Double-digit percentage drop will hit stocks in 2023: Morgan Stanley

A lot of two-way risk in the market right now, warns Morgan Stanley's Mike Wilson

Investors may be on the doorstep of a deep pullback.

Morgan Stanley’s Mike Wilson, who has an S&P 500 year-end target of 3,900 for next year, warns corporate America is getting ready to unleash downward earnings revisions that will pummel stocks.

“It’s the path. I mean nobody cares about what’s going to happen in 12 months. They need to deal with the next three to six months,” he told CNBC’s “Fast Money” on Tuesday. “That’s where we actually think there’s significant downside. So, while 3,900 sounds like a really boring six months. No… it’s going to be a wild ride.”

Wilson, who serves as the firm’s chief U.S. equity strategist and chief investment officer, believes the S&P could drop as much as 24% from Tuesday’s close in early 2023.

“You should expect an S&P between 3,000 and 3,300 some time in probably the first four months of the year,” he said. “That’s when we think the deacceleration on the revisions on the earnings side will kind of reach its crescendo.”

On Tuesday, the S&P 500 closed at 3,957.63, a 17% decline so far this year. Wilson’s year-end price target was 3,900 for this year, too.

“The bear market is not over,” he added. “We’ve got significantly lower lows if our earnings forecast is correct.”

And he believes the pain will be widespread.

“Most of the damage will happen in these bigger companies — not just tech, by the way. It could be consumer. It could be industrial,” Wilson said. “When those stocks had a tough time in October, the money went into these other areas. So, part of that rally has been driven just be repositioning from the money moving.”

Wilson’s forecast comes on the heels of prior pullback warnings on “Fast Money.” In July, he warned the June low was probably not the final move downward. On Oct. 13, the S&P 500 reached its 52-week low of 3491.58.

‘Not a time to sell everything’

Yet Wilson does not consider himself a full-fledge bear.

“This is not a time to sell everything and run for the hills because that’s probably not until the earnings come down in January [and] February,” he said.

Wilson expects bullish tailwinds to push stocks higher over the next few weeks.

“It’s our job to call these tactical rallies. We’ve got this one right,” Wilson said. “I still think this tactical rally has legs into year end.”

Disclaimer

Europe fails to thrash out details on gas price cap

EU energy ministers fail to agree on a cap for natural gas prices. New emergency meeting due in mid-December.

Kenzo Tribouillard | Afp | Getty Images

BRUSSELS — European energy ministers failed to reach a compromise over a cap on natural gas prices after “heated,” “ugly” and “tough” discussions.

The 27 EU leaders agreed in late October to give their political support to a limit on natural gas prices after months and months of discussions on how to best tackle the current energy crisis.

The European Commission, the executive arm of the EU, and the bloc’s energy ministers were then tasked to solve the more specific, and practical, differences on the measure.

However, the divergences are so acute in Brussels that energy ministers have not managed to find a compromise and instead have convened a new emergency meeting for mid-December.

“The tension was touchable,” one EU official, who followed the discussions but preferred to remain anonymous due to the sensitive nature of the talks, told CNBC via telephone. The same official said the conversations were “very tough” because of a “fake price cap.”

In an attempt to bring everyone on board, the European Commission proposed a cap at 275 euros per megawatt hour. The cap would also only kick in when prices are 58 euros ($60.46) higher than a global LNG (liquefied natural gas) reference price for 10 consecutive trading days within a two-week period.

Greek energy minister: EU gas price cap at 275 euros/MWh is 'not a price cap'

Countries eager to implement the cap, most notably Poland, Spain and Greece, say this proposal is not realistic as it is so high that it is unlikely to ever be triggered.

“The gas price cap which is in the document currently doesn’t satisfy any single country. It’s a kind of joke for us,” Anna Moskwa, Poland’s minister for climate, said in Brussels Thursday.

Other EU officials, speaking to CNBC on the condition of anonymity, mentioned how the conversations were “heated.” One of them went as far as saying that “at one point, it got really ugly.”

