Marketplace - Oil demand not so energetic

Episode Date: September 16, 2024

For years, global oil demand has ticked up, mostly thanks to China’s voracious consumption. But real estate trouble combined with widespread electric vehicle adoption means China’s not guzzling oil like it used to. In this episode, the impact on the global oil market. Plus: A dockworker strike could put snags in holiday shopping, flight attendants dislike delays as much as you do and four states will vote on bond measures in November.

Hi, I'm Kyle Rizdal, the host of How We Survive. It's a podcast from Marketplace. In 1986, before I was a journalist, I was flying for the Navy. Mr. Gorbachev, tear down this wall. It was the Cold War and my first deployments were intercepting Russian bombers. Today though, there's another threat out there, climate change. This could be the warmest year on record. Climate change is here.

Temperatures here are warming faster than anywhere on earth. And while the threat seems new, the Pentagon's been funding studies on climate change since the 1950s. I think we will put our troops and our forces at higher risk if we don't recognize the impact of climate change. This season, we go to the front lines of the climate crisis to see how the military is preparing for the threat. Listen to How We Survive, wherever you get your podcasts.

It's not a question of if, it's a question of how much. From American public media, this is Market Class. In Los Angeles, I'm Kyle Rizdal. It is Monday today, the 16th of September. Good as always to have you along, everybody. As you have perhaps gathered in your perusal of business and economic news so far today, the big item this week is the Federal Reserve's two-day meeting on interest rates that wraps up on Wednesday. The news will be what the news will be, rate cut, and we will talk about exactly how the central bank goes about getting rates to go where they want them to go a little

bit later in the program. But there is a whole slew of things that happen when interest rates move. And that is where we start today. Back when the Fed first started raising rates in early 2022, the dollar shot up right alongside. Dollars got more expensive because everybody wanted to have them so they could invest in dollar denominated assets and take advantage of those rising rates. With the Fed set to cut rates now, though, the only real question is by how much. The dollar's already slumping, down 5% since late June. Marketplace's Stephanie Hughes is on the what does it all mean for the greenback beat for us today.

Say you're a foreign investor and you want to buy U.S. bonds. You have to buy the dollars first. Carol Ostler is a professor of finance at Brandeis. When the Fed lowers interest rates, that lowers the yield on U.S. bonds and makes them less attractive to foreign investors. And Ostler points out, since they're not buying as many, they don't need as many dollars. The exchange rate response is supply and demand. If fewer people are buying U.S. bonds, so fewer people are buying U.S. dollars, the

value of the dollar will tend to fall. Osler says traders have already started to sell their dollars in anticipation of a rate cut. People are like, well, I'm not going to wait until that happens. If I'm holding dollar assets now, they'll lose value. So I'm going to sell them now. A weaker dollar does have knock-on effects for the U.S. economy, as in people here need more of them when buying things made abroad.

Syracuse economics professor Ryan Monarch says that means imported products are going to go up a bit in price. Whether we're talking about furniture from China or we're talking about bananas from Colombia or whatever, dollar movements are going to make those things more expensive in the medium run. Monarch says price changes could show up in the next three to six months. On the flip side, American exports should become more attractive because buyers, say in China, can get more bang for their buck, or renminbi rather.

Yajur Prasad is a professor of economics at Cornell. Yajur Prasad The weaker dollar does mean that for the rest of the world, American exports become a little bit cheaper. AMT – That includes everything from American-grown soybeans to American-made airplane parts. But Prasad points out the effect is likely to be kind of subdued right now. Yajur Prasad Because the the effect is likely to be kind of subdued right now. Because the rest of the world is not doing that well. Europe, the United Kingdom, China, Japan are all doing pretty badly in terms of their economic

growth compared to the U.S. That means even though the dollar is weaker, other countries don't have as much money to purchase U.S. made goods. I'm Stephanie Hughes from Marketplace. Tell you what, on Wall Street today, traders had a very firm opinion of what's going to happen on Wednesday. They are betting the Fed goes big, that full half percentage point cut, record high on the Dow. numbers.

