
BP indicated in their latest outlook that global oil demand growth has come to an end. While the release triggered a number of dramatic headlines (Ambrose Evans-Pritchard: BP drops a cluster bomb on Big Oil) it’s worth pointing out that in last year’s outlook BP projected that 78% of the demand growth they were expecting to the year 2040 was going to be spent by 2025. The implications were already quite obvious: after 2025, the oil industry was fated to become a no growth business. Nevertheless, this year’s outlook is a major climbdown for the company which, over recent years, has irresponsibly telegraphed a consistent message to investors that the oil industry would be fine. That’s not true now, of course. But it’s not been true for some time, either. The best write up on the report comes from London-based Carbon Brief.
The phase-out of ICE vehicle sales in Britain, already brought forward from 2040 to 2035, could inch forward once again to 2030. The proposal has been made by the Labor Party, and it remains to be seen whether it gains any traction. One observation to make is that these long-timeline goals really can have effects in the marketplace, as already seen in the collapse of diesel sales. And here’s an open question: how close will Britain come to zero ICE sales, on current trajectories, without additional policy directives? European EV sales are soaring, ICE sales growth is over in China, pricing is already competitive, and the fat part of the EV adoption curve is imminent. You can keep up with the UK car market here, at SMMT. Their latest graphic, on August sales:

International agencies continued to ratchet down their 2020 forecasts of global oil demand. And they are also shaving off points from their 2021 outlooks. OPEC’s 2020 forecast has expanded by another 0.4 mbpd to the downside, to -9.46 mbpd, which comes pretty close to the Gregor Letter forecast for this year. OPEC also chopped down next year’s growth forecast by the same amount. Just to remind: next year is a recovery year, coming off a low base. And the rebound in all forecasts is both a function of economic normalization, and the depth of the hole in 2020 demand.

While oil prices have ticked back up again in the last week or two, mostly due to OPEC chatter, it seems pretty clear that the oil price recovery from the March lows has largely run its course. The oil market is sober and quite aware not only of this year’s sustained demand drop, but next year’s muted recovery. An additional word on next year’s forecasts: to the extent 2020 demand continues to guide downward, toward’s a decline of 10 mbpd, it might behoove forecasters (including the Gregor Letter) to slightly increase next year’s growth because of the baseline effect. Remember, all the forecasted numbers in the table above, including those 2021 numbers, are changes, not levels.
Looking ahead, I hope it’s clear now that the oil market will now proceed very much like the global coal market in the years ahead. Investment will fall, and production growth will stagnate, or fall. This will cyclically lead to very strong, shortlived price rallies that will be necessary to mitigate upticks in demand on a less liquid supply landscape. These price rallies will very effectively fool the hangers-on, who are unable or unwilling to release themselves from the 20th century rules which governed oil demand and global growth. But very obviously, the world no longer needs a new unit of oil to create a new unit of GDP. Currently supplied units of oil are more than enough to sustain the petro-based components of the global economy, while new units of GDP are created on the platform of electricity.
The offshore wind supply chain is worth thinking about, for US investors. As a follow-up the to 24 August letter, Offshore Gold, I have made a google map of ports already slated for industrial development (identified using blue-wind icons) and port areas emerging as potential candidates (question-mark icons). You can reach the interactive map via this link, or, just by hitting the map below.

The mounting of both an offshore wind-industry, and the future supply of new intermittent electricity, has implications of course and here are some that come to mind: an emerging market for storage, that buys cheap overnight surplus supply and sells it back to the grid during the day; real estate investment opportunities that will occur in locations long forgotten and depressed; increasingly curtailed investment in fossil fuel supply, natural gas especially; growth opportunities for related grid-tech businesses and EV-to-grid interoperability. The key takeaway is that a new industry is coming to the east coast of the US, one that mirrors the rise of big solar, in the West.
The environmental Kuznets Curve is alive and well in the OECD, and yes, in the United States. The decline of energy intensity in developed nation output is not a recent phenomenon, but started fifty years ago from a well-understood peak: when concentration in inefficient, industrial processes reached their zenith. While it’s true that growing populations have, in the aggregate, caused energy consumption and emissions to continue rising, the per capita decline is something to watch. And here’s why: because per capita emissions are very likely about to decline rapidly. Please see the following links for further reading: the Kuznets Curve, and a contemporary version, The Environmental Kuznets Curve, with additional coverage in this paper by Stern. The chart below comes from Our World in Data, a project hosted at Oxford University. | see: Per Capita CO2 emissions, United States, 1960-2018.

The learning rate in photovoltaic manufacturing has been proceeding at 25%, over the past four decades. The conclusions come via a recent report (opens to PDF) from the Fraunhofer Institute for Solar Energy Systems. The concept is simple: as production increases, prices fall due to the learning rate as efficiencies are uncovered. In the case of solar PV, prices now tend to fall by 25% every time output is doubled.

Goldman Sachs projects that total spending on renewables next year will exceed oil and gas industry investment. The forecast comes as credit markets have understandably started to impose far higher costs on capital to the oil industry, as renewables now enter their golden phase, offering far better investment visibility and the associated lower cost of credit.
Climate change continues to wreak havoc in arctic-region stability. With the northern hemisphere summer reaching its hottest on record, this year, the permafrost continues to erode at an alarming rate. The Ice Age account on Twitter is tracking the story in a recent thread, with follow-up links that are worth reading.