This reflects how poorer and more indebted EU nations feel about the energy crisis that’s impacted the region since Russia’s invasion of Ukraine back in February. With less fiscal room to support domestic consumers, these countries need EU-wide measures to contain energy costs at home.

“I hope we get there next week,” another official following the meeting told CNBC under the condition of anonymity.

Speaking at a press conference Thursday, Jozef Sikela, the Czech minister for industry and trade, also said: “We’re not opening the Champagne yet, but putting the bottle in the fridge.”

We do not have several months, Malta energy minister says on gas price cap

Energy ministers are expected to meet again on Dec. 13, just before the heads of state meet in Brussels for their final EU summit of the year. Until then, the commission’s proposal is likely to suffer alterations in the hope of bringing everyone on board.

Prices on the front-month Title Transfer Facility (TTF) European benchmark closed at around 129 euros per megawatt hour on Thursday. They had reached a historic peak back in August at almost 350 euros per megawatt hour.

Russian oil transport targeted due to Ukraine invasion

The Treasury Department issued new guidance Tuesday about policies on the maritime transport of Russian oil ahead of a planned price cap in early December.

The guidance, which complements the U.K.’s newly-released policies, outlines how U.S. service providers can continue carrying Russian seaborne oil that was loaded before Dec. 5, while complying with a strategic price cap on that oil devised by the G7 countries, the E.U. and Australia.

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Oil prices fall as outlook grows bearish. Traders fear weak China demand more than impact of Russian sanctions

That so-called Price Gap Coalition is aiming to deprive Russia of a funding source to continue its war against Ukraine.

A senior Treasury official told reporters Tuesday that the department expects other coalition countries to release similar guidance in the coming days in order to implement the price gap policy.

“We’re taking these steps to make it as easy as possible for market participants to implement the price cap policy as of Dec. 5 consistent with the coalition’s goals of allowing Russians to keep foreign oil (in) flow while lowering the Kremlin’s revenues,” the official said.

Shipping and customs brokering are among several services covered under an executive order addressing the transport of Russian oil by sea.

The guidance says service providers will not be financially penalized for the transport of crude oil of Russian origin loaded and shipped prior to 12:01 a.m. ET on Dec. 5 and unloaded at the destination port prior to 12:01 a.m. ET on Jan. 19.

The guidance also outlines a “safe harbor” from enforcement for providers who follow a recordkeeping and attestation process showing the oil was purchased at or below the price cap.

Russian oil imports are banned from the U.S. under the policy, which takes effect Dec. 5.

Treasury officials said they have already seen evidence of the redirection of the product from U.S. and European markets, which are no longer in the market for Russian oil.

“I think the last count less than 90,000 barrels of oil were still going to Europe at this point,” an official said.

Russian oil output is expected to fall to 1.4 million barrels a day by next year.

The Price Cap Coalition has not yet decided on how much to cap the price of oil, but the cap will be set after a “technical exercise” conducted by the coalition, according to the guidance.

The decision will be made “in the coming days,” a senior Treasury official said.

Exxon Mobil, Chevron and ConocoPhillips challenged over tax practices

Speaking late last month, U.S. President Joe Biden threatened to pursue higher taxes on oil company profits if industry giants do not work to cut gas prices.

Brandon Bell | Getty Images

Oxfam on Monday filed shareholder resolutions against U.S. oil giants Exxon Mobil, Chevron and ConocoPhillips, saying a lack of transparency over their global tax practices poses a material risk for long-term investors.

The international relief charity said the companies’ tax practices undermine the public’s interest in a fair tax system — especially in Global South countries “with the greatest tax revenue needs.”

“Exxon, Chevron, and ConocoPhillips’s threadbare tax disclosures leave investors, watchdog groups, and the general public in the dark about the companies’ secretive tax practices,” Daniel Mulé, policy lead on extractive industries and tax at Oxfam America, said in a statement.

ConocoPhillips confirmed it had received a shareholder proposal from Oxfam and would review it ahead of its annual general meeting in May next year. The company added that it “remains committed to following all applicable disclosure rules in the countries in which we operate.”