Global oil demand is a little bit more than 100 million barrels a day, which makes it really convenient that global oil production is a little bit more than 100 million barrels a day. Supply and demand, that is to say, are pretty closely balanced. But what that also means is that a change in either side of that equation can have significant effects. Oil demand has inched up over the years, driven mostly by two decades of new manufacturing, a glowing middle class, and huge infrastructure investment in one country, China.

Changes in the Chinese economy, though, and a slowdown there as well, are bringing down the growth in global oil demand. Marketplace's Elizabeth Troval has more on some new analysis from the International Energy Agency. When we talk about recent slowing oil demand in China, there are two main products to consider, says Herbert Crowther with Eurasia Group. One is diesel. There the biggest challenge is China's property sector woes, its real estate market, which historically was a big consumer of diesel. The other is gasoline.

The rapid growth of new energy vehicles in China's vehicle fleet, both pure electric vehicles and plug-in hybrids. China has also, though, done something that Western countries hasn't, which is to a degree subsidize and encourage innovation in batteries. That's Rabel Bank's Joe DeLora. China has basically taken the battery technology and said, hey, we can do great cars. And what's happening with oil demand in the rest of the world will depend on whether fast growing countries rely on gasoline vehicles or EVs, says University of Chicago professor Ryan Kellogg. If it's the former, you could still be bullish about long-run oil demand.

If it's the latter, these countries are going to grow, but guess what? They're not going to do it like growth has historically been for the past hundred years. But while growth in EVs as personal vehicles may shift demand away from gasoline, Rice University's Ken Medlock still sees the current slowdown in overall oil demand growth as temporary. You've still got a bunch of other products in the barrel that are still being consumed pretty robustly, like you get into diesels and the distillates and jet fuels. and the distillates and jet fuels. He says, well, what's happening in China now

may be weighing down global oil demand growth. More needs to happen before we reach a true plateau. I'm Elizabeth Troval for Marketplace. Yes, this fall voters will be deciding on the president and vice president, the third of the Senate, the entire House of Representatives, as well as various and sundry state and local officials. Also, though, they'll be voting on money. Big bond measures are on the ballot in four states. California voters are going to decide whether the state can borrow $10 billion for climate

resilience, another $10 billion for schools. Maine's going to decide whether the state can issue 30 million dollars worth of bonds for some new outdoor trails. New Mexicans are considering borrowing $230 million for colleges and special public schools and tribal schools. And among Rhode Island's bond majors is one that would put $120 million toward new housing.

Yes, politics in this country is deeply divided, but as Marketplace's Kaylee Wells reports, when big ticket borrowing is on the ballot, it tends to be pretty popular. When voters approve a state bond measure, the state can sell bonds for people and companies to buy. The state government pays bondholders back later with interest. But in the meantime, the money that's generated will be used to fund the things that are in the bond legislation. Julia Stein is the deputy director of the Emmett Institute on Climate Change and the Environment at UCLA School of Law. She's been closely following the $10 billion

climate bond that Californians are voting on this fall. It's one of the largest bond measures anywhere in the country this year, but she says she thinks it'll pass, partly because bonds, even large ones, are an easier pill to swallow than a tax increase. They kind of push things out into the future a little bit. It's future citizens of the state that are paying for the bond, not you today, right now. Counties, municipalities, and other government entities can issue bonds too. Voters tend to approve them because they pay for shiny new capital improvements, says Tammy Patrick with Election Center.

Tammy Patrick- If it's a school district, could we get new buses? Will we build a new gymnasium? Do we get new computers? That sort of thing. Lauren Henry- Politicians like them because it means they're a relatively reliable, popular way of getting money to do stuff. It could very well be that those who've been elected don't want to make the decision, and they want to refer it to the people so that the people get to decide where the money gets spent. And once a bond is approved, there's almost always a market for it. The upside for bondholders

is low because the interest rate on these bonds tends to be low, but the risk is even lower, which makes bonds attractive to large financing organizations, says Jackie Mitchell of Ballotpedia. Bonds are backed by the General Taxing Authority of state governments, so very safe. It's very likely that they will get paid back eventually, so it's not a very risky investment. But quick money now can come with consequences later. Just like buying a house, you end up paying more than the house cost because of the years of interest that racked up. Plus, just because you buy a house doesn't mean you'll be able to afford it.

