Final Thoughts on a Wild Ride for Oil

It seems that, in the oil market, low prices really do cure low prices. A few weeks ago, when the price of benchmark West Texas Intermediate had climbed from $10 to nearly $20 per barrel, I tentatively predicted that “we may have seen the worst for oil.” Flash forward to today, and WTI is trading at about $34, nearly triple its low point earlier this spring (setting aside the bizarre day when one monthly WTI contract actually closed below $0).

The global coronavirus pandemic hasn’t run its course, and the economic damage it has sparked still has further to go. But there are some basic factors lining up in oil’s favor. U.S. consumption, which cratered in March and April when state governments issued unprecedented stay-at-home orders, has staged a partial recovery. Daily demand, which typically comes in around 21 million barrels, fell to less than 15 million barrels, but has since clawed back to about 16.5 million. As more states relax their public health orders and consumers venture out on the roads, we can expect demand to grind higher (unless a new wave of infections forces the economy to shut down again). Meanwhile, production around the world is dropping. In the U.S., daily output has fallen from a record of 13 million barrels before the crisis to about 11.5 million now. The number of rigs drilling new wells is at a record low. OPEC members, Russia and other producers are taking the difficult steps necessary to curb exports while they wait for demand to come back.

There has been plenty of pain for the industry, even as prices have shot higher. Energy stocks have substantially underperformed the broad market this year. Many companies have had to cut or end their dividends, a further blow to shareholders. The shale industry faces a wave of debt repayments in the coming years after borrowing heavily to drill thousands of wells in places like Texas’s Permian Basin. Oil at $34 per barrel isn’t going to solve any of those problems. (Was it really just 2014 when WTI traded for about $100?)

So where do we go from here? I’ll stick my neck out one more time and guess that despite plenty of short-term ups and downs, oil prices will keep climbing this year, again, barring the dreaded “second wave” of coronavirus infections. Much of the industry is unprofitable at today’s prices. The economy won’t be weak forever. Workers will start heading back to their jobs. Travelers will (eventually) get on airplanes again.

So consumers should expect gasoline prices to keep creeping higher. After bottoming out in late April, the nationwide average price is up about 15 cents. Some states are seeing far steeper rises. (In Wisconsin, the state average fell to about $1.20 per gallon in late April. Today, it’s up to $1.86.) Most folks hitting the road for Memorial Day can expect wallet-friendly fill-ups, but later this summer may be a different story.

The longer run is harder to predict. As we bring Kiplinger Alerts to an end this week, I’ll leave you with a few thoughts about the future of the oil industry.

First, how much has the pandemic changed the way people work and live? I doubt we’re on the cusp of a future where everyone works from home; indeed, most jobs can’t be done remotely. But it seems likely that a sizable number of people who were forced to stay home this spring are going to decide they like working from home, at least part-time. Telecommuting was already on the rise, and this societal work-from-home experiment is demonstrating that millions more people can do it. Employers probably won’t object to the potential rent savings that come with a smaller office. So, I expect a lasting hit to demand from folks who end up working remotely a day or two per week.

Second, how quickly does the electric future arrive? Electric vehicles are still a niche segment, but they’re a growing niche. As I wrote recently, we’re about to see a bevy of electric pickup trucks and SUVs hit the market, partly driven by government mandates and partly driven by falling battery prices, which make EVs more cost-competitive. I believe there’s still a lot of life left in the internal combustion engine, but I also believe EVs will be fairly commonplace before long. How many consumers ultimately decide they prefer plugging in their car overnight instead of stopping at a gas station will go a long way to determining whether global oil demand can continue its decades-long rise. This is a question that must keep oil company executives awake at night.

Third, will the oil industry still be able to raise the capital it needs to keep production up? Fracking is an expensive process, and many investors have gotten burned financing it over the past decade. Especially after seeing oil prices plummet to multidecade lows this spring, are Wall Street banks or private equity outfits going to keep lending to oil producers, or buying their shares? Are the small retail investors? For years, they bought shares in big oil companies largely in order to collect the juicy dividends paid out by those firms. But with dividends under pressure, and many companies cutting them to save cash, will oil stocks hold the same appeal? Then again, perhaps the industry can find new ways to slash its production costs and return its balance sheets to good health.

