FT : The $100tn path to net zero

The $100tn path to net zero
In the absence of a global carbon tax, the green transition could prove politically expensive

In the utopian vision of net zero pledges, there will be no new petrol cars on EU roads from 2035, American industry will run on green hydrogen, wind farms will whirr across the North Sea, and solar power will bring all Africans affordable energy.

The IMF claims all this can be achieved without straining government finances.

Estimates by its staff, presented at a recent conference, suggest that co-operation on decarbonisation could ensure countries meet their net zero targets at an overall economic cost of just 0.5 per cent of what global GDP is expected to be by 2030. For most countries, the fiscal impact would be positive or neutral by the end of the current decade, although some would incur later losses.

Take the fund at its word and reaching net zero looks “entirely doable and surprisingly cheap”, said Luis Garicano, a London School of Economics professor and former member of the European parliament.

But there’s a snag. The IMF estimates assume a global accord to price or tax carbon and redistribute the proceeds to the developing world, while also scrapping current subsidies for fossil fuels.

The reality of countries’ attempts to decarbonise their economies is far removed from such hypotheticals.

Less than a quarter of global emissions are currently covered by a carbon tax or price, while governments’ commitments to green targets are under increasing strain. “[The IMF’s scenario] is desirable but it’s just not happening,” said Jean Pisani-Ferry, professor at Sciences Po.

The consequence, said Helen Miller, deputy director of the UK’s Institute for Fiscal Studies, is that when it comes to hitting net zero, lawmakers could opt for solutions that are politically expedient but economically less efficient.

“Ultimately we’ll achieve net zero in a more costly way,” she said.


On any reasonable estimate, the scale of funding required to hit net zero is vast. In 2021, the International Energy Agency calculated that annual investment would need to rise from an annual $2tn to almost $5tn, or 2.5 per cent of global GDP, by 2030. It would still total $4.5tn in 2050.

Lord Nicholas Stern, chair of the London School of Economics’ Grantham institute and a former World Bank chief economist, estimates an extra $3tn a year is needed, totalling $100tn over 30 or 40 years, to boost renewable energy, electrify transport systems, decarbonise the heating and cooling of buildings, and foster green hydrogen. 

Economists broadly agree that most of this investment has to come from the private sector. “Some estimates on climate change transition are in the stratosphere,” said Mahmood Pradhan, head of global macroeconomics at Amundi Institute. “The demands of net zero are just too high [to come from governments alone] — they have to come from the private sector.”

But governments are already spending hundreds of billions on incentives and subsidies for businesses and households, on research and innovation, and on public infrastructure ranging from electricity grids and flood defences to bike lanes.

Meanwhile, revenues from carbon taxes — if these succeed in lowering emissions — may not offset the loss of income governments receive through fuel duty. 

“Even if they’re successful — while that may be a good thing in itself — they’re not going to raise very much,” said Judith Freedman, professor of taxation law at Oxford university.
New modelling by the OECD, based on a mix of policies closer to current reality, points to a higher fiscal cost than the IMF’s projections. At global level, it finds net public revenues declining by 0.4 per cent of GDP in 2030 and 1.8 per cent in 2050.

The fiscal costs would vary between regions, coming in lower where governments rely more on regulation to cut emissions, and rising to 3.4 per cent of GDP in the Americas, because of generous US subsidies contained in legislation such as the Inflation Reduction Act.

“People have to take into account the scale of the transformation needed,” said Shardul Agrawala, head of the OECD’s environment and economy integration division. “We shouldn’t present things as a free lunch.”

One big uncertainty is whether green investments will displace other investment that might, in the short term, have done more to boost productivity — or whether they will be supplementary, injecting energy into mature economies suffering from sluggish growth.

Stern argued that while there are significant public spending challenges, green investments will pay off amply over time — especially if welfare gains, such as better air quality, to future generations are counted.

“We still live in a world where planned saving is in excess of planned investment,” he said. “This is the growth story of the 21st century.”

Nevertheless, the few countries that have done their own calculations on the likely cost of the green transition expect a bigger impact than the IMF.

The UK’s Office for Budget Responsibility said in 2021 that hitting net zero would add 21 per cent of GDP to debt by 2050, with the loss of fuel duty representing the biggest single cost. 

