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Illustration: Rebecca Zisser/Axios
The U.S. has taken the global oil market by storm — becoming the world's largest oil producer in 2018 and on track to surpass Russia and perhaps even Saudi Arabia to become the world's top exporter by 2024.
Why it matters: Thanks to the end of a 40-year-old crude oil export ban signed by President Obama, a shale boom and a host of geopolitical sea changes, the U.S. is poised to reshape the global oil market over the next 10 years and beyond.
What's happening: The U.S. is exploiting its natural advantages. The type of oil found in the U.S. is lighter and sweeter (contains less sulfur) than oil from other major producers like Canada, Venezuela and Iran. U.S. shale also allows eager investors to get oil fields online quickly rather than taking multiple years to develop.
That's leading investors to push more money towards shale projects, Michael Tran, managing director of global energy strategy at RBC Capital Markets, tells Axios.
Global dynamics also are strongly in the U.S.'s favor.
First, U.S.-led sanctions on Venezuela combined with its state-oil company's slow collapse will see the country with the world's largest oil reserves reduce its already marginalized capacity by almost half over the next year.
Second, the UN's International Maritime Organization next year will bar ships from carrying fuel that contains sulfur content higher than 0.5% and cap their sulfur emissions, benefiting light, sweet crude.
Third, developing countries like China, which are driving new demand for crude exports, also are likely to move more toward light, sweet crude as their populations rely less on generators and heating oil, and as construction spending slows down, reducing the need for asphalt — all of which rely on heavy crude oil.
The bottom line: Both market forces and international regulations are pushing global demand towards exactly what the U.S. is selling. Given the booming supply of U.S. oil, that likely means a cap on prices.
"The U.S. is going to be by far the largest source of new supply for the market and that is going to be very light oil, so ... a lot of the oil we see coming to the market in the next decade is going to be lighter oil," Jason Bordoff, a professor at Columbia University and a former senior director on the National Security Council and special assistant to President Obama, tells Axios.
What they're saying: Bordoff, Tran and Atkinson point out that as U.S. exports have grown so has U.S. oil demand, a result of big investments in petrochemicals projects and heavy crude refineries.
While the U.S. may become a net oil exporter, it won't be energy independent, at least in the foreseeable future. That's because the U.S. doesn't produce heavy crude and much of its oil refining infrastructure is built for it.
Robert Rapier explains in a 2017 article for Forbes:
Economic models show the "largest one-month jump in recession risk in 30 years" for the U.S., and a 73% probability of a contraction in 2019, economists at UBS say. That's based on recent data, most notably the U.S. fourth quarter GDP report.
What it means: The U.S. economy is very likely headed for a contraction, the economists say, but that does not necessarily mean a recession.
So what's the difference between a contraction and a recession?
UBS economist Pierre Lafourcade tells Axios that what their model predicts is a "turning point in the cycle." Sometimes those become recessions, as in 2007, and other times policy reacts quickly enough to avert an economic slowdown strong enough to be a recession, like in 2015.
Still, the contractions cause strong market reactions and are reliably negative enough for the economy that they are worth highlighting on their own, Lafourcade says.
Softening buys of durable goods — things like furniture, jewelry, sports equipment and appliances — were most worrisome.
The bottom line: UBS analysts expect U.S. first quarter GDP will read a disappointing but not recessionary 0.4%, and will rebound to 2.5% in the second quarter.
Boeing was once again the Dow's biggest loser, falling 6% on Tuesday. Thanks to that drag, the Dow finished the day 96 points lower, Axios' Courtenay Brown writes.
Why it matters: The S&P and the Dow have diverged like this — meaning one index finishing higher, while the other closes lower — just five other days this year, per FactSet.
Between the lines: Pressure is building on Boeing after the second deadly crash involving its 737 MAX 8 jet in the last 6 months.
U.S. Treasury yields fell to their lowest level in about 10 weeks on Tuesday, as investors continue to buy safe-haven government debt even as the U.S. stock market rises.
Why it matters: While the S&P 500 has risen more than 11% so far this year, benchmark 10-year Treasury yields are back near their lowest levels of 2019. Despite those low yields, a Treasury auction of 10-year notes Tuesday saw especially strong demand.
The big picture: As we wrote last month, the bond market is showing that traders have no faith in long-term U.S. growth or inflation. Stocks are rallying based on expectations that the Fed will not raise interest rates, a theme that has been re-enforced by worsening global growth data.
Oversupply, the weaker Brazilian real, and trade jitters pushed futures prices for arabica coffee beans below $1 per pound — the lowest in more than a decade, Courtenay writes.
What's happening: Brazil is the top producer and exporter of arabica coffee beans. The country harvested a record amount of coffee beans last year and coffee inventories around the world hit a 4-and-half year high. Demand can't keep up.
Be smart: The entire agricultural sector is depressed and overall sentiment is low, largely due to U.S.-China trade tensions, Mike Seery, who runs commodity consulting firm Seery Advisors, tells Axios.
Yes, but: Don't expect cheaper prices for your cup of coffee. "When prices move to the upside it affects the consumer, but when it's to the downside it doesn't affect the consumer very much," Seery said.