Today’s Key Takeaways: Labor market remains tight while people still quitting jobs in record numbers. Costs for drilling, materials and uncertainty make incentives a viable policy option. CAPEX spending by oil, mining companies at 15-year low. Are democrats voting in primaries blocking Trump picks?
NEWS OF THE DAY:
U.S. job openings are near record highs
Courtney Brown, Axios, June 1, 2022
America’s demand for workers is still hot: The number of job openings were near all-time highs and managers laid off the fewest employees on record in April, the Labor Department said on Wednesday.
Why it matters: The labor market remains tight as employers’s appetite for labor outruns the pool of available workers. It’s a boon for the American workforce, but a challenge for the Federal Reserve that wants to cool off the labor market to help tame soaring inflation.
By the numbers: Job openings ticked down to 11.4 million in April, close to the record high set in March (which was revised higher by 300,000, to 11.8 million job openings).
- Some 4.4 million workers quit their jobs — roughly the same as the prior month, a sign that this closely-watched metric may be starting to level off, though at historically high levels.
- The quits rate has soared as Americans trade up for, in most cases, better-paying jobs. The phenomenon had been particularly pronounced in the leisure and hospitality sector, but there was a drop-off in April: The quits rate fell to 5.2% in April from 5.7%.
- Another industry, real estate, saw its quits rate jump from 1.9% to 3.5%.
The bottom line: There are about 1.9 open jobs for every unemployed American, down from 2 jobs in March — a sign of an on-fire labor market.
OIL:
Once-unthinkable: Subsidies for American oil drillers
Matt Phillips, Axios Markets, June 1, 2022
With oil prices soaring and American companies slow-walking production increases, some energy analysts have begun suggesting that politically noxious government incentives — like subsidies for oil companies — could be needed to bring supply back in line with demand.
Why it matters: The Russian energy shock, amid broad inflation, leaves political leaders — at least those hoping to stay in power in democracies — with a series of ugly to nightmarish policy options.
Driving the news: Energy prices continued to surge Tuesday, after the E.U. moved a step closer to banning imports of Russian crude.
- U.S. crude prices rose to nearly $120 a barrel in early trading before easing back. Average gasoline prices appear poised to surpass the recent record high of $4.62 a gallon.
The big picture: Russia is the world’s second-largest exporter of crude oil, and the largest exporter of natural gas. Sanctions levied in response to its invasion of Ukraine upended energy markets, supercharged prices, and triggered a rush to secure supplies.
- In theory: The U.S. — the world’s largest crude oil producer — has the reserves, wealth and technical know-how to boost production, offsetting some of the Russia shock’s impact on inflation.
- In practice: Unlike other energy superpowers — Saudi Arabia and Russia, for instance — the U.S. relies on a system of laws and market incentives to coax companies to pump more. U.S. leaders can’t just pick up the phone and order a couple million extra barrels of production per day.
The intrigue: Though oil prices are up more than 70% over the last year, American producers have been slow to respond. Weekly domestic production is up roughly 7% over the same span, and it remains 8% below where it ended 2019.
What’s happening: Analysts cite a few key reasons that drills are idle.
- Inflation: Costs for drilling materials and labor are all up sharply and in some case difficult to find.
- Uncertainty: It wasn’t that long ago — during the worst of the COVID-related lockdowns — that oil prices went negative. Now they’re at some of the highest levels on record. Such wild swings equal massive uncertainty for executives contemplating billions in spending to boost production in coming years. They’re largely taking a pass.
- Giant profits: Shareholders have pushed CEOs to opt for near-term profitability over risky bets on future production. Right now high prices are generating massive profits.
- Climate: With climate issues making a lower-carbon future likely, oil companies are seeing little reason to make major long-term investments.
What’s next: Some analysts are starting to game out what could be done to boost production and help bring down energy prices in the coming years.
- “To do so quickly in an environment in which oil and gas investors are actively discouraging production growth would require a shift to a New Deal-like approach to energy policy,” wrote analysts with J.P. Morgan in a recent report.