Pisani-Ferry, who led a recent report for the French government, estimated that it could add as much as 25 percentage points of GDP to the public debt by 2040. 

This higher figure is partly because taxpayers are likely to shoulder more of the cost in a country where the state traditionally plays a bigger role.

Pisani-Ferry also thinks governments have underestimated how far they will need to help households. For French people on middle incomes, installing a greener heating system would cost a year of earnings, he noted, adding: “It’s too much to assume it will happen without significant public support.”

“The mantra is no additional borrowing, no further taxation,” Pisani-Ferry said. “I don’t see yet how that is going to add up.”

Without new sources of revenue, governments would need to consider whether higher public borrowing can fund the green transition — a big ask given soaring borrowing costs and the need for more spending in other areas, ranging from defence to pensions and healthcare, as populations age. 

However, the bill for reaching net zero must be settled no matter how large. “The real metric is, what is the cost of inaction?” said Agrawala.

FT : The era of cheap offshore wind is over in the UK

The era of cheap offshore wind is over in the UK
Industry says projects are less viable because costs have rocketed but the price they receive for electricity has not

It has been a bruising summer for Britain’s net zero emissions target.

Prime Minister Rishi Sunak committed to more oil and gas licensing. Long- hoped-for changes allowing more onshore wind development fell short of expectations and Vattenfall, one of the world’s biggest offshore wind developers, put the brakes on a huge project in UK waters.

The latter received less political attention. But it is just as troubling, not least because the government intends offshore wind to replace gas-fired power stations as the backbone of Britain’s electricity system. It has set a target of 50 gigawatts of offshore wind capacity by 2030. With seven years to go, we are more than 36GW short. The Vattenfall project would have contributed 1.4GW. Not many more projects can fall by the wayside.

The news isn’t expected to get much better. Offshore wind executives have low expectations for a key renewable energy contract auction, the results of which are due on Friday. Trade bodies representing the biggest developers in the business are calling for reform of the way offshore wind is funded in Britain. Expect those calls to intensify.

Costs have rocketed by 40 per cent this year. Little that goes into making an offshore wind farm, from the turbines to the cabling, has been untouched by inflation-busting price rises.

The industry is partly to blame. In recent years it has raced to deliver projects at lower and lower prices. Developers have squeezed suppliers. Now the supply chain is not only passing on big increases in raw material and energy prices, it is also trying to recover margins. 

Many of the warning signs were apparent long before Russia invaded Ukraine last year. Danish turbine maker Vestas raised a red flag about spiralling raw material and transport costs in 2021. Executives across the industry should have paid more attention.

Offshore wind companies are justified in one complaint: the prices that the UK offers developers for the energy capacity they deliver haven’t kept up with rising costs.

Each year offshore wind developers compete for government contracts that guarantee them a fixed price per unit of electricity produced once their turbines are spinning. The government sets a maximum price for each auction. Companies have to offer that price or less. They sell their output on the open market and must pay the difference to the government if the market price is higher and vice versa if it is lower.

In this year’s bidding round, the maximum price was £44 per megawatt hour in 2012 prices, closer to £60/MWh today. A quirk of renewable energy contracts is bid prices are expressed in 2012 money.

UK electricity prices are currently around £87/MWh. A similar auction in Ireland this year cleared an average of €86.05/MWh (£73.50/MWh). Companies are already lobbying about next year’s UK auction. 

Some developers are still building projects, despite the difficult conditions. One example is Iberdrola’s 1.4GW East Anglia Three project off the Suffolk coast. But organisations such as RenewableUK, a trade body, warn Britain’s 50GW target could be in jeopardy.

One possible answer is for the government to align prices more closely to the cost of materials such as steel. Ireland is already using similar indexation. Longer-term tax incentives such as capital allowances are another. 

Flint Global consultant Josh Buckland said the government could help developers by explaining well in advance how maximum bid prices will be set. Offshore wind companies complain they currently only receive information a few months before auctions open, while projects take years to develop.

In return for higher prices, ministers could demand a higher proportion of components are sourced from UK suppliers. Critics have long complained that most UK taxpayer subsidies for renewables benefit companies abroad. It would be one way for the government to ensure UK workers benefit from UK subsidies. But it is likely to mean component costs will go up.