A spokesperson for Chevron said the company “complies with all applicable tax laws. Our approach to tax matches our efforts globally to conduct our business legally, responsibly, and with integrity.”

Exxon Mobil did not respond to a request for comment when contacted by CNBC.

It comes amid a broader push for greater tax transparency from large corporations, particularly as people around the world feel the squeeze of a cost-of-living crisis.

Oil majors have been repeatedly criticized for their global tax operations. And, in recent months, energy giants have faced growing calls for a windfall tax after raking in record-breaking profits thanks to a surge in the price of oil and gas following Russia’s invasion of Ukraine.

If oil and gas projects are alleviating poverty, why hide the numbers?

Daniel Mulé

Policy lead on extractive industries and tax at Oxfam America

Speaking late last month, U.S. President Joe Biden threatened to pursue higher taxes on oil company profits if industry giants do not work to cut gas prices, accusing energy giants of “war profiteering.”

“Oil companies’ record profits today are not because they’re doing something new or innovative,” Biden said on Oct. 31. “Their profits are a windfall of war — the windfall from the brutal conflict that’s ravaging Ukraine and hurting tens of millions of people around the globe.”

Watch the CNBC ‘Halftime Report’ investment committee weigh in on energy sector

Together, Exxon Mobil, Chevron and ConocoPhillips reported third-quarter profits in excess of $35 billion.

“Oil and gas companies frequently point to their contributions to the tax base in producer countries as a justification for their continued operations, particularly in poor countries, but secretive tax practices make it impossible to verify whether the companies actually contribute to shared prosperity,” Oxfam America’s Mulé said.

“If oil and gas projects are alleviating poverty, why hide the numbers?” he added.

‘Let the sunlight in’

Oxfam said the tax practices of Exxon Mobil, Chevron, and ConocoPhillips create a risk for investors who want to safeguard against potential reputational damage and the possibility of “shelling out millions due to lawsuits, blocked projects, and renegotiation of fiscal terms.”

To rectify this, Oxfam called on the companies to publish reports detailing their tax practices in line with the tax standard of the Global Reporting Initiative, which includes public country-by-country reporting of financial, tax and worker information.

A report from the Tax Justice Network published earlier this month showed that public country-by-country reporting could reduce tax revenue losses due to cross-border profit shifting by at least $89 billion.

Oxfam says the oil and gas sector is recognized as a particularly high-risk sector for corporate tax avoidance — and reaffirms the point that the burning of fossil fuels is the chief driver of the climate emergency.

Chevron last month reported its second-highest quarterly profit ever.

Justin Sullivan | Getty Images News | Getty Images

“US extractive companies Hess and Newmont publish GRI-aligned tax reports, as do international oil companies including Shell, BP, and Total,” said Ian Gary, director of the Financial Accountability and Corporate Transparency Coalition, an international transparency advocacy group.

“Exxon, Chevron, and ConocoPhillips are seriously lagging behind their peers,” Gary said.

The resolutions were expected to be put to shareholders at Exxon Mobil, Chevron and ConocoPhillips at their annual general meetings in May next year.

“Shareholders need a full understanding of potential risks,” said Jason Ward, principal analyst at the Centre for International Corporate Tax Accountability and Research.

“Corporations should respect shareholders and lead the way to let the sunlight in,” he added.

Goldman Sachs cuts oil forecast to $100 per barrel

Crude oil storage tanks at the Juaymah Tank Farm in Saudi Aramco’s Ras Tanura oil refinery and oil terminal in Saudi Arabia, in 2018.

Simon Dawson | Bloomberg | Getty Images

Goldman Sachs lowered its oil price forecast by $10 to $100 per barrel for the fourth quarter of 2022, citing rising Covid concerns in China and lack of clarity over the Group of Seven nations’ plan to cap Russian oil prices.

“The market is right to be anxious about forward fundamentals, due to significant Covid cases in China and a lack of clarity on the implementation of the G7’s price cap,” Goldman economists including Jeffrey Currie said in a note, adding that more lockdowns in China would be equivalent to the deep production cuts imposed by OPEC+ of 2 million barrels a day.

