Marketplace - Too much oil?

Episode Date: November 14, 2024

The incoming administration may follow the mantra “Drill, baby, drill,” but demand hasn’t been vigorous and the International Energy Agency predicts an oil surplus next year. In this episode, what too much product could mean for the domestic oil market. Plus, retirees feel financially stretched, North Carolina’s tourist industry navigates disaster recovery and Disney turns a profit on its streaming platforms.

Politicians have their plans, but the market doesn't always cooperate. From American public media, this is Marketplace. In Baltimore, I'm Amy Scott. In for Kai Rizdal. It's Thursday, November 14th. Good to have you with us. Now that Republicans have won control of the House, President-elect Donald Trump will have an easier time passing his agenda. One priority we heard a lot during the campaign, drill, baby drill. Trump promised to cut Americans' energy bills by expanding

oil and gas production. Thing is that production is already at record levels during the Biden administration. And today, the International Energy Agency projected a global oil surplus of more than a million barrels per day next year. Marketplace's Henry Epp looks at how that might complicate Trump's plans. The basic story of oil this year is that the growth in demand for crude keeps falling short of expectations, says Mark Finley at Rice University. And so it looks like global oil demand is pretty sluggish. It's still growing but not very aggressively. One of the main reasons for that is weakening demand from China.

Which is both a function of the rapid growth of electric cars but also the overall weakness of their economy. China has been going through some tough economic times as you might have heard and a weaker economy needs less oil. At the same time the country is rapidly switching to EVs which cuts into the market for gasoline and with that softer demand OPEC, the cartel of oil producing countries in the Middle East and elsewhere, has been holding back oil production to try to keep prices high. But Matt Smith, an analyst at Kepler, says, At the same time, you've seen oil coming to the market from the likes of Guyana, from Brazil, from the US, from Canada, from Norway.

Essentially making up for any supply gap left by OPEC, Smith says. So with weak demand and ample supply, you get lower prices. Brent Crude right now is trading around $70 a barrel. This creates challenges, financial challenges for the oil industry that really depends on high prices in order to make big profits. Clark Williams-Derry is an analyst with the Institute for Energy Economics and Financial Analysis. Lower prices mean oil companies aren't as eager to spend money to drill. So he says, while many oil producers will welcome

the Trump administration's likely efforts to cut some regulations and open more public land to drilling. If the conditions aren't there for oil companies to make money, they're not going to be doing what a politician tells them to do. They're going to be doing what's profitable. Of course, he says, oil markets are

susceptible to global conflicts and other factors which can push prices up and make companies more eager to boost production. I'm Henry Abb for Marketplace. Disney had some good news for its investors today. The media giant reported better than expected fourth quarter earnings and said its streaming services posted $321 million in operating income. A pretty big deal considering just two years ago they were losing more than $4 billion. The company also added more than 4 million new Disney Plus subscribers. Marketplace's Kaylee Wells has more on the apparent turnaround.

The primary driver of Disney's success is pretty straightforward. They've had a great quarter in streaming because people want to subscribe. Independent media consultant Brad Adgate says Disney's got great content. The bear and Shogun, they won Emmy Awards for best drama and best comedy. Disney's also got ESPN, which satisfies sports fans, and it's the big brand for kids who want to watch The Little Mermaid again and again. The company's also found success in its cheaper subscription with ads, says Michael Smith. He's a professor at Carnegie Mellon University.

Adding the advertising tier has brought in more customers than it cannibalized customers from the full paid tier. Smith says Disney also got rid of the old structure with a movie division and a TV division and an international team. Bob Iger blew up that traditional organizational structure and made his work structure look much more like Netflix, where he's got a division that's focused on content

and he's got a division that's focused on content and he's got a division that's focused on platform. Disney's success is not that unique. Brandon Katz is a senior entertainment industry strategist with Parrot Analytics. All companies right now are getting better from a monetary perspective in terms of streaming and narrowing losses to turn a profit. Thanks to growing advertising and increasing subscription prices. Plus there's the whole thing where it's harder to share passwords now. Proving that Netflix is not the only one that can get you off that freeloading ability.

Kat says that success won't last for everyone. Out of the main eight streaming services, he says general consensus is roughly half will still be here in a decade. I'm Kayley Wells for Marketplace. After some sticky inflation data this week, the Fed is taking a cautious approach to further interest rate cuts. In a speech in Dallas today, Fed Chair Jay Powell said, the economy is not sending any signals that we need to be in a hurry.

Wall Street had a down day. We'll have the details when we do the numbers. We had an update this week on the state of retirement in this country. A report from the Employee Benefit Research Institute found that nearly a third of retirees feel like they're spending more than they can afford. That's almost double the percentage who said that in 2020. Marketplace's Samantha Fields has more. The last four years have been a bit of a roller coaster.

