We need to talk about oil markets and COVID. Several dynamics are at play that are good for your wallet and good for the environment but are being opposed by oil majors and potentially supported by an economically illiterate White House. Thread:
1/ First, note that before COVID really hit the US, slower demand and US/Saudi/Russian issues were driving the price down (and I discussed this with the Wells Fargo CEO as a potential debt risk): washingtontimes.com/news/2020/mar/…
2/ Some of that is geopolitical (Saudi / Russian alliances, OPEC management challenges). But some is also sectoral. Rising EV sales, more efficient homes, urbanification, less millennial disposable income all lead to slowing energy demand
3/ Unsurprisingly, higher supply + lower demand has led to lower oil prices in recent months 
4/ Dynamics are slightly different for natural gas (demand same, but no equivalent to OPEC disruptions of supply) but the price is also falling.
5/ Now add COVID. Further demand reduction as people stay home, businesses temporarily shut down and reduce utility load. All lead to further reductions in demand, and price falls further, as would be expected. bbc.com/news/business-…
6/ Some have gone so far as to suggest that spot prices for oil could go negative although (for a lot of reasons) I'm dubious it ever goes that far. eenews.net/stories/106276…
7/ Let's now rise up to look at the larger economy. In the wake of COVID, we are working hard to help American families boosting their cash flows (small bus loans, $1200 checks, etc) and reducing their expenses (deferring student loans, public housing rent, etc)
8/ Lower energy costs make this easier. If you just lost your job and are struggling to pay your rent, it is a blessing to have slightly lower gasoline and energy costs. More generally, we can safely say in all economic climates that people prefer to pay less for energy.
9/ And it should be noted that this is ALSO true of a lot of the energy industry. If you're a refinery, or a power plant, or a steel mill, falling oil and gas costs mean lower expenses.
10/ A lot, but not all. The pure extraction companies (e.g., those businesses who take fuel out of the ground and sell it) are really hurting from lower prices.
11/ What's worse, many of the unconventional (e.g., fracking) players have relied on a lot of high-yield debt - and that part of the credit market is seizing up right now in the COVID-driven race for liquidity
12/ Now, as a mature economy (e.g., one that is does not rely solely on extractive industries) the US benefits much more from cheaper inputs to our mfg and service sectors than we do from higher commodity prices. BUT...
13/ The rise in unconventional oil & gas production has moved the US from a net energy importer to a net exporter. Which means that for the first time in a long time, looking just at the US energy sector there is a positive correlation between energy prices and econ growth.
14/ That is a sectoral issue that needs to be dealt with and we should of course make sure to look out for those jobs in the oil & gas sector that are at risk from COVID, just as we do in other sectors of the economy.
15/ BUT the voices that have the ear of the Trump White House are not those looking out for oil & gas employees, but rather those looking out for oil & gas owners. To wit:
16/ "U.S. shale companies are asking for aggressive federal action to halt the flow of foreign crude into the United States" washingtonpost.com/news/powerpost…
17/ Rick Perry is suggesting that the US Treasury should intercede and buy up oil futures to boost their price and drive more revenue to oil producers. usatoday.com/story/news/pol…
18/ Meanwhile, the industry is trying to tap into critical infrastructure programs that could criminalize American citizen's right to protest. (One of many reasons why our legislative oversight is so important right now.) drillednews.com/post/how-fossi…
19/ Finally, let's not lose sight of this context. In May, IMF updated their analysis of global energy economics and found that the total US direct and indirect subsidies to the fossil fuel industry are nearly $650 billion PER YEAR. imf.org/en/Publication…
20/ A massively subsidized industry selling a product into a market with falling demand that is over-leveraged and still can't turn a profit doesn't sound like an industry that justifies more distorting government money right now.
21/ An American economy that is in free fall as unemployment spikes and Americans struggle to pay their bills doesn't sound like an economy that needs higher energy prices right now.
22/ But Trump (and Kushner)'s business experience is one of going bankrupt and getting bailed out by their father and/or suspicious foreign transactions. These are not people who have demonstrated any fundamental understanding of how truly competitive markets work.
23/ And (no surprise) Trump seems to be asking for suspicious foreign transactions in this case as well, prioritizing O&G owners over their laborers and the American people.
24/ Trump's signing statement on the CARES suggesting that he will not comply with legally-mandated Inspector General and congressional oversight is also problematic - and illegal. whitehouse.gov/briefings-stat…
25/ We will continue to provide oversight in this moment. We will continue to insist on economic and managerial competence from the White House. And we will continue to look out for the American people. /fin