- “With an unprecedented investment in U.S. exploration and production along with a significant relaxation in regulations the U.S. Federal Government could potentially encourage U.S. producers to grow crude oil output at a rate of more than 2 million barrels per day, per year starting in 2024,” they wrote.
Our thought bubble: Pledging to spend billions of taxpayer money — J.P. Morgan ballparks the cost of such a New Deal-style response at $400 billion — to subsidize already massively profitable energy companies would be political suicide.
- It would also fly in the face of efforts to decarbonize the economy.
- Far likelier options in the U.S. include subsidies to consumers to allow them to keep buying — or penalties like windfall taxes on oil companies for keeping prices high.
The bottom line: With the green energy transition still off in the hazy future and a growing list of giant oil producers like Russia, Iran, and Venezuela whose supplies are off-limits, politicians throughout the West need credible plans to address energy costs over the next few years — and fast — if they want to stay in power.
GAS:
From the Washington Examiner, Daily on Energy:
THE BATTLE OVER RUSSIAN GAS: European leaders only just agreed to a sixth sanctions package with terms for a Russian oil embargo but attention is already on to the next and most divisive front of the energy war: reducing dependence on Russian natural gas.
The problem for the European Commission is more one of rate than principle.
The European Council, less than three weeks after Russia invaded Ukraine, approved language agreeing to phase out Russian fossil energy “as soon as possible,” but the length of the off-ramp or the punitive measures which member governments are willing to accept varies widely, and it’s pretty closely correlated with levels of reliance on the Russian stuff.
What leaders are saying: “I think that the gas has to be in the seventh package but I’m a realist as well, I don’t think it will be there,” Estonian Prime Minister Kaja Kallas said yesterday.
The ratio of Russian gas in Estonia’s energy mix most recently has been very high, between 80-90%, but Estonia’s dependence on gas for overall energy consumption is in the single digits.
Meanwhile, Austrian Chancellor Karl Nehammer said the situation with gas is “quite different” than with oil, which he said is easier to compensate for.
“Therefore the gas embargo will not be an issue in the next package of sanctions either,” he said.
Austria’s dependency rate, a measure of its net imports in gross available energy, was just over 58% in 2020, meaning that more than half of its energy needs were met by net imports.
Germany’s dependency rate neared 64%, while Italy’s was 73.5%. Leaders of the two leading European economies have been especially resistant to aggressive measures targeting Russian gas imports.
Gazprom’s shutoffs: For another angle into the Europeans’ divergence over sanctions and gas policy, consider how differently EU members have responded to Vladimir Putin’s demand that they pay for gas in rubles or risk shutoffs.
Some buyers acquiesced even before the European Commission laid out its most explicit guidance to ensure doing so wouldn’t breach sanctions.
Others, including Italy’s Eni, jumped after the commission said members could comply without breaching sanctions.
At the same time, Poland, Bulgaria, and Finland declined, and Gazprom retaliated with shutoffs. Dutch firm GasTerra was shut off yesterday after declining to agree to the rubles arrangement, and Denmark’s Orsted, too.
The U.S. angle: President Joe Biden offered Europe something of a dispensation when he introduced his ban on Russian imports on March 8.
“We’re moving forward on this ban, understanding that many of our European Allies and partners may not be in a position to join us,” he said at the time.
Meanwhile, Sen. Ted Cruz is ready to intervene.
“Nord Stream 1 allows Russia to continue raising funds for its war on Ukraine and holding Europe hostage to energy blackmail,” Cruz tweeted yesterday. “The U.S. must support Ukraine’s call to suspend it.”
MINING:
CHART: Big oil, mining on capex strike
Erik Els, Mining. Com, June 1, 2022
Capital expenditure by large oil and mining companies is down to a 15-year low despite a 40% rise in global commodity consumption over the same period, according to a new report.
Investment firm GMO in its quarterly publication takes a look at how investors can protect themselves from inflation by investing in natural resource stocks, which, according to the report, remain fundamentally undervalued.
Lucas White, portfolio manager for Resources and Climate Change Strategies at the Boston-based company, says it is “somewhat stunning” that despite the fact that the world consumes around 40% more of many major commodities like natural gas, iron ore and copper than it did 15 years ago, resource companies have slashed investment in new production.