Bill Gates is becoming increasingly vocal in his criticisms of the pandemic response in the US. And with good reason. In an interview with STAT last week, Gates had very harsh things to say about the FDA commissioner, who got his math wrong. And over the weekend, on Fox News Sunday, Gates said it was outrageous that 6 months after the breakout, the US still doesn’t have the ability to provide test results in 24 hours.

Two states, Maine and Minnesota, are sending out a dire warning for Trump and Republicans in the coming election. Just to remind, there is a phenomenon of correlation between individual states (one subject to modeling and weighting of course) that offers a rather straightforward insight: do not ignore anomalies between state level polling and national polling in US presidential elections. In 2016, the states of Wisconsin and Iowa began to warn that national level polling strength in favor of Clinton was not the insurance policy for an electoral win that many assumed. In other words, two rural states with very white and older populations were warning that other similar states like Michigan and Pennsylvania might be bending just enough towards Trump to warrant further attention. You know how that story turned out.
Today, Minnesota and Maine may be sending out a similar warning—this time to the detriment of Trump. The first blowout poll came about a week and a half ago from Maine, when the New York Times showed Biden’s lead at a wildly high 17%. OK, fair enough. But probably an outlier—can’t take it too seriously. But then several polls showed something similar developing in Minnesota, with a very high rated poll from ABC/Washington Post showing a 16-17% lead there as well, for Biden. The Minnesota poll is particularly interesting, because even though Clinton won the state in 2016, Democrats have been moderately concerned about the state. After all, Wisconsin (right next door) had long been a reliable blue state and then flipped unexpectedly in 2016. Needless to say, eyes are intently focused on any signal that might come from Maine, Wisconsin, Iowa, Minnesota, Michigan, and Pennsylvania that could potentially disconfirm Biden’s steady 7-9% lead in the national polls. But that signal isn’t there. Not yet. And we are now just 45 days from the election, the window in which the race really starts to harden.
Note: the sudden death of Supreme Court justice Ruth Bader Ginsburg (RBG) offers too many uncertainties to incorporate just yet, into any election forecast. But one assertion that can be made is that the empty seat will greatly intensify current factors in the race, amplifying the closing arguments and voter participation of each side, into November.
The Gregor Letter base case for economic recovery remains unchanged, especially after the FOMC meeting and Fed chairman Powell’s outlook. As you are likely aware, the Fed has owned up to a longstanding mistake in its tendency to begin rate-hike cycles before actually seeing the whites of inflation’s eyes. Powell was very clear: the institution will not make that mistake again.
Applying this larger shift in posture to the next two years, the Fed’s forecast mostly aligns with the Gregor Letter forecast: the rebound in 2020 converts to a longer, slower recovery that will require zero interest rate policy through 2021, 2022, and probably through 2023. Indeed, in the forecast, the unemployment rate is not fully restored to pre-pandemic levels until 2023.
The Federal Reserve’s new assumption on the expected relationship between labor and inflation is both profound and encouraging for it demonstrates that, in a rarity for a US institution these days, new information can change minds. The policy declaration is also reminiscent of Ben Bernanke’s never again declaration, in which the Fed acknowledged that treating the Great Depression—and any future depressions—with policies driven by austerity was a grave mistake.
Texas has moved closer to the toss-up category in the coming election. The takeaway is not that the Lone Star State will assuredly slip away from the Republican column in November; but rather that a close race in Texas means a potential disaster lies in store for races downballot from the presidential contest. Again, if you tell someone in September of 2019 that September 2020 polling will show a Republican is only two points ahead of the Democrat in Texas, that is all you need to know about the state of the election everywhere. And just to remind, it’s not only because of Trump. Texas has been trending this way for a while:

It’s important to understand that when Texas finally tips and becomes a perennial battleground state, forcing Republicans to defend it every presidential cycle, this will represent a tectonic shift in the US political landscape. The Republican Party is quite aware of this threat, and it may partly explain the party’s advancing extremism in the past 5-10 years. Time is running out for the GOP, in its current iteration. Texas currently has 38 electoral votes—but will likely gain a 3 more votes, to reach 41 by the 2024 election. It would not be enough, therefore, if Republicans could rely in the future on Pennsylvania and Wisconsin, currently combining for just 30 electoral votes, to offset the future loss of Texas. Texas is everything.
Based on current polling, here is the latest projected electoral map for the 2020 election. In this map, Biden has been awarded all the states that Hillary won, and he gains back Michigan, and Pennsylvania. That configuration sums to 268 electoral votes, 2 votes shy of victory. In the below map, however, Wisconsin and Arizona have decidedly moved into the Biden column, for an additional 21 electoral votes (EV), which then sums to 289 EV.

I have posted this map before. But today, I am adding one more twist, placing Texas into toss-up category. The takeaway is becoming more clear. Biden will win the presidency. Whether his policies can be realized, however, depends on Senate control. The road to a majority in the Senate is very tough for Democrats, but recent polling—especially in Texas—for the first time suggests Senate control may change as well.
—Gregor Macdonald, editor of The Gregor Letter, and Gregor.us
Photos: 1. Bronx 1970, by Camilo José Vergara, from a collection now housed at the US Library of Congress. 2. Google Map of future and potential wind industry ports, 2020, Gregor Macdonald. 3. Vintage postcard from Minnesota.
The Gregor Letter is a companion to TerraJoule Publishing, whose current release is Oil Fall. If you've not had a chance to read the Oil Fall series, the single title just published in December and you are strongly encouraged to read it. Just hit the picture below.