China recorded recorded three Covid deaths over the weekend, the country’s first deaths from the virus since May this year.

China’s capital Beijing tightened Covid measures in the last three days as the local case count climbed to several hundred per day.

The economists added that the possibility of more lockdowns in the world’s top importer of oil will dent demand from it even further.

Crude oil storage tanks at the Juaymah Tank Farm in Saudi Aramco’s Ras Tanura oil refinery and oil terminal in 2018. Crude prices fluctuated in recent months, rising to more than $120 in early June amid growing fears about a global recession, subsequently falling to around $90 per barrel after OPEC+ slashed production.

Simon Dawson | Bloomberg | Getty Images

“China’s Covid cases are at Apr-22 highs, yet, the new policy reaction function is unknown … we lower our expectations for China demand by 1.2 [million barrels per day] for the quarter (to 14.0 mb/d), anticipating further lockdowns from here,” the note stated, adding that China’s current crude demand falls short of Goldman’s expectations for October to November by 800,000 barrels a day.

Investors ‘disappointed’

A big new Exxon Mobil climate deal that got assist from Joe Biden

Exxon Mobil inks first carbon capture deal

Could it be that Big Oil’s next big thing got a big assist from Joe Biden?

Maybe, if carbon capture and storage is indeed as big a deal as ExxonMobil’s first-of-its-kind deal to extract, transport and store carbon from other companies’ factories implies.

The deal, announced last month, calls for ExxonMobil to capture carbon emitted by CF Industries‘ ammonia factory in Donaldsonville, La., and transport it to underground storage using pipelines owned by Enlink Midstream. Set to start up in 2025, the deal is meant to herald a new stage in dealing with carbon produced by manufacturers, and is the latest step in ExxonMobil’s often-tense dialogue with investors who want oil companies to slash emissions.

The Inflation Reduction Act, passed in August, may determine whether deals like Exxon’s become a trend. The law expands tax credits for capturing carbon from industrial uses in a bid to offset the high up-front costs of plans to capture carbon from places like CF’s plant, as other tax credits in the law lower costs of renewable power and electric cars. 

The Inflation Reduction Act and Big Oil

The law may help oil companies like ExxonMobil build profitable businesses to replace some of the revenue and profit they’ll lose as EVs proliferate. Though the company isn’t sharing financial projections, it has committed to investing $15 billion in CCS by 2027 and ExxonMobil Low-Carbon Solutions president Dan Ammann says it may invest more.

“We see a big business opportunity here,” Ammann told CNBC’s David Faber. “We’re seeing interest from companies across a whole range of industries, a whole range of sectors, a whole range of geographies.”

The deal calls for ExxonMobil to capture and remove 2 million metric tons of carbon dioxide yearly from CF’s factory, equivalent to replacing 700,000 gasoline-powered vehicles with electric versions. 

Each company involved is pursuing its own version of the low-carbon industrial economy. CF wants to produce more carbon-free blue ammonia, a process that often involves extracting ammonia’s components from carbon-laden fossil fuels. Enlink hopes to become a kind of railroad for captured CO2 emissions, calling itself the would-be “CO2 transportation provider of choice” for an industrial corridor laden with refineries and chemical plants. 

An industrial facility on the Houston Ship Channel where Exxon Mobil is proposing a carbon capture and sequestration network. Between this industry-wide plan and its first deal for another company’s CCS needs, ExxonMobil is hoping that its low-carbon business quickly scales to a legitimate source of revenue and profit.

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Exxon itself wants to develop carbon capture as a new business, Amman said, pointing to a “very big backlog of similar projects,” part of the company’s pledge to remove as much carbon from the atmosphere as Exxon itself emits by 2050.  

“We want oil companies to be active participants in carbon reduction,” said Julio Friedmann, a deputy assistant energy secretary under President Obama and chief scientist at Carbon Direct in New York. “It’s my expectation that this can become a flagship project.”

The key to the sudden flurry of activity is the Inflation Reduction Act.