For their part, developers could look for additional sources of funding for wind farms, such as contracts to sell the electricity to large corporations. Or they could take a bet that some of their output can be sold at higher prices on the open market, said Dan Monzani of Aurora Energy Research, a former government director of energy security.

Offshore wind companies bear some of the blame for the mess in which the industry now finds itself. But if the government wants to meet its 50GW target, it will have to accept offshore wind energy prices cannot continue to fall — the first developers to receive government contracts in 2015 were guaranteed prices of above £114/MWh. Ministers will have to meet the industry halfway if they want more turbines spinning in the North Sea.

FT : China’s exports tumble as trade woes persist

China’s exports tumble as trade woes persist
Struggling manufacturing sector fails to lift growth in world’s second-biggest economy

China’s exports fell 8.8 per cent in August compared with a year earlier, marking their fourth consecutive month of decline in another hit for the ailing manufacturing sector in the world’s second-largest economy.

The August contraction was less severe than a forecast fall of 9.2 per cent, according to analysts polled by Reuters, and better than a decline in July, when China’s exports shed 14.5 per cent, the worst since the start of the pandemic.

Imports dropped 7.3 per cent in August, compared with a Reuters forecast of a 9 per cent decline and a 12.4 per cent fall in July.

The sustained weakness in trade comes as Chinese policymakers are grappling with turmoil in the property sector, one of the country’s other main engines of economic growth.

Chinese trade buoyed economic activity during the country’s pandemic lockdowns, but exporters have struggled this year with high global inflation as western consumers cut back on electronics purchases.

Policymakers in Beijing have refrained from enacting sweeping stimulus measures to revive growth in the economy, which lagged in the second quarter.

Trade turbulence and property sector woes, combined with sluggish consumer sentiment, led prices to fall in July. Factory activity slowed for a fifth consecutive month in August.

China’s official economic growth target for this year is 5 per cent, the lowest such mark in decades.

FT : China’s ‘piecemeal’ stimulus plan stirs hope in property market

China’s ‘piecemeal’ stimulus plan stirs hope in property market
Beijing seeks to rekindle growth in economically crucial sector but investors remain cautious

For Beijing-based real estate agent Xue, deals have bounced back over the past week in the wake of government measures aimed at propping up the country’s stumbling property sector and the broader economy.

“The inventory of available properties is decreasing daily,” said Xue, who asked to be identified by one name, adding there were signs that after a long period of falling prices, some homeowners were hoping to raise them again.

Xue’s upbeat prognosis was not universally shared — other agents reported little change in the market — but high-frequency property market data over the past week showed some increase in buyer interest in the country’s biggest cities, economists said.

The precarious state of China’s property sector, which normally accounts for more than a quarter of activity in the world’s second-largest economy, prompted Beijing last week to unleash its most comprehensive effort in years to rekindle demand in the debt-stricken industry.

The measures, which included relaxing requirements for mortgage downpayments and interest rates, came alongside wider steps designed to boost confidence that targeted the country’s stock market, consumer sentiment and weakening currency, the renminbi.

Taken together, the announcements represented policymakers’ firmest acknowledgment of the scale of the challenge facing China’s faltering economy. But economists said investors would wait for more evidence of a tangible impact on domestic demand before venturing back into the market.

“These are the strongest measures to date when it comes to the property market, so it really shows that Beijing is putting some muscle behind its words,” said Frederic Neumann, HSBC chief Asia economist. “It remains to be seen really how much traction they’re getting.” 


China’s economy began showing signs that a post-pandemic recovery was losing steam in the second quarter as slumping property sales compounded a fall in exports and industrial production.

Sentiment continued to weaken after the ruling Communist party’s July politburo meeting failed to muster even a modest stimulus package to boost a recovery they admitted was making only “tortuous” progress, let alone a hoped-for “bazooka”.

In August, more bad news swept markets, including missed interest payments by China’s biggest private property developer by sales, Country Garden; a huge loss at rival Evergrande, whose default in 2021 rippled across the sector; and a liquidity crisis at financial conglomerate Zhongzhi.

The government stoked further distrust among investors by suddenly scrapping the publication of youth unemployment data, which had reached record levels, while consumer prices fell. Factory activity was down for a fifth consecutive month in August.

