Apr 7, 2020

Axios Generate

Welcome back. Today's word count is 1,373 words, a 5-minute read.

Situational awareness: World Central Kitchen is working to feed vulnerable people and help the badly distressed restaurant sector at the same time. Donate here.

🎙I joined Axios' Amy Harder and Dan Primack on the Axios Pro Rata podcast to talk oil and COVID-19. Listen here.

🎵And happy birthday to John Oates of Hall & Oates. A lovely song he penned and has lead vocals on takes us into the news...

1 big thing: IEA boss won't let Big Oil off the hook

Photo illustration: Sarah Grillo/Axios. Photo: Freya Ingrid Morales/Anadolu Agency/Getty Images

International Energy Agency executive director Fatih Birol has a tough job these days — responding to an unprecedented crisis now without losing sight of an existential one that must be tackled over decades.

Driving the news: We spoke yesterday about his work to help stabilize oil markets and ensure COVID-19 doesn't sap governments' and companies' work on global warming.

Climate change: Birol says major oil companies, which have recently been expanding their climate pledges and plans, will remain under the microscope.

  • “People around the world will notice whether or not those commitments that the governments, companies [have made] are going to fade away or disappear when the market conditions change,” he said.
  • “I think this is a really important issue for the credibility of the companies and the governments,” Birol added.

Oil markets: Birol has been pushing for G20 energy ministers to collaborate on how to handle the shocking collapse in oil demand. That might be bearing fruit. Those officials are now slated to meet remotely on Friday, a day after a meeting of the OPEC+ group led by Saudi Arabia and Russia.

  • “This is a huge global challenge,” he said, later adding: “There is a need to provide a global answer beyond OPEC+.” The production cuts reportedly contemplated by OPEC+, which are in the 10 million barrel-per-day range, pale in comparison to the demand collapse, he noted.
  • Birol and IEA analysts are keenly aware of the toll that the demand and price collapse will take on people who work in the industry, but he's hopeful about collaboration to manage the twin shocks.
  • I asked Birol about how the U.S., where top-down production decisions aren't a thing, and other market economies could take part in a wider cooperative effort. “There are different countries who can contribute to the problem in different ways,” he said.
  • He noted plans by companies to cut investment. “As a result of that there will be a lot of decline,” Birol said.

Stimulus plans: Birol has been pushing governments to use their economic response packages to boost investments in renewables, efficiency, batteries and more. He said it's going "very well."

  • “We are seeing that there is some hesitation in some countries about whether they should continue to provide support for renewables. We say yes, especially for solar and wind, whose costs are much cheaper than 10 years ago,” he said.
  • More broadly, he said it's possible to design packages that "on one hand provide a boost to economic recovery, but at the same time [are] increasing energy resilience and accelerating the clean energy transition."
  • Birol noted that this year will bring an "unprecedented" decline in global emissions, but for all the wrong reasons.
  • “It is happening because people are dying, economies are melting down, " he said, adding that stimulus responses are important because "we want emissions to come down in order to provide better lives, healthier lives for people."
Bonus: Bracing for new demand data

Next week IEA is slated to release a closely watched estimate of how the COVID-19 crisis is upending oil markets — one that Birol says will be shar

Driving the news: The monthly oil market report report coming April 15 will have a sharp revision of how much oil demand will fall this year.

  • The last report, in early March, had a "pessimistic" case that showed a full-year decline of 730,000 barrels per day in 2020.
  • But that was a lifetime ago as the outbreak has tragically worsened and huge regions of the world have locked down.

The big picture: “The economic meltdown is not the only, maybe even not the main driver of the huge decline in oil demand. The main driver is the confinement,” Birol said.

  • He didn't provide an estimate, but told me that what was once the pessimistic case has been completely overtaken, given that transportation accounts for roughly 60% of oil demand.
  • "We will revise our numbers substantially downward," Birol said.

Catch up fast: More recent analyses show much larger declines. For instance, the consultancy Rystad Energy on April 1 forecast a 6.4 million barrel per day year-over-year decline (the near-term drop is vastly bigger).

