Uh oh: ESG funds are drying up and the price of oil is soaring

Industry demand for crude oil is rising. The price of a barrel of oil could top $100 before Halloween.

Since OPEC announced it would reduce output in the spring, energy prices flattened out for most of the year. That calm patch is over now as Saudi Arabia has refused to ramp up production despite the Biden administration’s entreaties.

And now, green energy is taking hits even in usually friendly corners. For example, Democrat leaders in New Jersey now say they oppose off-shore wind turbines. The Danish company building the controversial wind farms is teetering on bankruptcy.

From the 30,000-foot viewpoint, investors are clearly losing patience with environmental, social and governance (ESG) initiatives. ESG assets have plunged from their peak of $17.1 trillion in 2020 to $8.4 trillion in 2022. Black Rock and State Street are closing some of their least lucrative ESG funds.

EV mandates are running into brick walls

Electric vehicle (EV) production is also facing strong headwinds these days. And the federal regulations designed to reduce fossil fuel use appear to be coming up short.

Case in point: The National Highway Traffic Safety Administration (NHTSA) proposed tough fuel efficiency (FE) standards in August. Manufacturers would need to improve FE by 2% for passenger cars and by 4% for light-duty trucks, year over year, starting in 2027.

The FE regs would necessitate building more EVs and hybrid vehicles to comply. But NHTSA may have given industry groups all the ammo they need to kill the standards in court.

NHTSA’s impact assessment concedes that “net benefits for passenger cars remain negative across alternatives.” The Wall Street Journal notes how greenhouse gas emissions would be reduced by a mere 2% by 2040 under the standards.

Weighed against the costs and job losses for car and truck workers, 2% may be too high a price to pay. Federal appeals courts and the Supreme Court are routinely vacating rules that impose steep costs on companies and consumers.

China controls EV battery minerals

United Auto Workers (UAW) are on strike and demanding significant raises from the “big three” – General Motors, Ford and Stellantis (formerly Chrysler).

Since China controls access to critical minerals for EV batteries like lithium and cobalt, U.S. car makers won’t be able to compete.

President Biden supports auto workers’ call for a 40% pay hike. Donald Trump also sides with the UAW but argues Biden’s EV mandate puts car and truck makers in a bind.