Last week, however, the government stepped up its response. In addition to reducing minimum mortgage downpayments and allowing cuts to existing mortgage interest rates, it increased personal income tax allowances for children’s education and caring for infants and the elderly. On the stock market, policymakers sliced trading fees and took other measures.


“Reflationary policy is ramping up at a pace unseen in recent years,” Morgan Stanley economist Robin Xing said in a research note, adding that the measures were the strongest response since 2018, when China’s economy slowed amid a growing trade war with the US.

Hui Shan, chief China economist at Goldman Sachs, said a rough calculation of the government’s fiscal, monetary and property measures indicated they could boost gross domestic product growth by about 60 basis points.

“Even without a ‘bazooka’, if you do enough of these kinds of piecemeal easing measures, there’s still a chance you will stabilise the economy and have an impact on growth,” said Shan.

But she cautioned: “Investors are not completely convinced yet; people are looking at property transaction data to see if it really translates into stronger sales and activity.”

Much will depend on buyers’ price expectations, analysts said. With speculative activity subdued by the downturn and market oversupply, as well as China’s already high home ownership rates and weak demographic outlook, most demand will come from upgrades or further urbanisation.

“Price expectation is one area that is perhaps holding back buyers,” said Shan.


Faster urbanisation will depend on further reform of hukou, China’s tightly controlled household registration system that entitles certain urban residents rights to city services. While some cities are relaxing hukou, the process is complicated and highly political.

Neumann raised the possibility of future mortgage rate cuts and purchase incentives such as tax cuts for buyers, adding that authorities would fine-tune the measures. “If they don’t get traction, you do more,” he said.

“A lot of this is about signalling to potential buyers that actually, the government will do whatever it can to stabilise housing prices.”

Property stocks rose this week after Country Garden avoided a technical default by meeting interest payments on its dollar bonds.

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But even if the property market stabilises and cyclical growth returns, the government will need to undertake a host of reforms to replace the growth engine provided by real estate and put the economy on a more sustainable track, said Xing.

Global banks have cut economic growth expectations for 2023 below the official government target of 5 per cent, itself the lowest mark in decades.

Reforms are badly needed in politically tricky areas such as social welfare spending, which needs to be increased to encourage consumption, and restructuring debt-laden local governments and their finance vehicles.

In the meantime, the property market in cities such as Beijing remains depressed. In an outlying district of the capital, Ye put his parents’ home on the market in April. But five months and one price cut later, it remains unsold.

“If it doesn’t sell, that’s it, I’m not cutting the price anymore,” he said.

FT : When Softbank is selling, why are you buying?

When Softbank is selling, why are you buying?
Can’t spell ripoff without IPO

There are many reasons not to buy Arm Holdings. Here are a few:

  • It’s not Nvidia. 

  • From some angles its IPO looks nearly as expensive as Nvidia. 

  • It’s not à la mode. Technology investment goes in fashions and Arm’s strengths — efficiency, portability, interoperability — are considered unattractive now that power is limitless, antitrust lawyers are extinct and no one goes outside. 

  • Cornerstone investors like Apple, Google, Nvidia, Samsung, Intel and TSMC appear to want blocking stakes that can prevent any eventual takeover by other cornerstone investors. Protecting Arm’s industry neutrality means, post float, the shareholder base may come to resemble a Mexican standoff. 

  • Arm’s previous owners were commonly British fund managers who don’t wait for an invitation to gripe about how the company lost its soul with the retirement of Robin Saxby, or Warren East, or Jamie Urquhart, or Sophie Wilson. Buying Arm in 2023 means an investor will be obliged to listen to them. 

Another reason worth considering is the identity of the seller, because Softbank doesn’t have a great record with floats. Only four IPOs of Softbank-backed companies still trading are higher than their issue price, with 21 underwater, FT Alphaville’s analysis shows. The average loss from IPO across the portfolio is 46 per cent.

Below is a chart of equity fundraisings where Softbank has or had a significant interest, a version of which has been circulating among buy-siders in recent days. We recreated the table using Bloomberg data and our own research. Hover over each bar for more detailed information:

On a simplified view, the IPOs of Softbank-backed companies have raised the equivalent of $75.4bn in total. The present value of the shares sold is $68.7bn, or 9 per cent less.