White points out that the Bloomberg commodity index is up 500% since 2000, adding that “it’s hard to imagine any plausible explanation for such a dramatic surge in commodity prices that doesn’t include a healthy dose of scarcity”:
“Underinvestment in supply in recent years will impact production for at least the next decade. Over most of the last decade, commodity prices have been falling or low. Commodity producers, reacting to low prices and criticism that they had overinvested during the China-driven commodity supercycle, slashed capex significantly.
“Pressure from ESG/sustainability circles and divestment campaigns also sought to starve fossil fuel companies of capital.
“Then, covid hit, and resource companies cut capex again. Furthermore, the capital intensity of commodity production has also risen substantially in recent decades as we’ve moved from higher- to lower-quality assets.
“In short, current capex levels are totally insufficient if we are to meet growing global demand.”
POLITICS:
Some Democrats Voting in GOP Primaries to Block Trump Picks
Associated Press, May 31, 2022
Diane Murray struggled with her decision all the way up to Election Day.
But when the time came, the 54-year-old Georgia Democrat cast a ballot in last week’s Republican primary for Secretary of State Brad Raffensperger. While state law allowed her to participate in either party’s primary, she said it felt like a violation of her core values to vote for the Republican. But it had to be done, she decided, to prevent a Donald Trump -backed “election denier” from becoming the battleground state’s election chief.
“I feel strongly that our democracy is at risk, and that people who are holding up the big lie, as we call it, and holding onto the former president are dangerous to democracy,” said Murray, who works at the University of Georgia. “I don’t know I’ll do it again because of how I felt afterward. I just felt icky.”
Raffensperger, a conservative who refused to support the former president’s direct calls to overturn the 2020 election, probably would not have won the May 24 Republican primary without people like Murray.
An Associated Press analysis of early voting records from data firm L2 found that more than 37,000 people who voted in Georgia’s Democratic primary two years ago cast ballots in last week’s Republican primary, an unusually high number of so-called crossover voters. Even taking into account the limited sample of early votes, the data reveal that crossover voters were consequential in defeating Trump’s hand-picked candidates for secretary of state and, to a lesser extent, governor.
Gov. Brian Kemp did not ultimately need Democrats in his blowout victory against his Trump-backed opponent, but Raffensperger probably did. The Republican secretary of state cleared the 50% threshold required to avoid a runoff election by just over 27,000 votes, according to the latest AP tallies. Based on early voting data alone, 37,144 former Democrats voted in the Republican primary. The total number of crossovers including Election Day votes, set to be revealed in the coming weeks, may be even higher.
Crossover voting, also known as strategic voting, is not exclusive to Georgia this primary season as voters across the political spectrum work to stop Trump-backed extremists from winning control of state and federal governments. The phenomenon is playing out in multiple primary contests, sometimes organically and sometimes in response to a coordinated effort by Trump’s opponents.
While Trump railed against the practice over the weekend, there is nothing inherently wrong with crossover voting. Dozens of states make it legal and easy for voters to participate in either party’s primary. And there are several isolated incidents of both parties engaging in strategic voting over the years.
Still, Trump warned conservatives about crossover voting while campaigning Saturday in Wyoming, another state where the former president’s opponents are calling for Democrats to intervene — this time to help save Rep. Liz Cheney from a Trump-backed primary challenger. Cheney, like Raffensperger and Kemp, refused to embrace Trump’s lies about the 2020 election. She also voted for his second impeachment after the Jan. 6 insurrection.
“Don’t let the Democrats do what they did in another state last week,” Trump told Wyoming supporters, complaining about what happens “when you allow Democrats to vote in a Republican primary.”
While the practice has Trump’s attention, it is often ineffective.
Trump’s opponents encouraged Democrats to help defeat U.S. Rep. Marjorie Taylor Greene in her Georgia primary last week. The congresswoman, who has embraced election lies and spoken at an event organized by a white nationalist, won by more than 50 percentage points.