We had a huge pandemic. It was traumatic for so many people and their jobs and the economy. Mark Evry at the Brookings Institution says the economy has bounced back well. But many people are still hurting. Especially many older adults who retired earlier than they planned, says Bridget Bearden at the Employee Benefit Research Institute. Many of the retirees that we spoke to experienced a decline in their standard of living. Inflation is part of the reason.

Teresa Ghilarducci at the New School says the biggest increases were on things that retirees spend most of their money on. In food, in shelter, and in medical care. People are also carrying a lot more debt. Two years ago, 40% of retirees had outstanding credit card debt. Today, it's 70%. And we're finding more and more retirees with larger and larger mortgages. And we also see a significant number of retirees who are still carrying student debt. Some of these factors are new or getting worse.

But Alicia Manel at the Center for Retirement Research at Boston College says the basic reality has been true for years. That somewhere between 40% and 50 percent of people who are entering retirement are not going to have the kind of money that will let them spend the way they spent before. One of the biggest issues is that nearly half of people never work a job that offers a retirement plan and others only do for part of their career. Manel says that needs to change. Continuous coverage is really the most important thing that we can do to improve the whole

retirement situation. That and fix Social Security before it runs out of funds. I'm Samantha Fields for Marketplace. Imagine for a moment you're involved in running a business that's been the target of an investigation by the Biden administration or even a lawsuit. You're probably weighing two options right now. Try to reach some kind of settlement with the outgoing administration or sit back and wait for what might be a better deal from the Trump administration after Inauguration Day. Marketplace's Kimberly Adams has been looking at that very real scenario. Earlier this year, the Biden administration sued Live Nation, the entertainment company

that runs Ticketmaster along with concert venues, accusing it of antitrust violations, harming fans and performers by monopolizing the live music industry. But on Monday, during the company's earnings call, President and CFO Joe Berktold had a cautiously optimistic outlook on life under the incoming Trump administration. We are hopeful that we'll see a return to the more traditional antitrust approach. As opposed to the more aggressive approach

of the Biden administration's lawsuit. Some parts of the case, we think, reflect a much more interventionist philosophy today than you'd expect of a Republican administration. Obviously, the request to break up Live Nation and Ticketmaster would be an example of that. So, we can expect some companies to try to slow down the progress on some of these cases during the transition, says John Coffey, a professor at Columbia Law and an expert on corporate governance.

They don't know, but they are hoping that the incoming administrator of a given agency will be dramatically opposed to the positions of the predecessor administrator. Coffey says companies may choose to hold off on a settlement or slow down legal proceedings to wait for more favorable conditions. This is particularly true at the SEC and the FTC, where they've had positions that Trump has publicly criticized. Now, not everything at the Securities and Exchange Commission and the Federal Trade Commission will grind to a halt.

Things like insider trading, accounting fraud, when people pay bribes to foreign officials. Those types of cases are going to continue. Haima Marlier is a partner at Morrison Forrester in New York and spent years in the SEC's enforcement division. Where I think we might see some changes would be in more topical areas. The cryptocurrency industry, for instance, has an incentive to wait things out. Given what the president-elect has said, so do companies in fights over corporate disclosures around environmental, social and governance issues, ESG. But whether or not waiting will pay off will

depend on who President-elect Trump chooses to run these agencies and how far he gets with efforts to turn career civil servants into political appointees. Jennifer Saleen teaches law at Arizona State University. Many of those positions will end up being attorneys, and those attorneys are the ones who often are the ones that are negotiating with corporations and companies that regularly interact with the federal government. And even if the pressure to toe the line isn't explicit, Celine says those attorneys... In the back of their minds, they'll also be thinking, well, I'm going to have to really come down hard on what the Trump administration wants. Because if they don't, they might find themselves looking for a new job.

In Washington, I'm Kimberly Adams for Marketplace. Coming up... I've heard from a lot of people that they feel kind of like they're moving through their day in a fog. And who could blame them? But first, let's do the numbers. The Dow Jones Industrial Average lost 207 points, a half percent to close at 43,750. The NASDAQ fell 123 points, 6 tenths percent to land at 19,107 and the S&P 500 shed 36 points,

6 tenths percent to finish at 59,49. Henry Epp was telling us about global oil supply and demand and their possible impact on oil prices. Taking a look at some firms in the petroleum industry, Exxon Mobil rose less than a 10%. Valero gained three-tenths percent. Occidental soured nine-tenths percent. Chevron grew one-and-nine-tenths percent. Advance Auto Parts added six-tenths percent and announced plans to close more than 500

corporate stores and 200 independent locations as part of a wider restructuring. Bond prices fell. The yield on the 10-year T-note rose to 4.45%. You're listening to Marketplace. What do they say? More money, more problems and way more questions from your kids, right? But not to worry. Million Basilion, a podcast from Marketplace, has you covered. I'm Bridget Bodner and with my co-host, Ryan Perez, we take you and your young ones on grand adventures and comedic sing-alongs to answer all the questions your little ones have about money. Join us as we explain how banks work, why name brands are more expensive, and what happened to Black Friday sales. Listen to Million Bazillion wherever you get your podcasts.