Overall performance is helped by Alibaba’s landmark 2014 flotation on the New York Stock Exchange. Exclude it and the total sum falls to $50.4bn raised, with the present value down nearly 33 per cent at $33.9bn.

When follow-on offerings are included the total raise grows to $81.7bn against a current value of $72.6bn. Note however that the dataset includes both primary and secondary share sales, and that these transactions don’t necessarily involve Softbank, so it’s a bit of a misleading measure.

Try to make sense of it yourself with this bar chart . . . 
. . . and this bubble chart, where the size of the bubble indicates the size of the raise:
(The Alibaba Bangkok IPO in 2022 relates to depository receipts. We cite it here because it’s in the Bloomberg data, even though it looks odd.)

Another thing to do is show whether additional offerings were above or below the IPO price. There have been slightly more sales at a premium than a discount, per the chart below, though that’s thanks largely to Nasdaq-listed oncology group Guardant Health:

Will Arm break the general trend of value destruction? Probably not. Its float is already on the back foot.

Having taken the chip designer private in 2016 for $32bn, Softbank CEO Masayoshi Son had been angling to double his money. The group last month awarded Arm a $64bn valuation by buying a 25 per cent stake from its own Vision Fund unit.

The plan now is to sell 9.4 per cent of Arm at a market capitalisation of between $48bn and $52bn. Bookrunners on the deal are tasked with raising just $4.9bn, or possibly less, which for Softbank puts the initial placing in the same value range as Coupang (down 47 per cent since IPO) and Didi Global (down 75 per cent) — albeit with a humongous overhang of stock still to sell.

And as the above charts show, investors in Softbank-backed companies have rarely lost out by waiting for their follow-on offerings rather than buying at the IPO. An even-more-reliable strategy has been to avoid them completely.

So, to each of Arm’s 28 bookrunners, good luck.

>>> US After Hours Summary: SPWH -21.1%, VRNT -13.6%, YEXT -13%

After Hours Summary: SPWH -21.1%, VRNT -13.6%, YEXT -13.5%, CHPT -10.8%, BB -8.3%, AI -6.6% lower on earnings or guidance; CVGW +10.8%, GME +5.8% higher on earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: CVGW +10.8%, GME +5.8% (also continues to evaluate portfolio of assets), AGX +5.2%, PATH +5.1% (also authorizes new $500 mln share repurchase program), BASE +0.1%, DSGX +0.1%

Companies trading higher in after hours in reaction to news: WRK +11.1% (nearing deal to merge with Smurfit Kappa, according to WSJ), CRVS +10.5% (confirms planned initiation of CPI-818 phase 3 trial), BKCC +4.8% (BKCC and TCPC to merge into subsidiary of TCPC), TCPC +3% (BKCC and TCPC to merge into subsidiary of TCPC), IP +2% (CEO to step down), TRIN +1.3% (names new CEO), BSX +1.2% (FDA approves WATCHMAN FLX pro left atrial appendage closure device), AAOI +1.2% (CEO bought 5964 shares), SMTC +0.4% (to delay 10-Q filing), ZIM +0.1% (announces new operational cooperation agreement with MSC)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: SPWH -21.1%, VRNT -13.6%, YEXT -13.5%, CHPT -10.8%, PHR -9.9%, CURV -9.1%, BB -8.3% (guides AugQ revs below consensus), AI -6.6%, INTA -4.2%, CTLP -3.7%, AEO -1.9%, CXM -1.6%, PLAY -0.4% (also increases share buyback authorization by $100 mln)

Companies trading lower in after hours in reaction to news: LZ -9.4% (stock offering by selling shareholder), AMKR -8.3% (announces 10 mln share offering by Kim Family), CRGY -7.5% (to acquire incremental working interest in Western Eagle assets for $250 mln; also announces stock offering), BROS -5.7% (files mixed shelf securities offering; also files $300 mln stock offering), ROL -5.5% ($1.35 bln stock offering by selling shareholder), AEIS -4.5% (announces proposed offering of $500 mln convertible notes), NTRA -3.5% (files for $250 mln common stock offering), ALGN -2.5% (to acquire privately held direct 3d printing pioneer Cubicure for €79 mln; also introduces new vivera retainer), RDW -2.3% (files $400 mln mixed shelf securities offering), AMRX -1.9% (FDA approves Calcium Gluconate Injection), CNTY -1.5% (completes sale-leaseback of four properties), DD -1.3% (completes $3.25 bln accelerated share repurchase transaction; launches new $2 bln accelerated share repurchase transaction), VSH -1.2% (files for $600 mln convertible note offering), ALHC -0.7% (former CMO returns), ODFL -0.5% (reports LTL operating metrics for August), MAA -0.1% (CFO to retire; names new CFO), CBOE -0.1% (reports August monthly trading volume), TRNO -0.1% (enters into distribution agreements for $500 mln stock offering)

