🛢Vibe shifts

Plus: Omarova on Raskin | Tuesday, March 22, 2022

Open in app View in browser   Presented By NetJets   Axios Markets By Matt Phillips and Emily Peck ·Mar 22, 2022 😎 Oh, hi there friends! It's Emily and it's Tuesday and we have news of a real vibe shift in the oil drilling world. Matt explains below. And an update from Neil Irwin, who covers all the Fed's vibe shifts for Axios, of course. Let's go! Today's newsletter is 1,162 words, 4.5 minutes.     1 big thing: U.S. oil restraint Data: FactSet; Chart: Baidi Wang/Axios U.S. oil prices rose 70% over the last year. Meanwhile, U.S. oil production rose by about 5%, Matt writes. Why it matters: Domestic oil producers aren't rushing to respond to soaring prices. In other words, don't expect a flood of American crude to drive energy prices back down any time soon. Why aren't American oil companies — especially in the oil-rich shale patch — pumping like crazy to rake in even more dough? It isn't as easy as flipping a switch. To pump more oil, you have to increase spending on exploration, drilling and production — and that's become costlier and more difficult because of supply chain issues and rising input costs. Case in point: Frac sand. In order to break the shale formations that contain oil and gas, drillers pump a high-pressure cocktail of water, sand and chemicals into wells. But sand is much more expensive, tougher to find and trickier to transport. Canada Pacific Railway told investors at a conference last week that it "can't move as much as frac sand as the demand is out there," according to a transcript provided by FactSet. Frac sand currently costs $40 to $45 per ton, up as much as 185% from last year, according to Rystad Energy analyst Ryan Hassler. "The market is getting tighter in terms of availability, pricing is higher, and then even if you can source the sand, there are issues [such as] can you get the trucks to move it to where you need it?" William Janela, an analyst at Credit Suisse, tells Axios. It's not just sand. Other key inputs to drilling, like steel, labor and diesel fuel, are also rising in price, scarcity — or both. The big picture: Several years back, when shale drillers were known for their speculative spending and drilling, the American oil industry might have been more than willing to boost production in the face of $100-plus oil. But many of those companies went bankrupt during the early phase of the COVID crisis when oil prices collapsed. The vibe of those that survived has switched from cowboy to corporate, with drillers now embracing the penny-pinching that Wall Street investors prefer. The bottom line: There's no indication that an investment boom is underway to significantly boost American oil production. And even if there was a shale drilling boom, it would take six to nine months for additional barrels of American oil to hit the market and help lower prices, analysts estimate. Go deeper.     2. Catch up quick 🛢 European support for a Russian oil ban is growing. (WSJ) 🚨 Biden warns CEOs of possible Russian cyberattacks. (White House) ⚡️ G.M.'s electric Caddy is now rolling out of plants. (Freep)     3. Omarova on Raskin's withdrawal: It's a shame Sarah Bloom Raskin (left) and Saule Omarova at Capitol Hill confirmation hearings. Photos: Ken Cedeno-Pool, Anna Moneymaker via Getty images   When Sarah Bloom Raskin's nomination to the Federal Reserve cratered last week, the situation looked familiar to one observer — Saule Omarova, who tells Emily the whole situation was "a shame." Driving the news: Raskin withdrew her nomination for the agency's top regulator post last week, explaining in a letter to the president that her views on climate change drew "relentless attacks" from members of the Senate Banking Committee. Republican senators also criticized Raskin's work in the private sector, claiming she improperly used her influence as a former Fed official. (Neil Irwin explains). But it was a Democrat, Joe Manchin of West Virginia, who ultimately sank her nomination because of her stance on climate. Why it matters: Formerly the Biden administration's pick to run the Office of the Comptroller of the Currency, Omarova's own confirmation fell through last year amid intense Republican opposition. The particulars are different, Omarova said, but broadly she sees common threads. "In both cases, our views were taken out of context. And distorted," Omarova, a law professor at Cornell, tells Axios. "And it was vicious. It was personal." The bottom line: Raskin might have been stopped, but the Fed, and other agencies, are already considering how to include climate risk into their regulatory schemes (more below on the SEC's latest move). The OCC, the Small Business Administration and the Energy Department may also look at incorporating climate risks into lending standards.     