A state or local government could issue too many bonds or be in too much debt. That's the argument over this California climate bond. The supporters say we need money to combat the climate crisis now, and the opposition says that's a big expense we're signing up for that'll cut into the future state budget. And you know, if they rely on future tax revenue to pay for bonds, then in the future, if tax revenues fall, then the government could potentially struggle to repay that debt without cutting services or increasing taxes. There are 13 of these bond measures this year, two in California, three in Maine, four in

New Mexico, and four in Rhode Island. In California, where both bonds are $10 billion, they're polling well and expected to pass. And that's not surprising. Ballotpedia's Jackie Mitchell says in the past 15 years, states put 128 bond measures on their ballots, and voters have passed all but nine of them. I'm Kayley Wells for Marketplace. If we learned one thing about this economy during and just after the pandemic, actually we learned a bunch of things, but right near the top of the list is how fragile our supply chains are, which means this next item might trigger some unpleasant flashbacks.

45,000 dock workers at ports from Maine all the way down to Texas are looking for a better deal. Contract talks between the International Longshoremen's Association and ports have stalled ahead of an end-of-month deadline. And while this is not, repeat not, pandemic part two, has anybody noticed it's almost holiday shopping season? Marketplace's Savannah Maher has that one. More than half of U.S. imports arrive via the East and Gulf Coast, according to Mia Ginter, who follows ocean freight at CH Robinson, including lots of cargo from Asia. Which means a lot of retail goods, a lot of electronics.

Toys, clothes, gadgets, the kind of stuff we buy each other around the holidays. But it might have to find another way into the country, says Alan Murphy, CEO of the shipping research firm Sea Intelligence. He says there are a few options. Few alternatives, but the ship has sailed for most of them. Some retailers planned months in advance to redirect freight through the West Coast, but those supply chains can only absorb so much. Other retailers planned ahead by ordering holiday inventory early, so it would get to East Coast ports before a potential strike.

So we saw in May and June and July, we saw significantly higher volumes than we would normally see. But stocking up comes with risk, says Steve Scales, managing director at Alex Partners. The further out they are having to make buys, the more they are reliant on forecasts that are far out as well. It's tough to guess what holiday shopping lists will look like in June. Because of all that preparation, Mia Ginter at C.H. Robinson doesn't expect empty shelves at big box stores.

But she says it matters how long the ports would be closed down. For every week of a strike, we would expect at least one month of disruption and chaos and backlogs. Chaos that won't be felt evenly across the retail economy, says Terry Esper, professor of logistics at The Ohio State University. If there is a concern that I have, it would definitely be for more of the medium-sized enterprises and of course small businesses. Businesses that have less flexibility and capital to plan ahead.

I'm Savannah Marr for Marketplace. Coming up. They estimated they would make about $27,000 a year. Please fasten your seatbelts low and tight across your lap. But first, let's do the numbers. Dow Industrial is up 228 today, 610%, 41,622. The Nasdaq down 91 points by a half percent, 17,592. The S&P 500 picked up seven points, just over a tenth percent, 56 and 33. We heard from Elizabeth Troval about how the economic slowdown in China is pulling down

the overall global demand for oil. So how about some domestic oil stocks? Chevron up one and a tenth percent today. ExxonMobil grew one and four tenths percent today. Analysts are estimating that demand for Apple's new iPhone 16 has been significantly lower than demand for the 15. Apple down 2.8% today. A 163-year-old shipbuilding company in England says it is now insolvent and will enter what the Brits call administration, bankruptcy protection.

Harland & Wolfe, which built the Titanic, says it will restructure and its core business, which includes building warships for the Royal Navy, will continue. You're listening to Marketplace. Hi, this is Emily from Paxton, Nebraska. I live in a rural area where the written local news has been outsourced to a bigger city, and the local newscast is not very good. I enjoy listening to Marketplace programs because they are informative and thought-provoking. I learn about things, places and people that I would not have found anywhere else.