>>> US Closing Stock Market Summary

Closing Stock Market Summary

Today's trade started on a mixed note. There wasn't much conviction on either side of the tape early on, leading the major indices to trade near yesterday's closing levels. Stocks settled into a broad retreat, though, after market rates bounced in response to the ISM Services PMI at 10:00 a.m. ET.

The ISM Services PMI jumped to 54.5% from 52.7% and the Prices Index rose to 58.9% from 56.8%. That is a combination that will support the Fed's thinking that rates need to stay higher for longer. The 2-yr note yield, which is most sensitive to changes in the fed funds rate, sat at 4.95% before the data, but settled up eight basis points from yesterday at 5.04%. The 10-yr note yield, at 4.25% before the data, settled at 4.29%.

Another jump in oil prices ($87.57/bbl, +1.02, +1.2%) contributed to the negative bias today. That move, along with elevated gas prices, has stirred concerns about a slowdown in discretionary spending. On a related note, several airlines sounded a cautious note today about rising jet fuel costs.

The major indices were able to climb off their worst levels in the afternoon trade, but still registered decent losses. The S&P 500 for its part closed below its 50-day moving average (4,475). A big loss in Apple (AAPL 182.91, -6.79, -3.6%) following a few negative headlines weighed heavily on the broader market. China banned government officials from using Apple devices, according to The Wall Street Journal, and the EU Commission designated Apple as one of six "gatekeepers," which will place it under a regulatory microscope.

The Vanguard Mega Cap Growth ETF (MGK) fell 1.2% while the Invesco S&P 500 Equal Weight ETF (RSP) logged a 0.3% decline. Other growth stocks were noticeably weak, too, pressured by the jump in market rates. The Russell 3000 Growth Index fell 0.9% versus a 0.3% loss in the Russell 3000 Value Index.

Nine of the 11 S&P 500 sectors closed with a loss. The information technology sector (-1.4%) saw the largest decline by a decent margin, weighed down by Apple. The utilities (+0.2%) and energy (+0.1%) sectors closed at the top of the leaderboard.

Volume remained on the light side as decliners topped advancers by a roughly 9-to-5 margin at the NYSE and a nearly 2-to-1 margin at the Nasdaq.

Nasdaq Composite: +32.5% YTD
S&P 500: +16.3% YTD
S&P Midcap 400: +7.0% YTD
Russell 2000: +6.4% YTD
Dow Jones Industrial Average: +3.9% YTD
Reviewing today's economic data:

Weekly MBA Mortgage Applications Index -2.9%; Prior 2.3%
July Trade Balance -$65.0 bln ( consensus -$68.0 bln); Prior was revised to -$63.7 bln from -$65.5 bln
The key takeaway from the report is that there was a pickup in both exports and imports that was not suggestive of any material economic weakness on a global scale, yet there are clear signs of slowing with exports down 3.5% year-over-year and imports down 4.7% year-over-year.
August S&P Global US Services PMI - Final 50.5; Prior 51.0
August ISM Non-Manufacturing Index 54.5% (consensus 52.4%); Prior 52.7%
The key takeaway from the report is twofold: services sector activity accelerated in August but prices also increased at a faster pace. The latter will be a concerning development presumably for the Fed and the Treasury market, which will be contemplating the notion of rates needing to stay higher for longer.
Thursday's economic calendar features:

8:30 ET: Weekly Initial Claims (consensus 233,000; prior 228,000), Continuing Claims (prior 1.725 mln), revised Q2 Productivity (consensus 3.7%; prior 3.7%), and revised Q2 Unit Labor Costs (consensus 1.6%; prior 1.6%)
10:30 ET: Weekly natural gas inventories (prior +32 bcf)
11:00 ET: Weekly crude oil inventories (prior -10.58 mln)