2. How the U.S. could join a global oil deal

President Trump may have said out loud what's on the minds of people wondering about the prospects for a new international deal to pare back oil production: whether the U.S. could essentially join without a firm commitment.

Driving the news: On Monday evening, Trump said OPEC has not explicitly asked him to press U.S. oil companies to cut production, but added that U.S. output is slated to fall due to market forces as demand collapses.

  • "I think the cuts are automatic, if you're a believer in markets," Trump said at a White House briefing, adding companies are "already cutting" and "it's the market, it's supply and demand."

Why it matters: The comments suggest how the U.S. could offer de-facto participation in a deal, even though top-down mandates are not part of the U.S. market system.

  • The question could come to a head very soon, with the OPEC+ and G20 energy minister meetings scheduled for later this week.
  • Saudi Arabia and Russia may not commit to major cuts without action by the U.S., the world's largest producer.

What they're saying: "The G20 forum could provide space for a looser arrangement where explicit U.S. cuts are not necessarily required and market-led decreases in US production can potentially be repackaged as a U.S. contribution," the Eurasia Group said in a note Monday.

  • A number of other analysts are thinking the same thing. “I think there is already an understanding between Saudi Arabia, Russia and the U.S.,” Citigroup analyst Ed Morse tells Bloomberg.
  • “The U.S. is a party to the agreement, in effect, because the price of oil is already reducing drilling activity to an extent that production will likely be down 1 million barrels a day by the end of the third quarter.”
3. Oil crisis smothered by other topics online
Data: NewsWhip; Chart: Axios Visuals

Sure, the oil industry is in historic turmoil, but with an entire world gripped by the pandemic, social media users are gravitating to other topics, Axios' Amy Harder reports.

Driving the news: Social media interactions on stories about oil and gasoline prices have consistently ranked relatively low during the past month as the coronavirus crisis choked oil demand and wreaked havoc on the industry, according to NewsWhip data provided to Axios.

The big picture: The pandemic is upending the lives of virtually everyone on Earth and throwing nearly every industry into chaos. Sectors that are more consumer-facing, like restaurants, see the most social engagement online.

The intrigue: One of the direct repercussions of this unprecedented oil-industry turmoil is rock bottom oil — and therefore, gasoline prices. Here’s the rub:

  • People hardly dwell on cheap gas prices in normal times, but that's even more the case now, as most of us aren’t driving or flying nearly as much.
  • Only when energy is expensive or gone do people really pay attention.
  • This makes it especially hard to convey the sector’s struggles to others — and President Trump, who loves cheap oil.

Where it stands: Stories on oil and gas prices saw the highest engagement in early March, right around the time a price war between Saudi Arabia and Russia broke out and prompted a big drop in oil prices.

Flashback: Benedict Nicholson, head of research and editorial at NewsWhip, notes that oil news in general received more engagement at the end of July 2019, right when the Green New Deal was receiving a lot of media attention.

Yes, but: Engagement online is just one narrow — but influential — barometer of attention.

Go deeper: Coronavirus crisis tests Trump’s love for cheap oil

4. Breaking: Exxon rolls out $10B spending cut

ExxonMobil said Tuesday that it's slashing planned capital spending this year by 30%, with the biggest reductions coming in the U.S. shale patch.

Why it matters: It's the latest sign of how oil producers large and small are getting hit by the price collapse and demand cratering due to COVID-19.

Driving the news: Exxon now expects capital spending this year to be roughly $23 billion instead of $33 billion.

  • "The largest share of the capital spending reduction will be in the Permian Basin, where short-cycle investments can be more readily adjusted to respond to market conditions, while preserving value over the long term," the company said.

The big picture: It follows spending rolled out by Shell, BP, Chevron and others in recent weeks. The announcement adds specifics to Exxon's warning in mid-March that it intended to significantly cut back this year.

The intrigue: Per Bloomberg, "The scope of the cuts exceeded the expectations of some analysts including those at Goldman Sachs Group Inc. who forecast a reduction to $29 billion."