“It’s a really good example of the intersection of good policy coming together with business and the innovation that can happen on the business side to tackle the big problem of emissions and the big problem of climate change,” Ammann said. “The interest we are seeing, the backlog, are all confirming this is starting to move and starting to move quickly.”

The law increased an existing tax credit for carbon capture to $85 a ton from $45, Goldman said, which will save the Exxon/CF/Enlink project as much as $80 million a year. Credits for captured carbon used underground to enhance production of more fossil fuels are lower, at $60 per ton.

“Carbon capture is a big boys’ game,” said Peter McNally, global sector lead for industrial, materials and energy research at consulting firm Third Bridge. “These are billion-dollar projects. It’s big companies capturing large amounts of carbon. And big oil and gas companies are where the expertise is.” 

Goldman Sachs, and environmentalists, are skeptical

A Goldman Sachs team led by analyst Brian Singer called the law “transformative” for climate reduction technologies including battery storage and clean hydrogen. But its analysis is less bullish when it comes to the impact on carbon capture projects like Exxon’s, with Singer expecting more modest gains as the law accelerates development in longer-term projects. To speed up investment more, companies must build CCS systems at greater scale and invent more efficient carbon-extraction chemistry, the Goldman team said.

Industrial uses are the third-largest source of greenhouse gas emissions in the U.S., according to the EPA. That’s narrowly behind both electricity production and transportation. Emissions reduction in industrial uses is considered more expensive and difficult than in either power generation or car and truck transport. Industry is the focus for CCS because utilities and vehicle makers are looking first to other technologies to cut emissions.

Almost 20 percent of U.S. electricity last year came from renewable sources that replace coal and natural gas and another 19 percent came from carbon-free nuclear power, according to government data. Renewables’ share is rising rapidly in 2022, according to interim Energy Department reports, and the IRA also expands tax credits for wind and solar power. Most airlines plan to reduce their carbon footprint by switching to biofuels over the next decade.

More oil and chemical companies seem likely to get on the carbon capture bandwagon first. In May, British oil giant BP and petrochemical maker Linde announced a plan to capture 15 million tons of carbon annually at Linde’s plants in Greater Houston. Linde wants to expand its sales of low-carbon hydrogen, which is usually made by mixing natural gas with steam and a chemical catalyst. In March, Oxy announced a deal with a unit of timber producer Weyerhauser. Oxy won the rights to store carbon underneath 30,000 acres of Weyerhauser’s forest land, even as it continues to grow trees on the surface, with both companies prepared to expand to other sites over time.

Still, environmentalists remain skeptical of CCS.

Tax credits may cut the cost of CCS to companies, but taxpayers still foot the bill for what remains a “boondoggle,” said Carroll Muffett, CEO of the Center for International Environmental Law in Washington. The biggest part of industrial emissions comes from the electricity that factories use, and factory owners should reduce that part of their carbon footprint with renewable power as a top priority, he said.

“It makes no economic sense at the highest levels, and the IRA doesn’t change that,” Muffett said. “It just changes who takes the risk.” 

Friedman countered by saying economies of scale and technical innovations will trim costs, and that CCS can reduce carbon emissions by as much as 10 percent over time.

“It’s a rather robust number,” Friedmann said. “And it’s about things you can’t easily address any other way.” 

Active managers see boost from the energy trade

ETFs like hedge funds: Pt 2 Exclusive world of "CTAs"

This may be the year for active managers investing heavily in the energy space — and commodity trading advisors, known as CTAs, appear to be among the winners.

Dynamic Beta Investments’ Andrew Beer is in the space. He co-runs the iMGP DBi Managed Futures Strategy ETF, which is up 24% so far this year.

“CTA hedge funds try to capitalize on big shifts in the market. And right now we’re in the middle of a huge regime shift,” the firm’s managing member told CNBC’s “ETF Edge” last week. “We went from this low inflation world to one with high inflation.”

And that shift is working to attract Beer and others in his field to energy.

“As inflation comes back, [CTAs] are finding different ways to make money on it,” he said. “What we do in our ETF is basically try to understand what trades they’re doing and … copy it in a low-cost, efficient way in an ETF to bring access to a broader base.”

