Mar 6, 2020

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Happy Friday! Today's Smart Brevity count: 1,128 words, 4 minutes.

Heads up: This week on “Axios on HBO:” A peek into Joe Biden's secret governing plan, and Housing Secretary Ben Carson on cutting housing programs and why Trump should tweet less (see a clip here).

  • Plus, tennis great Billie Jean King and more top women athletes on leveling the playing field. Watch Sunday at 6 pm ET/PT on all HBO platforms. 

And tomorrow marks the 1975 release date of David Bowie's album "Young Americans," which provides today's intro tune...

1 big thing: OPEC+ on the brink as coronavirus spreads

A worker at a Saudi Aramco oil processing facility. Photo: Stanislav Krasilnikov/TASS via Getty Images

Crude oil prices are falling again this morning as OPEC and Russia are reportedly locked in a standoff over the cartel's push to significantly deepen their joint production cuts.

Why it matters: The high drama in Vienna is the biggest test yet of the three-year-old OPEC+ alliance, which is grappling with cratering oil demand — and cratering prices — due to spread of the novel coronavirus.

  • "It is truly a go big or go home moment for this organization," RBC Capital Markets analyst Helima Croft tells CNBC.
  • "[I]f Russia says no today, there are real questions about the viability of the OPEC+ arrangement," she said.

Where it stands: Oil prices are now at their lowest levels since mid-2017, with the global benchmark Brent crude trading in the $47-per-barrel range this morning, but edged just above $48 as we sent this newsletter.

Driving the news: Per Reuters, Russia is resisting OPEC's push to deepen their joint production-cutting pact by 1.5 million barrels per day through the end of the year.

What they're saying: Bob McNally of the Rapidan Energy Group, speaking on Bloomberg TV, said one deal that could emerge is Russia agreeing to that level of cuts through the end of the second quarter, which OPEC had floated earlier.

  • He said Russia wants to avoid letting the OPEC+ alliance collapse. “They know something has to be done or oil prices are going to collapse,” he said. “[Russian President Vladimir] Putin is going to want to keep in this game.”
  • McNally said that if the group commits an "epic policy failure by not cutting production," oil could head down into the $26-per-barrel range.
Bonus: Crude oil's downward slide
Expand chart
Data: Yahoo; Chart: Axios Visuals

The turmoil over the OPEC+ decision is just the latest manifestation of an oil market under severe pressure this year from the novel coronavirus.

Check out the chart above, which shows the downward slide in prices as the illness has stunted economic activity — and thus oil demand — in China and elsewhere.

2. How China explains the coronavirus oil toll
Expand chart
Data: IEA; Chart: Axios Visuals

A big reason the novel coronavirus-fueled economic slowdown is hammering oil demand is because China — the center of the outbreak — has grown into such a powerhouse petroleum consumer.

The big picture: Check out the chart above that's a version of data found on the International Energy Agency's website. It goes through 2018, and 2019 continued the trend of China's growing demand.

What they're saying: IEA executive director Fatih Birol said China's slowdown is a key reason why on Monday IEA is slated to announce a major downward revision in this year's global oil demand estimates. He spoke at a Washington, D.C., press briefing yesterday.

Last year China accounted for 80% of total global oil demand growth, he said.

3. Exxon resists calls for big climate pledges

Exxon CEO Darren Woods has put quite an exclamation point on something we wrote about earlier this week: U.S.-based oil majors aren't getting into an arms race with European rivals over long-term climate ambition.

Driving the news: Woods defended the company's approach at yesterday's investor day in New York, telling analysts that Exxon looks at the topic on a "global scale" rather than engaging in a "beauty match."

  • "Individual companies hitting targets and then selling assets to another company so that their portfolio has a different carbon intensity has not solved the problem for the world," he said, noting, “This is not a company challenge, this is a global challenge."
  • "We are very focused on trying to make sure we are talking about this holistically and actually taking steps to solve the problem for society as a whole and not to try and get into a beauty match, beauty competition around who’s sheet looks like what."

Why it matters: The comments come as multinational giants headquartered in Europe have recently expanded their longer-term pledges, including BP's recent pledge to become a "net-zero" company by 2050.

Big European players like Equinor, BP, Shell and Eni are also setting targets around Scope 3 emissions (that is, emissions from the use of their products in the economy), which is something Exxon and U.S.-based rival Chevron have not done.

The big picture: Woods and other officials defended Exxon's approach, citing projections of rising oil-and-gas demand for decades while highlighting their investments in low-carbon energy R&D in areas like algae-based biofuels and carbon capture.

Woods also said the company is on track to meet its target of a 15% cut in its methane emissions and a 25% cut in gas flaring this year compared to 2016 levels.

Bonus: Exxon takes heat over climate comments

Edward Mason, head of responsible investment of the Church Commissioners for England, blasted Woods' comments about Exxon's climate posture.

  • He said via Twitter that Exxon is "pursuing an ugly strategy — ugly ethically & ugly financially — so it has no place at a beauty parade." The tweet on his personal feed also notes that Exxon's stock is at a 15-year low.

Another comment that caught my eye came from Noah Brenner, the Houston bureau chief with Energy Intelligence.

  • "This is a 'beauty match' that Exxon might want to take seriously. It isn't being judged by activists — its being judged by investors," he said via Twitter.
  • "If Exxon thinks the only reason peers are pledging cuts is activist pressure then [Exxon] execs really don't understand the modern financial world."
4. Lucid Motors' EV sales plan

Photo: Courtesy of Lucid Motors

The EV startup Lucid Motors has a strategy for drumming up interest in its upcoming Lucid Air luxury EV that begins production late this year: ultra-designed retail spaces that offer virtual reality test drives.

Driving the news: The company yesterday announced a "direct-to-consumer" model with planned retail spaces that will "enable customers to experience the brand and its products in locations that underscore its unique design aesthetic."

Why it matters: The luxury EV market is getting more crowded. Startups like Silicon Valley-based Lucid — a largely unknown brand in what's still a very small market — need a way to differentiate themselves and gain cachet.

  • Lucid is also one of several EV players eschewing the traditional dealership model of sales.
  • The company — which is staked with $1 billion from Saudi Arabia's sovereign wealth fund — plans to unveil the production version of the car and pricing next month in New York.

What's next: Lucid has one customer studio open in Silicon Valley and plans to open eight more this year in New York, Florida and several more places in California.

  • More service centers and studios are slated to open in 2021 in those states as well as Washington, D.C., Chicago and Europe, the company said.
  • The announcements yesterday also touched on other parts of its strategy, like having a fleet of mobile service vans to provide roadside assistance.
5. Catch up fast: Coal, coronavirus, Congress

Coal: "U.S. coal use plunged more than 13% in 2019, the most in 65 years, as power plants shut down across the country. That’s poised to happen again this year." (Bloomberg)

Coronavirus: The Nuclear Regulatory Commission last night canceled next week's big Regulatory Information Conference, a major gathering of nuclear energy professionals that draws thousands of people.

  • "In recent days, a number of organizations and presenters have changed their attendance plans, with indications that others would reach similar decisions in coming days," the commission said of the annual event.

Legislation: "Members of the Senate reached an impasse over the energy bill before them this week, delaying floor action on the legislation until next week, the Republican senator behind the bill said Thursday." (Roll Call)

Ben GemanAmy Harder