Whatever happens, it’s safe to say that the 2020s will be a pivotal decade for an industry that shaped the 20th Century but is under major pressure in the 21st Century. I’ve certainly enjoyed tackling some of these topics over the past five years, along with the many thought-provoking questions and comments I’ve gotten from readers during that time. Though we’re closing the book on Kiplinger Alerts, I hope you’ll keep in touch and drop me an e-mail about all things energy-related. And we’ll continue to write about these issues in our weekly Kiplinger Letter, which you’ll start receiving by e-mail at no charge in lieu of Alerts, each Friday afternoon. (If you’re already a Letter subscriber, you’ll receive a complimentary extension of your subscription.)

Thanks for reading. It’s been a pleasure.

Cable TV Struggling in a World Without Sports

The coronavirus crisis is accelerating the already gradual demise of the cable industry.

A lack of live sports is fueling the industry’s nosedive. Sports programming is one of the top reasons Americans subscribe to cable. But with professional and college sports indefinitely sidelined, customers are reevaluating the value of their cable subscriptions. Continue reading “Cable TV Struggling in a World Without Sports”

MAX Jet’s Delayed Reentry

Don’t expect Boeing’s 737 Max jet to be flying until at least January. The aircraft has been grounded since mid-March because of faulty flight control software that was blamed for two crashes that caused the deaths of 346 people. Getting a software fix developed and certified, along with a list of other issues, has seen repeated delays.

Once cleared by the Federal Aviation Administration, it will likely take the airlines a month or more to train pilots and to reactivate the almost 400 Max  jets that are gathering dust. Charles Leocha, president of the consumer group Travelers United, says he wouldn’t be surprised if it’s March before the Max jet is aloft again.

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Three New Football Leagues Compete for Survival

The NFL season may screech to a halt after Sunday, but football fans won’t have to wait months to get their next gridiron fix. A new professional football league kicks off next weekend, featuring a 12-game schedule with teams in eight medium-to-large markets across the U.S.

The Alliance of American Football, founded by TV and film producer Charlie Ebersol and longtime NFL executive Bill Polian, features teams in two cities already home to NFL clubs: Atlanta and Phoenix. CBS will broadcast the league’s inaugural games on Saturday, Feb. 9, after which the CBS Sports Network will carry one AAF game a week throughout the season. The championship game is slated for the weekend of April 26-28. Continue reading “Three New Football Leagues Compete for Survival”

Democrats Avert Disaster in Crucial Calif. Primaries

With their solid showing in this week’s California primaries, Democrats cleared a major hurdle in their bid to take control of the House of Representatives in November.

 The party avoided its worst-case scenario: Being shut out of several potentially competitive races because of California’s unusual primary system, which advances the top two vote-getters, regardless of party, to the general election. On occasion, this leads to races in which two candidates from the same party face off on Election Day.

Democratic leaders fretted about this possibility more and more as primary day drew nearer, envisioning a scenario in which their abundant candidate pool cannibalized itself to Republicans’ advantage. California Democratic Party Chairman Eric Bauman said he expected Democrats to be shut out of “at least a couple” of what should be competitive races in the fall.

Elevated Democratic turnout and machinations by party leaders to steer voters toward candidates they think had the best shot of winning, in some cases by badgering others to drop out of the race, allowed the party to avoid disaster.

The outcome ensures several vulnerable Republican-held seats are still in play, including seven that 2016 Democratic presidential nominee Hillary Clinton won. Democrats need to gain at least 23 seats to win control of the House, which Republicans wrested from Democratic control after the 2010 midterms. They can’t flip the House without California.

But it was far from a victory for the party. Democrats burned through a lot of cash just guaranteeing their candidates slots on November’s ballot. The Democratic Congressional Campaign Committee (DCCC) has spent at least $5.6 million in the Golden State this election cycle, at one point even giving money to Republican candidates in the hopes of splitting the GOP vote.

There was a silver lining for Republicans, who are not accustomed to good news in the state leading the “resistance” to Donald Trump’s presidency.

GOP candidates received a majority of the vote in all but one of the state’s key battleground districts. Granted, they underperformed compared to previous election years. Meanwhile, Democrats will likely do much better in the general election, when their voters are more likely to show up.

But Democrats have only proven they will be able to compete come November. They are targeting 10 seats, which Republicans will not give up easily. One vulnerable Republican, Rep. David Valadao, who represents an increasingly liberal district that voted for Clinton in 2016 and President Obama twice, already looks like a strong bet for re-election.