The Energy Select Sector SPDR Fund, which tracks the S&P 500 energy sector, is up almost 4% this month and 68% this year. And just last Friday, Chevron and Marathon Petroleum shares hit all-time highs.

But CTAs invest in a lot more than just commodities. 

“The modern term is managed futures. And it’s because they invest in futures contracts,” said Beer. “In regulatory land, futures contracts are often treated as commodities, but we call them managed futures.”

Beer’s strategy uses long and short futures contracts in an attempt to mimic returns.

“If they’re betting on crude oil going up, no one goes out and buys barrels of crude oil and throws it into their garage. You buy a futures contract on it,” Beer noted. “When we see that the hedge funds are doing that, then we simply do the same thing. We ourselves buy a futures contract.”

West Texas Intermediate crude, the U.S. benchmark, is up 18% so far this year.

Sharp jump in fossil fuel delegates at UN climate talks

The sharp jump in attendees associated with some of the world’s biggest polluting oil and gas giants at COP27 is thought to reflect the rise in the influence of the fossil fuel industry to shape the debate.

Ahmad Gharabli | Afp | Getty Images

SHARM EL-SHEIKH, Egypt — More than 600 fossil fuel industry delegates have been registered to attend the COP27 climate talks in Egypt, according to analysis from campaign groups, reflecting an increase of over 25% from last year.

The sharp jump in attendees associated with some of the world’s biggest polluting oil and gas giants at the U.N.’s flagship climate conference is thought to reflect the rise in the influence of the fossil fuel industry to shape the debate.

Campaigners described the findings as a “twisted joke” and said it appeared to set the stage for COP27 to be a “festival of fossil fuels and their polluting friends, buoyed by recent bumper profits.”

A spokesperson for Egypt’s COP presidency was not immediately available to comment on the findings of the report.

Around 35,000 delegates from nearly 200 countries are expected to convene in the Red Sea resort town of Sharm el-Sheikh to discuss collective action to tackle the climate emergency.

An analysis of data from the U.N.’s provisional list of named attendees by campaign groups Corporate Accountability, Corporate Europe Observatory and Global Witness found that 636 fossil fuel lobbyists had been registered to take part in the talks.

That reflects an increase of over 100 when compared to last year’s talks in Glasgow, Scotland.

It means that more fossil fuel lobbyists are represented at the two-week-long summit than any single country besides the United Arab Emirates, which has 1,070 delegates registered compared to 176 last year.

Why poorer countries want rich countries to foot their climate change bill

The data also showed that more fossil fuel industry delegates were set to attend COP27 than any national delegation from the African continent, despite the talks being described as the “Africa COP.”

Researchers pored through the U.N.’s provisional list of named attendees to count the number of individuals registered either acting on behalf of the fossil fuel industry or those directly affiliated with oil and gas companies, such as BP, Shell and Chevron.

‘Extraordinary presence’ of the fossil fuel industry

“With time running out to avert climate disaster, major talks like COP27 absolutely must advance concrete action to stop the toxic practices of the fossil fuel industry that is causing more damage to the climate than any other industry,” a spokesperson for the groups said.

“The extraordinary presence of this industry’s lobbyists at these talks is therefore a twisted joke at the expense of both people and planet,” they added.

To be sure, the burning of fossil fuels such as coal, oil and gas, is the chief driver of the climate crisis.

A flurry of major U.N. reports published in recent weeks delivered a grim assessment of how close the planet is to irreversible climate breakdown, warning there is “no credible pathway” in place to cap global heating at the critical temperature threshold of 1.5 degrees Celsius.

“There’s been a lot of lip service paid to this being the so-called African COP, but how are you going to address the dire climate impacts on the continent, when the fossil fuel delegation is larger than that of any African country?” said Philip Jakpor of Corporate Accountability and Public Participation Africa.

“More than 450 organisations around the world are calling on world governments to do what they should have done from day one,” Jakpor said in a statement. “It’s time to kick Big Polluters out! No more writing the rules or bankrolling the climate talks.”

