help clean its air, reduce urban noise pollution, cut oil imports and add more renewables to its energy mix.

  • Moving toward electric mobility is also a way for Chile to tighten its trade ties with China, the dominant player in the global electric bus market.

Context: Transportation has contributed to significant pollution in Chile’s cities, with serious public health consequences. Adopting an all-electric taxi and bus fleet in Santiago could prevent 1,379 premature deaths, according to a UN study.

What to watch: China is already Chile's largest trading partner, and electric buses are just one area where it's working to extend that relationship.

  • Chile looks to China for much of the renewable energy technologies for its energy transition. In return, China has become the largest export market for Chile's copper ore, refined copper, lithium and other minerals.
  • It's also likely China is strategically using Chile as an anchor market to expand sales of electric buses and other energy and mobility exports across Latin America.

Sullivan is a professor of economics at National Defense University and an adjunct professor of security studies at Georgetown.

5. Catch up fast: EVs, solar, coal, politics

Electric cars: "Carmaker Fiat Chrysler (FCA) has signed an agreement with European utilities Enel and Engie to help offer its customers charging points for electric vehicles (EV) it is planning to roll out," Reuters reports.

Renewables: Via E&E News, "U.S. officials granted an exemption [Wednesday] from President Trump's solar tariffs to a type of two-sided panel — a move that could buffer much of the utility sector from trade barriers."

2020: "Democratic presidential candidate John Hickenlooper‘s [climate] plan calls for the U.S. to rejoin the Paris climate agreement, implement a carbon tax and work with the private sector to invest in green infrastructure programs," Politico reports.

Coal: Per NYT, "Plans for a fiercely contested coal mine in northeastern Australia received a long-awaited government green light on Thursday, less than a month after conservative politicians who champion coal triumphed in national elections."

6. Number of the day: 85.3%

That's the 2017 share of U.S. commutes made with cars, and it's almost identical to what the percentage was in 1980.

Why it matters: "For all the talk about a revolution in mobility, the data on commuting show that car is still king," writes Nikos Tsafos of the Center for Strategic and International Studies in this post on how Americans get to work.