This is Marketplace. I'm Amy Scott. There's an important part of the U.S. banking ecosystem it's possible you've never heard of. It's the Federal Home Loan Bank System, 11 regional banks that operate throughout the country providing low-cost loans to banks, credit unions, and other lenders. The Federal Home Loan Bank of San Francisco, as the name implies, is based in San Francisco but has more than 300 members throughout California, Nevada, and Arizona. Elena Macargo recently

took over as president and CEO of the San Francisco Bank. Before that, she was the president of Ginny May. Thanks for joining us. Thanks, Amy. All right. So let's start with a quick explanation for people who aren't familiar with the Federal Home Loan Banks, which I think is probably many of our listeners. So what do you do? So first of all, it's great to be with you. And the Federal Home Loan Bank system, you are absolutely right, is pretty much an unknown system that has been in the background of our financial services system for 92 years. The federal home loan banks are

really here to provide sources of funding and liquidity to our members, to really support economic development, affordable housing. I think that's the system perspective. And so understanding that the federal home loan banks, one, are not federal agencies. We are member-owned cooperatives, which is a really interesting structure. And this is why a lot of people have a hard time understanding what we are and how we are, but our members- Yeah, well, the word federal is right in there.

Exactly. So it implies right in there. Exactly. So it implies a certain relationship. Yeah. Federally regulated, chartered by Congress, we don't make home loans, and so that's part of our name, and we're not a direct retail bank to consumers. We are a bank of bankers and financial institutions. It's a growing role, and I think going forward will continue to be the case. So it seems like a rebranding is in order.

Federal, home loan, bank, none of those are really what you do. That's a question for another time, I guess. Exactly. We'll talk about that one later. I just wanted to mention too, just in San Francisco alone, most of our footprint, believe it or not, is smaller local lenders. So we're a real daily part of our financial institutions' ability to provide their products and services and really support grant-making, affordable housing, and economic development in their communities.

Yeah. And your mission, housing affordability, is one of the reasons we wanted to have you on, because this crisis has been especially acute in your region, California, Nevada, and Arizona. So as you've taken on this new role, what challenges are you seeing in making, in closing that affordability gap? Yeah, I mean, as you know, affordability has been a long-time challenge. Our state, the state of California alone, needs to build 1.2 million affordable homes to meet the demand of low income renters in our state. Arizona, it's over 175,000 units short. Nevada, nearly 100,000 units. So the overall shortage of housing and then the

of housing and then the implications of homes that are in disaster-prone areas are on the rise. And so when that convergence happens, you can understand if you have a significant shortage, all prices are going to do is our rise. And it's making it very, very difficult for affordable housing developers in our states to even bring new construction and new affordable housing online. And I think that's a real significant challenge. I want to ask you about some criticism of the federal home loan bank system, which is, you know, that some argue the banks have really strayed from their mission to support affordable housing and community development. As I'm sure you know, this summer, a group of mostly Democratic senators sent letters to each of the 11 banks pointing out that last year they

spent only $398 million on affordable housing and that a sizable share of bank members had not originated a single mortgage in five years. First, I know you're new to the system, but I want to know how you respond to that. And do you think the system needs reform? So, I think the system has changed and the needs across the country have changed. And I think the system has done a really good job of listening to stakeholders of all kinds, including members of Congress. I think that there's been increased commitments, increased investments nationally in the affordable housing side of our mission.

I do think what we do with our affordable housing advisory councils, what we're doing to really increase our investments, the new programs that we've put in place, that's really meaningful and we are already seeing meaningful change and we'll continue to see that going forward. So going back to what we talked about at the beginning, that many people aren't familiar with the federal home loan bank system. I read a line from the Brookings Institution that said the system has basically been toiling in obscurity. So why should a regular person know about and care about your institution?

