Big Oil – Exxon, Chevron, Conoco, Shell, BP and others – reported its best quarter in years over the last couple of weeks. Sustaining that performance looks an increasingly tough challenge. Smaller shale companies, still repairing the balance sheet wounds of 2015/6, may also be starting to fret again.
Crude oil prices slumped to their lowest in six months overnight. Analysts are pointing at a number of reasons: China, having started the year with a surprisingly strong economic performance, can now afford to spend the rest of the year focusing on stopping wasteful credit expansion than on supporting demand; the traditional pickup in demand seen in the U.S. has been smaller than expected; but most of all, there is a sense that the production cuts agreed by OPEC and other big non-OPEC producers in November have failed to end the global glut.
Only last week, Saudi officials were trying to argue that world stocks of crude were at least starting to trend sideways, as rising global demand gradually ate into surplus stocks. However, the rebound in U.S. production (up some 10% on the year) is stronger than Saudi and other producers had expected. Commercial crude stocks in the U.S. are still clearly higher than at any point the last 10 years, according to this week's government data, and refineries pumping out way more gasoline than U.S. drivers need.
The OPEC deal and the prospect of faster growth under Donald Trump had been the two factors underpinning prices for the last six months. The markets' trust in the latter had already has already been eroded by the new administration's numerous false starts in policy. They now appear to have lost trust in the former too, even though OPEC, Russia and others look set to extend the current deal when they meet May 25th.
Enjoy the weekend, especially if it involves a long drive. Alan will be back on Monday.
• Health Care Vote Squeezes Through
The House of Representatives narrowly approved a bill to repeal key parts of the Affordable Care Act and replace it with a new Repulican health care plan. As Alan Murray has noted in this newsletter, it lacks the kind of broad support likely to get it through today’s Senate, let alone insulate it against future challenges. Congressional Democrats are enjoying the moment: if the Senate rejects the bill, they get to take the credit. If it passes, they get the chance to rally the poor and old, who come off worst in the new bill, in the 2018 mid-terms. Fortune
• Best of Frenemies Again
Russia and Turkey are burying the hatchet as fast as they can. Presidents Vladimir Putin and Recep Tayyip Erdogan, kindred spirits divided by their respective strategic positions, agreed at a meeting in Sochi to lift almost all the economic sanctions that their countries had imposed on each other in 2015 as they vied for influence in Syria. They also reaffirmed their commitment to creating ‘safe zones’ in Syria, the idea being that Russia will curb the excesses of its own air force and that of its ally President Bashar Al-Assad, while Turkey stifles rebel groups tied to Al Qaeda. Reuters
• DoJ Probes Uber over Greyball Use
The Department of Justice has launched a criminal investigation into Uber’s use of the “Greyball” software tool that helped its drivers to evade local transportation regulators, according to Reuters’ sources. The nature of any potential federal criminal violation, and the likelihood of anyone being charged, is unclear. Greyball helped Uber tag some users so that they saw a different version of its app. Uber says it was designed to protect drivers from illegitimate requests. In the case of Portland, Ore., reports suggest it was used to hide the fact that Uber was operating in the city before it had authorization. Fortune
• A Nasty Rash of Talc Settlements for J&J
Johnson & Johnson was hit with the biggest damages settlement yet in the legal saga over its talc-based products. A St. Louis court ordered the company to pay $110 million (of which $105 million was in punitive damages) to a Virginia woman who developed ovarian cancer in 2012 after decades of using its feminine-hygiene products. That cancer has since spread to her liver. J&J said it plans to appeal and that “we continue to defend the safety of Johnson’s Baby Powder.” The total cost of the talc-related suits has now topped $300 million, and many more remain outstanding. Fortune
Around the Water Cooler
• Fox's Harassment Woes Deepen
Federal authorities are widening their investigation into Fox News over allegations of sexual harassment at the channel over the years, The Wall Street Journal reports. Lurid allegations by former director of corporate and special events Laurie Luhn against ex-CEO Roger Ailes in recent days have ensured that the scandal has kept its momentum, encouraging yet more women to come forward. Fox radio reporter Jessica Golloher yesterday claimed she was fired a day after using a company hotline to report harassment. Ailes denies Luhn’s claims while Fox refuted Golloher’s as baseless. The network is also facing a class action from non-white employees alleging racial discrimination. Elsewhere, the Financial Times reported that one of the sexual harassment complainants will brief U.K. regulator Ofcom next week, in a further sign that the scandal may complicate 21st Century Fox's planned consolidation of Sky in Europe. Fortune
• Delta Staff Didn’t Get the E-Mail
Anyone thinking that the United/David Dao incident would lead airline staff to think and act with more humanity, flexibility and common sense, and less like bureaucrats from a Kafka novel, will have to wait a little longer. Delta staff kicked a California family with two infants off a flight they had paid for, threatening them with jail time for good measure. Their offense? Using a ticket they originally bought for their 18 year-old son for their 2 year-old instead (the elder sibling rebooked on an earlier flight). Again, it was the airline’s internal processes (failure to check who was boarding the plane in the first place) that led to the now familiar cycle of viral video, public outrage, apology and expensive exercise in reputational repair. Fortune
• The NYT’s Trump Bump
The New York Times has reason to thank its most celebrated antagonist. The election of Donald Trump generated a surge in demand for its news, allowing it to boast a net 308,000 gain in digital subscriptions in the first quarter. The knock-on effect was that its digital ad revenue rose by more than revenue from traditional print ads fell, for the first time ever (even though, at 18%, the annual drop in print revenue is as sharp as ever). It wasn’t just desperate old media types who saw the news as a possibly important inflexion point: the company’s shares rose over 10%. Fortune
Summaries by Geoffrey Smith; email@example.com @geoffreytsmith