White House advisor says Biden team not against oil company profits

Presidential advisor Amos Hochstein: 'We're not against' oil majors making profit

ABU DHABI, United Arab Emirates — President Joe Biden is making no secret of his frustration with high gas prices and the oil companies making record profits as a result. With the support of Democratic allies in Congress, he is threatening to levy windfall taxes on energy firms, a prospect that’s prompted backlash from the industry.

The president on Monday tweeted: “The oil industry has a choice. Either invest in America by lowering prices for consumers at the pump and increasing production and refining capacity. Or pay a higher tax on your excessive profits and face other restrictions.”

The language sets up what looks like a standoff between the U.S. oil industry and the Biden administration at a time of high energy prices, soaring inflation and worries of a global crude supply shortage after years of under-investment in the industry and several months of sanctions on Russian commodities for its war in Ukraine.

But reports of animosity between the White House and America’s energy giants are overhyped, says Amos Hochstein, Biden’s special presidential coordinator, who liaises closely with energy industry leaders domestically and around the world.

The Biden administration is not anti-profit or anti-free market, he stressed; rather, it wants to see oil companies reinvest their profits in improving crude production and the country’s energy security.

“I talk to the CEOs, other senior members of the administration talk to the CEOs on a regular basis,” Hochstein told CNBC’s Hadley Gamble Monday, when asked about the administration’s relationship with industry executives.

“People know that. I don’t think that’s the issue. The issue is this: we want them to increase their capex, increase investment,” he said. “The price environment for the last year, over a year now, lends itself to investment. So take those profits that you’re making. We’re not against profits. What we do want, and the president said this last week — take those profits and invest them.”

Watch CNBC's full interview with U.S. Presidential Coordinator Amos Hochstein

Congressional Democrats argue that oil executives are prioritizing shareholder returns over reinvesting profits toward boosting production that could lower consumer prices. Hochstein held the position that shareholder returns are not an issue in themselves, but that increasing America’s energy supplies should be the priority.

“You want to pay some back to shareholders? Some is fine,” he continued. “But not excessively. You want to take these profits, that’s fine too. But not excessively. We’re in a war and you can do more to increase production.”

Record-breaking oil company profits

Exxon Mobil CEO Darren Woods: OPEC is leveraging its pricing power

But Hochstein says he doesn’t see sufficient investment on a broad scale.

“All I see is record profits that are not translating to sufficiently increased investment and where investments are not keeping up with average ratios of investment-to-price increase,” he said.

Many in the oil industry argue that a windfall tax is counterproductive and would harm production and investment. Still, the threat of such taxes from the Democratic leadership is likely more of a pressure tactic than a plausible policy proposal in the near-term since Congress is not in session. And it could even become impossible to carry out if Republicans, who largely oppose such a move, win one or both houses in the November midterm elections.

A changing White House tone on fossil fuels

Biden came into office campaigning hard for an end to fossil fuel use and a transition to renewables as part of his climate-focused agenda, laying out a bevy of regulations on oil and gas exploration and production. Supporters of Biden’s green energy goals say this aggressive push was needed to reverse what they describe as damage done by former President Donald Trump, who rolled back years of work on environmental protections and pulled the U.S. out of the Paris Climate Accords.

But it was that policy push, those in the fossil fuel industry argue, that helped throttle investment in oil and gas production and subsequently led to the energy supply shortages and higher prices we see today. Now, faced with a tightening global oil and gas market, climbing demand, and a war in Europe, the administration is taking a different tone.

“Look, it’s no secret that the Biden administration and oil industry do not see eye-to-eye on the long term role that oil will play in the economy,” Hochstein said. “However, we have to do two things. We need more investment in oil production and refining, now.”

Energy security is not a 'short-term thing,' IEF secretary general says

U.S. and UAE sign strategic partnership deal to spur $100 billion in clean energy investment

Solar panels are set up in the solar farm at the University of California, Merced, in Merced, California, August 17, 2022.