A message from NetJets NetJets helps you do more and miss less     NetJets Owners enjoy guaranteed access to the largest, most diverse fleet of private jets in the world. Their luxury aircraft feature cutting-edge technology and multiple entertainment options—for increased productivity or ultimate relaxation—so you can make the most of your travel time.     4. Powell gets more aggressive Fed chair Jerome Powell speaks Monday. Photo: Valerie Plesch/Getty Images   One way or another, the Federal Reserve is determined to bring the demand side of the economy into line with supply. That was the underlying message of a speech chair Jerome Powell gave yesterday, Axios' Neil Irwin writes. Why it matters: For the last two years, the Fed has made policy on the assumption that supply-side problems caused by the pandemic were temporary, and so policy should look through them. No more. Either the supply constraints that are holding back economic activity ease, or the Fed will keep tightening monetary policy to crush demand to get it into line with that limited supply. Between the lines: The optics of Powell's speech were intriguing. He struck a tone notably more hawkish than he did just five days earlier when the Fed raised its interest rates. Nothing much had changed in terms of markets or economic data between Wednesday and Monday. This is an example of what we've called the Powell Ratchet — his strategy of steadily pushing toward tighter policy, taking just enough time in between each action to assess the reaction and allow markets to adjust. The details: Powell still hopes that the supply side of the economy will complete a long-awaited bounce-back in the coming months, with workers rejoining the labor force and supply snarls un-snarling. Yes, but: "In the meantime, as we set policy, we will be looking to actual progress on these issues and not assuming significant near-term supply-side relief," he said. By the numbers: Markets got the message. Futures markets priced in a 63% chance the federal funds rate will be 2.25% or higher at the end of the year Monday, up from 30% Friday. The bottom line: The Fed has moved slowly to this point in its fight against inflation. Powell's speech was a notice that things have changed.   Share Axios and earn rewards If you like this newsletter, your friends may, too! Refer your friends and get free Axios swag when they sign up. Be a good friend and share   5. Climate change outpacing SEC climate efforts Illustration: Annelise Capossela/Axios   The SEC's issuance of proposed climate disclosure rules yesterday comes amid a torrent of climate disasters around the world, from floods to heat waves to wildfires, Axios' Andrew Freedman writes. Why it matters: Each of these events has affected companies' bottom lines. Exhibit A is PG&E, a large public utility that declared bankruptcy in 2019 due to crushing wildfire liabilities. State of play: The draft rules would force public companies to disclose their exposure to climate risks, as well provide information about their greenhouse gas emissions and "transition planning" for a warmer, less fossil-fuel-intensive future. The rules, if implemented, would be the first mandatory disclosure requirements affecting public companies within the U.S. Threat level: Consider that Congress was first warned about climate change in a way that broke through nationally in 1988. It's now 2022, and the U.S. still has not enacted rules to help investors figure out how a company they own stock in is incorporating climate change-related risks into its planning. This puts investors, and the financial system writ large, in a more vulnerable position. Keep reading.     A message from NetJets NetJets helps you do more and miss less     NetJets Owners enjoy guaranteed access to the largest, most diverse fleet of private jets in the world. Their luxury aircraft feature cutting-edge technology and multiple entertainment options—for increased productivity or ultimate relaxation—so you can make the most of your travel time.   Like this email style and format? It's called Smart Brevity®. Over 200 orgs use it — in a tool called Axios HQ — to drive productivity with clearer workplace communications.   Axios thanks our partners for supporting our newsletters. If you're interested in advertising, learn more here. Sponsorship has no influence on editorial content. 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