And in some cases, Democrats have been too focused on their own competitive primaries to cast a Republican ballot. That was probably the case in Pennsylvania, where some Democrats openly encouraged their base to vote for the Republican candidate for governor, Doug Mastriano, whose extreme views they felt made him more beatable in November.
To cast a ballot in the May 17 GOP primary, however, voters needed to register as Republicans ahead of the contest because Pennsylvania has a “closed primary” system. And on the same day, Democrats were deciding their own high-stakes Senate primary.
If the advance vote in Pennsylvania is any indication, few Democrats heeded the call to vote GOP.
Of Republican primary voters who cast early or absentee ballots this year, only 1.7 percent voted Democratic in the 2020 primary. Those 2,600 votes, even if ultimately bolstered by more Election Day participants, were unlikely to have moved the needle in an outcome in which Mastriano beat his closest rival by nearly 320,000.
On the forefront of the crossover movement, Rep. Adam Kinzinger, R-Ill., has called for an “uneasy alliance” between Democrats, independents, and Republicans to take down pro-Trump candidates in GOP primaries whenever and wherever possible. Some states have open primaries like Georgia that allow people to vote in either primary, while other states have more restrictive rules.
In an interview, Kinzinger said he was pleasantly surprised by the Democrats’ response in some races. He said he never expected the movement to be an “earth-shattering game-changer” right away.
Kinzinger’s political organization, Country First, targeted thousands of former Georgia Democrats with mailers and text messages urging them to support Raffensperger for the sake of democracy.
A Country First text message widely distributed to Georgia voters in the days before the election read: “Don’t wait for until the general election to go after the extremes. Vote in the Republican Primary for the candidate that supports truth and democracy.”
Kinzinger’s team was also active in North Carolina’s closely watched congressional race in North Carolina’s 11th District, where voters ousted the polarizing pro-Trump freshman Rep. Madison Cawthorn in the Republican primary.
As was the case in Georgia, the AP found a sizable percentage of Republican early ballots were cast by voters who participated in the Democratic primary two years ago. Specifically, more than 14% of the 38,000 early or absentee votes cast in the Cawthorn race — more than 5,400 voters — came from a Democratic 2020 primary voter.
Cawthorn lost his primary by fewer than 1,500 votes.
Back in Georgia, Raffensperger’s team pushed back on the idea that he won the GOP primary because of Democrats. The team suggested that a number of crossover voters were actually Republicans who voted Democratic in recent years to protest Trump.
“It is clear that Brad Raffensperger carried a majority of the Republican vote here in the state of Georgia, and that there are people who stopped voting in Republican primaries after 2016 who are now reengaged,” said Jordan Fuchs, a consultant to the Raffensperger campaign.
An AP examination of voting records from before the Trump era shows at least a portion of Georgia’s 37,000 party switchers in 2022 had been in the Republican camp before Trump took office. Roughly between 9,000 to 13,000 voted Republican in the 2010, 2012 and 2014 primaries, according to the L2 data.
Trump allies in the state, caught off guard by the crossover trend, were furious.
“It was a Democratic version of ‘Operation Chaos,’” said Debbie Dooley, president of the Atlanta Tea Party, referring to the secret Nixon-era push to infiltrate liberal groups. “I did not realize just how heavily the Democrats were going to cross over.”
Dooley launched a petition late last week to close Georgia’s Republican primaries to non-Republicans. More than a dozen states have closed, or partially closed, primaries that block members of opposing parties from participating.
Meanwhile, Kinzinger said he’s already crafting plans to execute a similar playbook in coming primaries in Michigan, Wyoming, and Alaska. In addition to helping Sen. Lisa Murkowski, the Alaska Republican who voted to convict Trump in his second impeachment trial, Kinzinger said he’s weighing whether to invest resources in trying to block former Gov. Sarah Palin’s congressional bid.
“Donald Trump came in and took over the Republican Party with nationalism,” Kinzinger said. “The American people have every right to determine who represents them in a congressional district, and if that’s in a primary, that’s in a primary. If they want to take back the Republican Party from the liar, they can do that, and I’m certainly going to help them.”
https://twitter.com/WSJ/status/1532044332525670404
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