-For Russia, the coronavirus is the gift that keeps on giving
-WoodMac sees pain spilling over to the clean energy sector
There is some solace, perhaps, in stating that we’ve seen this movie before. Crude oil prices were on the rise in early Tuesday trading on signs of a return to normalcy in China and hopes of a massive economic stimulus package from US lawmakers. That means we may also expect a repeat of the sequel, where markets sink on disappointing news. Despite glimmers of hope, the next installment may be grim as major corporations trim billions of dollars from their spending plans. And it’s not just oil. Parts of the clean energy sector are taking a hit even as US lawmakers try to revive the so-called Green Deal.
Crude oil prices jumped some 14.4% last week on the prospects of helicopter money and on Monday, the US Federal Reserve took a “whatever it takes” posture. With some $2 trillion in US stimulus in the works, Brent was up some 2.4% as of 8 a.m. ET to trade at $27.70 per barrel.
Crude oil prices were in the black, though S&P 500 futures were in the red after investors weighed what’s next with a US stimulus package, now in the $2 trillion category. US House Speaker Nancy Pelosi on Monday blamed her Republican counterparts for looking for corporate bailouts at the expense of everyday taxpayers, while Republicans say those across the aisle are trying to add wish-list measures to the package. The bill could be voted on as early as today, though with the coronavirus response becoming more and more politicized, and with no clear direction from the executive, whether the stimulus sees the light of day is up for debate.
Stimulus or not, however, much of the blood has already been let. French supermajor Total on Monday said life at $30 per barrel meant a hiring freeze and deep cuts to capital expenditures. Already cutting back in parts of the US shale patch, Chevron on Tuesday said it was cutting spending by 20%, or some $4 billion, with most of the restraints coming from the Permian basin.
“Recent decreases in commodity prices, as a result of COVID-19 impacts on reduced demand and geopolitical pressures increasing supply, are expected to negatively impact the company’s future financial and operating results,” Chevron’s statement read.
In the geopolitical intersection with energy, that is a Russian dream come true. With OPEC+ production constraints set to expire at the end of the month, the price war between the Kremlin and Riyadh shows no signs of letting down. The shale sector was on its heels in the fourth quarter and for those trying to push light US oil out of the market, the coronavirus is the gift that keeps on giving.
Though demand disintegration for petroleum products may incentivize a shift toward greener alternatives, analysis from Wood Mackenzie finds the wind energy sector may take a hit.
“The impact of the coronavirus is top of mind for the global wind industry and embodies a crisis unlike anything the market has ever seen,” said Dan Shreve, Wood Mackenzie Head of Global Wind Energy Research, in an emailed statement.