Nathan Frandino | Reuters

ABU DHABI, United Arab Emirates — The United States and United Arab Emirates on Tuesday announced the signing of a strategic partnership that will see $100 billion mobilized to develop 100 gigawatts of clean energy by 2035.

The deal, signed during the Adipec energy conference in Abu Dhabi, is entitled the “Partnership for Accelerating Clean Energy” (PACE) and encompasses four main pillars: the development of clean energy innovation and supply chains, managing carbon and methane emissions, nuclear energy, and industrial and transport decarbonization.

“The cooperation comes within the framework of the close friendship between the UAE and the United States of America” and “affirms the commitment of both sides to work to enhance energy security and advance progress in climate action,” according to a UAE government statement published by state news agency WAM.

The White House described the new partnership as a major achievement for President Joe Biden’s climate agenda.

“Today President Biden again demonstrated his deep commitment to ensuring a global clean energy future and long-term energy security as the United States and United Arab Emirates announced a robust partnership to ensure the swift and smooth transition toward clean energy and away from unabated fossil fuels,” the White House statement said.

The two countries will set up an “expert group” to “identify priority projects, remove potential hurdles, and measure PACE’s progress in achieving its goal of catalyzing $100 billion in financing, investment, and other support and deploying globally 100 gigawatts of clean energy,” it said.

The UAE is a major oil exporter but has invested heavily in developing non-fossil fuel energy sources, including building the world’s largest single-site solar power plant and the first nuclear power plant in the Arab world. It plans to host the COP 28 climate summit in 2023.

BP CEO: A more diversified energy system is a more affordable system

The ambitious plan from the two countries comes at a time of rising demand for, and shrinking supply of, oil globally as years of under-investment in fossil fuels and months of Russia’s war in Europe have brought on tightened supply and high prices for consumers.

At the same conference where PACE was signed into action, oil and gas company CEOs warned of the dangers of limiting fossil fuel production for the sake of climate change prevention.

Whereas recent years would have seen robust demands for more renewable energy investment and expediting the move away from hydrocarbons — a continued pillar of the Biden administration’s goals — more leaders are now stressing the need for revived oil and gas production ahead of what could be a very difficult winter for Europe, and other parts of the world facing shortages of those commodities. Oil and gas prices have seen multi-year, and in some cases, record highs over the last year amid supply issues and geopolitical conflict.

‘Maximum energy, minimum emissions’

Sultan Al Jaber, the CEO of Abu Dhabi National Oil Company (ADNOC), said in a speech at the Adipec conference Monday that “energy is everybody’s top priority” today as “a perfect storm” hits the global energy landscape. He said that years of under-investment in oil and gas production has worsened the situation.

“If we zero out hydrocarbon investment, due to natural decline, we would lose 5 million barrels per day of oil each year from current supplies. This would make the shocks we have experienced this year feel like a minor tremor,” Al Jaber said, stressing the importance of energy security.

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He emphasized the need for both traditional energy investment and carbon emissions reduction, arguing that they are not mutually exclusive and saying that “the world needs maximum energy, minimum emissions.”

“It is not oil and gas, or solar, not wind or nuclear, or hydrogen. It is oil and gas and solar, and wind and nuclear, and hydrogen,” Al Jaber said. “It is all of the above, plus the clean energies yet to be discovered, commercialized and deployed.”

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Still, many policymakers and institutions forcefully decry the use of fossil fuels, warning the far bigger crisis is that of climate change. In June, United Nations Secretary General Antonio Guterres called for abandoning fossil fuel finance, and called any new funding for exploration “delusional.” 

Global economic forces don’t appear favorable to this aim, however. According to a recent report from UNCTAD, the United Nations Conference on Trade and Development, cross-border investment in climate change mitigation and adaptation is expected to fall this year amid a broader decline in investment projects.

And the Organization of Petroleum Exporting Countries, or OPEC, on Monday raised its medium and long-term forecasts for crude demand, and said that $12.1 trillion of investment was required to meet it.

OPEC’s outlook still differs from that of some other bodies, like the International Energy Agency, which sees oil demand peaking sometime in the middle of the next decade, as nations continue the push to transition away from fossil fuels.