I am so grateful for Marketplace's dedication to bringing the news to the people. Join me in supporting Marketplace with a gift today. Go to marketplace.org slash donate. And thank you. This is Marketplace. I'm Kai Rizdal. Unless J-Pal and the gang have a very sudden and completely unexpected change of heart, which is, to be clear, extremely unlikely, the Federal Reserve is going to announce a cut in interest rates when its two-day meeting wraps up on Wednesday. The only real question is how much? A quarter of a percentage point? A half? Your guess is as good as mine. But just because the Fed says something doesn't mean

it just happens. I mean, yes, the Fed has to decide first, but actually bringing rates down throughout the economy is a whole long process. Marketplace's Justin Ho lays out the step by step. To help understand what the Federal Reserve actually does when it adjusts interest rates, I called up someone with firsthand experience. I spent 15 years at the Fed, and in particular, while I was there, I spent a lot of time on the nitty gritty actual implementation of monetary policy. That's Seth Carpenter. He's now Morgan Stanley's global chief economist. Carpenter says the Federal Reserve's Open Market Committee starts by coming up with a target of where they want interest rates

to be. Then it's up to the staff to make sure the market rate trades as close as possible to the committee's target rate. Interest rates are really just prices, the price of borrowing money. And when the Fed wants to bring down that price, like it does now, it cuts the amount of interest that it pays to banks on reserves the banks deposit with the Fed. Literally there's a computer application where someone is able to explicitly input what the interest rate is paid on reserves. That rate is a floor, the cheapest lending in the whole economy, available exclusively to banks, which themselves are in the business of lending.

If the Fed is going to pay you a certain amount, there's no reason for you to lend in the market at a rate below that amount. Banks also know that their interest rates can't go too much higher than what the Fed is paying, because there are lots of banks and other lenders competing for customers who want to borrow. Dominic Myartan is vice chairman of Optus Bank in South Carolina. He says if a bank wanted to charge way more than what the Fed is paying, let's say 10 percent, for instance. If a competitor bank across the street or across the country is now charging 7 percent, You want to be competitive

you're gonna have to bring that cost down as well. Or watch all your customers head across the street to your competitor. When the Federal Reserve lowers interest rates, bank customers start asking why they're still paying so much for the money they've borrowed. So they're gonna come and anticipate, well the Fed just lowers the rates so shouldn't I get a lower rate? Once the Federal Reserve announces its cutting interest rates, the effect doesn't ripple out evenly. Nathan Rogge is CEO of First Pacific Bank in Southern California.

He says different types of loans take different amounts of time to adjust. It's an example in my world because we do a lot of small business loans. Those can adjust monthly or quarterly or even annually. Raghi says auto and commercial real estate loans aren't as directly tied to the Fed's moves, so they can take a little longer to change. New mortgages, on the other hand, have already been falling ahead of this week's Fed meeting. So immediately after a Wednesday rate cut? Home mortgages may not drop. They could technically go up the day that the Fed announces. But there are plenty of loans that will drop as soon as the Fed lowers rates. That includes the interest on credit card debt and home equity lines of credit.

Ruggy says when the Fed makes its announcement. It normally happens the next day. So if it was a Wednesday, like Thursday, you would have a different interest rate. And as banks start earning less on the loans they make, it probably won't take long before they start paying depositors less interest too. I'm Justin Ho for Marketplace. The tracking website FlightAware says that between late May and August of this year, about 25% of flights in this economy were delayed. Summer of 2019, it was 18.6%. What gives? Wizzy Kim reported for Vox that the answer may lie

in part with the way cabin crews get scheduled and paid. Welcome to the program. Thanks for having me. Most of us, when we go to work, we show up, we clock in and we start getting paid. Flight attendants, not so much. What's going on? Yeah, so being a flight attendant is,

I imagine, pretty hard. The flight is actually just a fraction of their days, and they can spend a lot of time on the ground. So they are supposed to get paid for their whole duty period, but when you're on the ground, it's a lot less, and in some cases, not any money compared to the hourly rate that you'd get when you're in the air. Just sort of baseline, how much do flight attendants make? What's the range?

