Lower oil without higher growth

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By Ed Crooks: April 8, 2016

The failure of falling oil prices to give much of a boost to global growth has been one of the big issues in the world economy this year. The FT’s Chris Giles gave a magisterial overview of why oil has been the shot in the arm that missed its target, although he raised the more cheerful possibility that the stimulus may simply be deferred until next year.

The correlation between oil prices and share prices has remained in full effect, even though an unexpected drop in US crude inventories boosted oil for a while. Brent crude began Friday at about $40 per barrel, up 48 per cent from its low point in January, but still down 65 per cent from its peak in June 2014.

I wrote about the US exploration and production sector, pointing out that even with oil’s rebound to $40 there is still enormous financial strain on the industry. Reuters uncovered evidence that the rising tide of bankruptcies sweeping through the US is not necessarily a cure for oversupply in the global oil market.

Also under growing pressure because of weak oil prices: Russia. Kathrin Hille’s piece was a powerful depiction of a country where “it feels like the 1990s again”. Russia sees an oil price of $45-$50 as “acceptable”, Reuters reported, but it is still unclear whether it and the other oil-producing countries meeting in Qatar on April 17 will actually make the commitments on output needed to push crude to that level.

There was good news, of sorts, for BP: the federal court in New Orleans approved its $20bn settlement with the US government for civil penalties and damages arising from the 2010 Deepwater Horizon disaster.

Martin Wolf wrote about climate change, saying that given the longevity of energy assets such as power plants, the world needed to take action immediately to shift away from fossil fuels to avoid the worst risks of global warming. Brad Plumer at Vox reported on a study showing the scale of the challenge: there are 1,500 new coal plants planned worldwide, “enough to cook the planet”.

President Obama’s attempt to address the threat by shifting the US away from coal-fired power is being contested in court, but won support from Apple, Amazon, Google and other companies.

Another West Coast tech company that could have an impact on climate change is Tesla, which launched its “make or break” Model 3 electric car last week. Advance orders have been remarkable: almost three times the total number of battery-electric and plug-in hybrid cars sold in the US last year.. This week, though, Tesla admitted that “hubris” had led to a string of production shortfalls.

Steve LeVine at Quartz had some good background. If you want further reading on batteries for electric, his book ‘The Powerhouse’ is well worth a look, and out now in paperback.