The removal of the longest-serving component of the U.S. stock indicator — Exxon joined in 1928, when it was known as Standard Oil of New Jersey — is just the latest sign of the decline of oil as major driver of the U.S. and global stock markets and economies.
The departure from the Dow, while symbolic, comes after an economic shift toward the tech sector and away from energy.
Now oil and gas companies constitute just 2.3 percent of the S&P 500, down from more than 15 percent in 2008. Similarly, oil and gas made up about only 4.2 percent of the European stock market at the end of July.
Even after the tech-fueled stock drop last week, today five technology firms — Alphabet, Amazon, Apple, Facebook and Microsoft — are each worth more than the top 76 energy companies combined. (Amazon chief executive Jeff Bezos owns The Washington Post.) The Dow dropped Exxon for yet another tech darling, the cloud computing company Salesforce.
“Oil has shrunk as part of every economy, not only the U.S.,” said Pavel Molchanov, an energy analyst at Raymond James. “This is a global trend.”
Even as some coronavirus-related lockdowns are lifted, apprehension about traveling during the pandemic may continue to weigh on demand for oil.
During what are normally busy driving months of April, May and June, BP lost $16.8 billion, Exxon netted $1.1 billion in losses and Chevron — the Dow’s last remaining oil firm — shed $8.3 billion.
Big oil companies are borrowing money and selling assets to maintain dividends prized by investors, though those payouts create an untenable cash flow. According to the Institute for Energy Economics and Financial Analysis, those three oil majors plus Total and Royal Dutch Shell spent $16.9 billion more on dividends and stock buybacks than they generated.
Next year likely won’t be much better for oil demand than this one. The International Energy Agency cut its most recent estimate for global oil demand in 2021 by 240,000 barrels a day, to 97.1 million barrels a day, with an expected stagnation of air travel being “the major source of weakness.”
In the power sector, natural gas now accounts for more than a third of U.S. generation after years of eating into coal’s share of the electricity market. But the fuel is too cheap and abundant due to the boom in fracking to turn a big profit.
“For those companies that are selling both oil and gas, oil has often been the more profitable product,” said Ethan Zindler, an analyst at Bloomberg NEF.
It was only a few years ago when new drilling techniques made the United States into an oil-producing juggernaut.
Driven by domestic petroleum prices above $100 a barrel, the fracking revolution spurred a surge in extraction jobs in Texas, North Dakota and Pennsylvania, peaking at a total of more than 200,000 industry positions nationwide at the end of 2014.
But as prices dropped and companies automated jobs, sector employment declined to 158,000 last December, according to the Bureau of Labor Statistics. The pandemic, which briefly pushed the price of West Texas Intermediate crude into negative territory for the first time ever, has only led to more layoffs.
Even after the viral outbreak, oil companies will still be under intense pressure to curtail climate-warming emissions.
Although electric vehicles represent just a fraction of auto sales, investors are pouring money into Tesla — while General Motors, Ford and other traditional automakers prepare their own electric fleets — in the expectation that buyers and regulators are ready to make the internal-combustion engine a thing of the past.
“Stocks reflect expectations for the future,” Molchanov said.
The European Union is aiming to cut its climate-warming emissions to net-zero by 2050. On this side of the Atlantic, Democratic presidential nominee Joe Biden wants to renew incentives for the purchase of electric cars and eliminate carbon pollution from the electric sector by 2035.
President Trump likes to boast that, under his watch, the United States has become the world’s No. 1 oil and gas producer. But even if he wins reelection in November, the future of making money off oil looks bleak if prices hover around $40 a barrel. Such low prices limit exploration in the Gulf of Mexico and the Alaskan Arctic, where petroleum is plentiful but drilling costs are high.
Amid all the strife, some supermajors could come out of the recession with more assets than ever. In the oil business, contraction is often followed by consolidation. The market tumult has made smaller firms vulnerable to being scooped up by bigger players. Chevron has already acquired Houston-based Noble Energy in a $13 billion deal in July.
Big oil companies, Zindler said, are still a “very meaningful and important part of the economy, regardless of where the stock is trading at the moment.”
Power plays
Trump will highlight Everglades conservation when he campaigns in Florida and North Carolina on Tuesday.
“The White House says Trump will stop in Jupiter, Florida, on Tuesday to remind voters there of his conservation and environmental protection efforts in the Everglades region,” the Associated Press reports.
Trump’s budget for fiscal year 2021 asked Congress for a quarter of a billion dollars in annual funding for the South Florida Ecosystem Restoration, a series of projects aimed at managing regional water flow and protecting the Everglades.
The money was allocated after Florida Republicans, including Gov. Ron DeSantis and Sens. Marco Rubio and Rick Scott, wrote letters to the president asking for more money to protect the fragile ecosystem.
But the effort still may not be enough to protect the unique Florida ecosystem, which has lost half of its footprint over the past century and which is highly vulnerable to rising seas caused by climate change.
In a speech commemorating the EPA’s 50th anniversary, Andrew Wheeler pledged to continue rollbacks.
“The head of the Environmental Protection Agency argued Thursday that the Trump administration, which has aggressively rolled back environmental regulations in recent years, has done more to help vulnerable communities deal with pollution than the ‘misdirected policies’ and ‘misused resources’ of its predecessors,” my colleagues Juliet Eilperin and Brady Dennis write.
In a speech at the Richard Nixon Presidential Library and Museum in California last week, Wheeler argued environmental and public health protections caused economic harm to regions like the industrial Midwest. He also criticized Democratic governors, blaming recent blackouts in California on the state’s renewable energy policies and faulting New York Gov. Andrew M. Cuomo (D) for blocking a natural-gas pipeline in the Northeast.
