Today's Topics

3 midweek charts for you:

Global carbon emissions look set to fall in 2020, but by how much, and does it put us on track for net-zero?
Shake Shack wanted to get in on the bailout action, but they've since changed their order.
The oil price is doing things no-one has seen before; going below zero.

One of the very few silver linings from the coronavirus pandemic has been a reduction in global carbon emissions. The latest estimates from Carbon Brief suggest that global emissions could fall by 2000 million tonnes this year, equivalent to about a 5% fall in total emissions relative to last year.

That sounds pretty good, but it needs some context. The recent Intergovernmental Panel on Climate Change (IPCC) report is one of many that has argued for a reduction in net emissions to zero by somewhere between 2040 and 2055, in order to limit the effects of global warming.

So, we plugged the estimated reduction into the chart above, plotting it against some highly simplified pathways of what's needed for us to get to net-zero emissions.

A step in the right direction

The estimated reduction for 2020 is not a bad start. In fact, in order to reach the target of net-zero by 2055, we need to cut global CO2 emissions by a little over 1000Mt per year, every year. So a ~2000Mt reduction off the bat is a solid step in the right direction, although the economic and social costs are clearly substantial collateral damage.

The other issue is that, much like a crash diet, the weight, and the emissions, always come piling back. As economic activity picks back up, it seems likely that emissions will bounce back in 2021, or 2022, without some drastic policy changes.

COVID-19 could finally catalyse the change needed to hit net-zero by 2055, but it's only likely to happen with cross-country efforts. As with most global issues, China and the US are the two big pieces of the puzzle, accounting for almost half of global emissions together.

Earlier this week Shake Shack, the fast-food restaurant famous for burgers, hotdogs and milkshakes, gave back a $10m loan from the US government that was intended for smaller businesses. The $10m was distributed to Shake Shack via the Paycheck Protection Program, which has already run out of funds to distribute.

But does a huge company like Shake Shack really need the money in the first place?

Despite being a pretty huge company – with revenues of $595m in 2019 – Shake Shack still makes a pretty slender profit margin on those sales, eking out just a 6.5% operating profit margin on average over the last 7 years.

Anyone who has run a restaurant or cafe will know just how competitive the industry is. If sales dry up and you're left paying salaries, rent and other overheads, that slender margin can easily go to zero, or negative. And, no surprise, that's exactly what happened to Shake Shack. According to the FT Shake Shack is burning through $1.5m a week at the moment, equivalent to about ~$75m a year, which is more than twice as much as its most profitable ever year (2017).

For Shake Shack the decision to give back the money was likely for PR reasons, they probably don't want to be seen to be taking aid from the government that was meant for smaller businesses.

Fair play to Shake Shack for giving it back. Of course, PR concerns are lower down the list of priorities when your business might fail, and they probably only rose to the top after Shake Shack secured $150m worth of new funding by selling new shares to investors. Had they not secured that private funding, would they have given it back? Not so sure.

Technically, for a brief period of time on Monday, you could have bought a contract to take delivery of a barrel of WTI Crude Oil for minus $37.

Buying one of those contracts would theoretically mean you would be contractually obliged to go to a small town called Cushing in Oklahoma, which is the main settlement location for WTI Crude, wherein someone would give you a barrel of oil, $37 and ask that you go on your way, taking your oil with you.

How can oil prices be negative?

It's all about storage. Because oil demand has fallen off a cliff (giving a nice little boost to the environment, as discussed above), there is a lot of excess oil being supplied. Indeed, the IEA estimates oil demand will fall by 9.3 million barrels per day in 2020, which is about a 9% fall on 2019. That collapse in demand has then been exacerbated by a supply war between Saudi Arabia and Russia.

All of that excess oil has to go somewhere, and all the usual spots are full. When you're talking about quantities in the millions of barrels per day, storage isn't very easy, and quickly building new storage is really expensive – particularly when everyone else is trying to do the same thing. Hence, it could somehow end up being cheaper to just pay someone to take it off your hands.

In reality negative oil won't last long, and it's partly a quirk of the US futures market, which was trading for physical delivery in May, which will now switch to June. It's probably highly unlikely that anyone not in the oil industry turned up to collect "free oil", but wouldn't it be a great story if someone did.

Data Snacks

1) The 'One World: Together At Home' concert raised $128m for COVID-19 relief.

2) The Michael Jordan documentary "The Last Dance" has become the most-viewed ESPN documentary ever, averaging 6.1 million viewers over its first 2 episodes. Trailer here if you're interested.

3) Facebook has invested $5.7bn in India's Reliance Jio Platforms. The deal gives Facebook a ~10% stake in the telecom operator, which has over 350 million subscribers.

4) Romania has issued 200,000 fines in less than a month to people failing to adhere to lockdown restrictions. One of Bucharest's mayors was fined 10,000 lei (about $2250 or £1800) for cycling in a public park.

5) Today just happens to be Earth Day, and it's the 50th one ever organised. Missing the natural world? CNN put together some stunning photos to mark the day.

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Thanks for stopping by – see you Friday – bring everyone you know.
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