I would say that the reason to know that your banker has a bank that is helping to support their ability to do whatever it is they're doing, whether it's to bank you, to lend to you, to provide you with a mortgage loan, Those are enabled by your bank's relationship with the Federal Home Loan Bank system. I would go as far as saying, without the Federal Home Loan Bank system, we would probably not have as many community banks and credit unions and smaller financial institutions

that could maintain themselves and continue to sustain. It's not obscure. It's not, and it's not small. It's very consequential that the federal home loan banks are there to provide that needed liquidity and ensure that we have the financial stability we need and that community banks and others can thrive. All right. Elena Macargo is president and CEO of the Federal Home Loan Bank of San Francisco. Thank you so much. Thank you so much for having me. On the show yesterday, we heard from a tea producer in Asheville, North Carolina, who's figuring out how to rebuild in the aftermath of Hurricane Helene.

Lots of businesses in Asheville are trying to do the same. It's a mountain community of about 95,000 people, and tourism is a big part of the economy. It brings in nearly $3 billion per year. But when flooding destroyed huge parts of Asheville, including its water system, tourism ground to a halt. Laura Hackett from Blue Ridge Public Radio looks at how locals are navigating when and how to invite tourists back. Asheville is a mountain community and can be an expensive place to live. So like a lot of residents, Renee Bouchard has a couple jobs. One teaching yoga, the other cleaning short-term rentals.

When Hurricane Helene hit, both jobs were affected. My yoga studio that I was teaching at completely flooded. So now she's relying on her cleaning job for income. But most visitors have canceled fall bookings, meaning much of Bouchard's income dried up. She used to clean one or two houses every day and get around $900 a week. Now she's lucky if she gets a third of that. I've just today, you know, showed up to her property and it wasn't used so the guests didn't come and it's just like that's me losing money that I thought I was going to get.

Still, Bouchard says she gets why visitors are avoiding Asheville right now. The water is probably going to be some sort of yellow to sweet tea color. It's not going to be clear when you wash your hands. It's going to smell like chlorine and chemicals. There's no timeline for when clean drinking water will return. The reservoir is still a muddy mess. And in town, it still feels like a disaster zone. The restaurants that are open are serving reduced menus on paper plates.

And residents are still visiting aid sites for basic necessities like drinking water, clean showers, and laundry. We're left with all this wreckage and trying to navigate how to rebuild or whether to rebuild or relocate. That's Kayla Clark, a comedian and mental health professional. She's been holding weekly support groups for Asheville residents to grieve and process. I've heard from a lot of people that they feel kind of like they're moving through their day in a fog.

And in this mental state, it's hard to welcome and serve tourists. There are people that come in and they say, well, there was a storm here, which is really jarring because it feels like, I mean, it was just so intense and huge for all of us. But what's also tough right now is paying basic bills. On a Saturday morning, Jeffrey Burroughs sits in his tiny jewelry shop in Asheville's River Arts District with an iced coffee. Luckily, his business didn't get flooded during Helene. We're on the higher side of the tracks, you know, further from the river. And there's

only about, you know, currently 20% of the district remaining, but it's open. Pre-Helene, his store and the whole neighborhood will be filled with shoppers. And this is a Saturday. There would be so many people out here walking around. And it's just leaves on the ground. And normally he would sell at least a few custom bracelets. But so far today, zero sales. Burroughs says he's still processing the disaster himself, and it feels awkward to reopen the shop.

Well, I have to open. I don't know for whom, but I have to open because now I've got to pay rent. And he says, Asheville needs visitors right now. Regardless of how I feel about tourism, the reality is, is our city is built and defined by the income we generate from tourism. That's our current situation.

He understands that residents are torn, but they do agree on one thing. If tourists do come, they should bring patients, plenty of drinking water, and plan to spend some money. In Asheville, I'm Laura Hackett for Marketplace. This final note on the way out today, in news that sounds like something you'd read in The Onion, the winner in a bankruptcy auction for Alex Jones' Infowars media company was The Onion. Jones, a far-right conspiracy theorist, was forced to surrender Infowars and related assets after a billion-dollar judgment against him for promoting lies about the Sandy Hook school massacre. With backing from some Sandy Hook families, The Onion has plans to relaunch the platform in January as a parody site, with ads and other content from the nonprofit Every Town for Gun Safety.

John Buckley, John Gordon, Noya Carr, Diantha Parker, Amanda Peacher, and Stephanie Sieck are the Marketplace editing staff, Amir Bibaoui is the managing editor, and I'm Amy Scott. We'll be back tomorrow. What do they say? More money, more problems, and way more questions from your kids, right? But not to worry. Million Basilion, a podcast from Market kids, right? But not to worry. Million Bazillion, a podcast from Marketplace, has you covered. I'm Bridget Bodner and with my co-host, Ryan Perez, we take you and your young ones on grand adventures and comedic sing-alongs to answer all the

questions your little ones have about money. Join us as we explain how banks work, why name brands are more expensive, and what happened to Black Friday sales. Listen to Million Bazillion wherever you get your podcasts.