It really, really varies, but there was a kind of viral proof of income letter for an American Airlines flight attendant floating around earlier this year. And they estimated they would make about $27,000 a year. So it's not a lot, especially if you're starting out. Right. Okay. So connect both the way the pay structure is, which is, you know, full pay in essence when you're actually flying and less pay and in some instances, much less

pay when you're still on the ground and low pay overall for beginning flight attendants. Connect that to flight delays. Okay. So just on the face of it, a delay means that they're waiting longer to start getting paid. But beyond that fact, just on a passenger level, the way we might get impacted by this is flight attendants have a max amount of time that they can legally work. It's usually around 14 consecutive hours. And then they're required to get nine consecutive hours of rest.

So sometimes what happens is the plane might be ready to go finally, but the crew has timed out. So that extends the delay until they can get a fresh crew to take over. And in some cases, flight attendants are waiting around at the airport for so long because airlines can be a little bit reluctant to just send them to their hotels, which they have to pay for, in order to get that rest kind of started. There was an interesting little tidbit in this piece that I hadn't really considered before. kind of started. There was an interesting little tidbit in this piece that I hadn't really considered

before. You know, when a flight gets canceled and the airline has to put passengers, a couple of hundred maybe, up in a hotel, those passengers are competing for hotel rooms just like the flight attendants are because the flight attendants are going to have to. Exactly. Yeah. Exactly. And sometimes what can happen is let's say your flight's already been delayed so you're

in a hotel room, but it gets further delayed. And let's say the hotel hasn't gotten confirmation yet of an extra night at the hotel from the airline, then they might get kicked out and now they don't know where they should go and sleep the next night. It's a lot of bureaucratic wires getting tangled sometimes, which impacts how much, you know, rest, like genuine rest they can get and how well they can work the next day. Right. And, you know, they say it every time when you're on a plane, but it's true. And it's true, I suppose, is what I should say.

They're there for safety. They're not there to make sure you have a diet coke, right? That's the deal. Exactly. Exactly. Those are the very nice things they do for us, but they're primarily there to protect us. And not to mention, customers, flyers are just, I mean, we're just more unruly now,

as horrible as it is to say. Yeah. It seems that way based on the data. There's a lot more instances of unruly passenger incidents. Right. So obviously, flight attendant unions are talking to airlines. Airlines are saying, we're doing all we can for flight attendants because they're critical to our success. What's the skinny on where things stand? First of all, a lot of airlines, flight attendant unions and airlines have been negotiating for a very, very long time because COVID sort of pushed back a lot of negotiations. So flight attendants have gone years

without pay raises. So there's a lot of frustration there. There's certainly been some movement on some of the on the ground pay that flight attendants want. A few years ago, Delta actually, which is the only major US carrier to not have a flight attendants union, they offered half pay during boarding. So it's a start. And United Airlines flight attendants union, they offered half pay during boarding. So it's a start. And United Airlines flight attendants are also negotiating a new contract right now. They want additional pay for time at work on the ground. And they recently authorized

a strike if those appreciate your time. Thank you for having me. This final note on the way out today in which irony is dead. Andy Jassy, the CEO of Amazon said today he wants all employees back in the office five days a week. Amazon of course is one of the companies that benefited most from pandemic induced changes in the office five days a week. Amazon, of course, is one of the companies that benefited most from pandemic induced changes in the way this economy works, one of which was more people ordering more stuff online. Also, more people working from home. Our daily production team includes Andy Corbin, Elise Hassan, Maria Hollenhorst, Sarah Leeson, Sean McHenry, and Sophia Terenzio. I'm Kai Rizda. We will see you tomorrow, everybody.

This is APM. Hi. This is Phoebe in Honolulu, Hawaii. The economy shapes our lives and Marketplace helps me keep up with that force without getting bogged down in bad news. I also appreciate their focus on gender and racial inequity and non-climate change. And I love the growth agnostic stories about drivers of our economy other than consumption. Join me in supporting Marketplace with a gift today. Go to marketplace.org slash donate.