“EPA has forgotten important parts of its mission,” Wheeler said. “In the past decade or so, some members of former administrations and progressives in Congress have elevated single-issue advocacy — in many cases focused just on climate change — to virtue-signal to foreign capitals, over the interests of communities within their own country.”
Wheeler said that during a second Trump term, the agency would do more to address the environmental burdens faced by vulnerable communities and help revitalize industrial areas through investments in water systems and economic development. He also cited the administration’s work cleaning up toxic pollution from Superfund sites.
“But opponents say the White House has done little to help communities hit hardest by pollution and climate change, noting how the Trump administration has scaled back fuel efficiency standards for cars, reduced limits on emissions of methane and carbon dioxide from the fossil fuel industry and overhauled a bedrock law meant to give ordinary people a say in projects that threaten to pollute their neighborhoods,” Eilperin and Dennis write.
The Trump administration is moving forward with efforts to roll back habitat protections.
The administration issued a new proposal on Friday that would make it easier to exempt habitat from protection under the Endangered Species Act.
“U.S. Fish and Wildlife Service officials described the proposal as giving more deference to local governments when they want to build things like schools and hospitals,” the AP reports. “But the proposal indicates that exemptions from habitat protections would be considered for a much broader array of developments, including at the request of private companies that lease federal lands or have permits to use them.”
The proposal is only the latest effort by the Trump administration to weaken protections under the Endangered Species Act. The administration moved last year to lift blanket protections for species newly listed as threatened and put in place provisions allowing government officials to include estimates for the cost of listing a species.
A draft released in July would limit what types of habitat fall under Endangered Species Act protections, potentially ruling out protections for land or water that needs restoration work, or that does not currently house the species in question but could in the future because of climate change. Governors from 22 Western states and Pacific territories sent a letter on Thursday to Fish and Wildlife demanding more consultation with states over any changes in the definition of habitat.
Clean energy companies are uniting to create a new lobbying group.
The American Wind Energy Association, the nation’s top lobbying group for wind power, told board members on Thursday that the organization would merge with several clean-energy companies to create a broader lobbying group called the American Clean Power Association, E&E reports.
The association will continue to advocate for wind energy at the federal and state levels but will also seek to influence decisions around solar and green technology, according to an internal letter from the wind energy lobbying group obtained by E&E. The new association involves more than 30 companies, including NextEra Energy, Google, Invenergy and EDF Renewables.
Thermometer
California is battling more recording-setting heat waves and wildfires.
“California just witnessed one of its hottest weekends in memory, which intensified destructive wildfires that erupted,” my colleague Andrew Freedman writes. “The scorching temperatures forced the National Weather Service to issue heat alerts for nearly the entire state. Many areas were also under red-flag warnings for high fire danger as the heat worsened blazes already burning and helped fuel new ones.”
A blaze in the Sierra National Forest, about 290 miles north of Los Angeles, spread over 73,000 acres this weekend, generating towering clouds of smoke that triggered lightning storms and possible fire tornadoes. At least 200 people were rescued by military helicopters. The fires came after blistering temperatures in California set records, reaching 121 degrees in Los Angeles County.
Meanwhile, in San Bernardino County, a gender reveal party sparked a blaze that grew to 7,400 acres as of Monday, according to state officials.
“Studies show human-caused climate change is tilting the odds in favor of more frequent, severe and longer-lasting heat waves, as well as larger wildfires throughout large parts of the West,” Freedman writes.
Wildfires and heat threaten to cause blackouts in California.
Pacific Gas & Electric, California’s largest utility, warned customers over the weekend that the combination of high winds and heat could lead to power outages starting Tuesday, out of concern that downed power lines could spark more wildfires, the Mercury News reports.
The company, whose infrastructure has been blamed in a number of deadly fires in recent years, said it was notifying customers in 21 counties who might be affected.
The state faces additional, separate threats of blackouts stemming from the heat, as its electrical grid operators warn that demand for energy is outpacing supply. California already saw rolling power outages affect hundreds of thousands of customers last month as the heat caused wind turbines to slow even as consumers cranked up their air conditioning.
To avoid more major outages this month, the California Independent System Operator issued a “Flex Alert” calling for state residents to conserve energy during peak usage times. Those efforts paid off over the weekend as the state managed to avoid major blackouts over the holiday weekend, but the agency warned residents on Monday that they would need to continue efforts to relieve stress on the grid.
Republican politicians have used California’s power outages as a talking point to attack Democrats’ clean-energy initiatives, and on Monday, Ken Cuccinelli, the acting deputy secretary of Homeland Security, tweeted that efforts to conserve grid capacity were a sign of “weakness.”
The state’s renewable energy mix, however, is just one of several factors fueling California power outages, and the heat is linked to the emission of greenhouse gases, which California’s renewable energy policies are meant to combat.
Meanwhile, in the Rockies it’s snowing.
Even while California battles record heat, “in a shocking example of weather whiplash, parts of the Rocky Mountain states are bracing for a 60-degree temperature drop and accumulating snow within 48 hours of triple-digit heat,” my colleague Jason Samenow reports.
The same high-pressure zone out of Canada that is spurring winds that may exacerbate fires in California is predicted to bring a sudden, historic temperature drop in the Colorado Rockies.
“Denver is expected to see its shortest time on record between posting a temperature of 100 degrees on Saturday and snow on Tuesday,” Samenow writes.
In a rare bit of good news
A famous orca whale gave birth to a new baby.
“The endangered southern resident killer whale, J35, touched hearts in the Pacific Northwest and around the world in August 2018 when she lost a calf that lived only a half-hour. She carried the calf for 17 days and 1,000 miles, refusing to let the calf go,” the Seattle Times writes.
The whale, who is also known as Tahlequah, has been swimming alongside her baby, who appears to be healthy.