Furthermore, Republicans were not locked out of all major statewide races, which would have depressed their turnout in the general election. Republican John Cox stands little chance of becoming California’s next governor, but he will square off against Lt. Gov. Gavin Newsom Nov. 6. Democratic Sen. Dianne Feinstein, by contrast, will have no GOP challenger since fellow Democrat Kevin De Leon came in second on Tuesday.

Democrats and Republicans are both spinning the results. In reality, the status quo won. Neither party gained a clear advantage, and the fundamentals of this midterm election did not shift: The House of Representatives is up for grabs; Democrats will gain seats but are not guaranteed enough for a majority; and Republicans will vigorously defend their turf.

Pay attention to the generic ballot, which is starting to swing back in the Democrats’ favor after months of improving numbers for Republicans. With Trump in the White House, the GOP is running on one of the strongest economies in years. If that doesn’t help vulnerable Republican incumbents win re-election, nothing will.

What Businesses Should Do With Artificial Intelligence

Artificial intelligence (AI) improves prediction. AI is computer software that learns, finding complex patterns in massive amounts of data. Improving predictions is obviously very useful for most businesses, with a wide range of applications. For example, AI is helping industries from manufacturing to air travel predict when key equipment or airplane parts will fail, reducing downtime. A servicer of printers and copiers can determine when they will run out of toner, based on how many and what types of print jobs are done. The machines will automatically order more just-in-time toner, preventing waste from replacing toner cartridges too early. Google Translator AI “predicts” (recognizes) equivalent speech in different languages. In all of these examples, the AI gets better as it takes in more data, or “learns.”

But businesses can throw a lot of money at AI simply because it’s the “in” thing. So, owners must improve the odds of success.

First, figure out what problem you want AI to solve. What mission critical information are you dying to know? The problem may not require a solution as complex as AI. Basic snags could simply require statistical analysis, such as linear regression. Another key question to ask yourself: Has AI ever been used before for that application? If not, then being the first may be a tad costly. Run small experiments to determine usefulness before committing to a massive project.

Second, do you have good data to work with? Remember the GIGO principle: If the data are old, unstructured or disjointed, then you’re not going to get good results, period. And you need a lot of data—AI is only useful when it has much to work with because its whole purpose is identifying complex patterns in large data sets. Thousands of data points are a minimum, and millions are best. Also, your data needs to be labelled so a machine can understand what it is. Provide the context that is creating the data from the start so that the AI doesn’t make a boneheaded mistake, such as treating Christmas-time sales as the normal monthly level.

Third, AI learns or evolves with experience in real world operations. It will be wrong at first. So, does the application allow room for growth, or is it so important that it has to be right the first time? AI cannot be perfected solely based on in-house training data.

Fourth, AI requires development—there is no AI “plug and play.” It is unlikely that a company has the expertise to do this in-house. So, finding the right contractor that has the specific knowledge for a particular problem is important. Trusting the contractor is key: AI programs are not very good at explaining how they got their results, so you’ll have to take the contractor’s word for it. Have your experts examine vendors’ results and evaluate both their accuracy and usefulness. Today’s main AI platforms are IBM’s Watson, Amazon Machine Learning (part of Amazon Web Services), Microsoft’s Cortana Intelligence Suite, and Google Cloud Platform. (A website listing a plethora of specialized AI vendors follows below.)

Finally, don’t relegate AI to the IT department. AI will boost worker productivity, but it can also shed light on what lines of business strategy to choose, so CEOs should be fully informed.

Some AI vendors worth a look:


Health care:


Advertising and marketing:

Justice Dept. Trumps Blockbuster AT&T, Time-Warner Deal on Antitrust Grounds

The Justice Department moved this week to block AT&T’s proposed merger with Time Warner Cable. Now, the courts must decide the fate of the blockbuster deal that, if approved, would give America’s largest telecom company control over a media empire that includes CNN, HBO and other cable staples.

Will the merger go through? Flip a coin. This isn’t how antitrust cases of this kind normally proceed. The Justice Department regularly blocks transactions it deems “anti-competitive,” among them AT&T’s 2011 bid to acquire rival T-Mobile. But so-called “vertical mergers,” which involve firms operating at two different levels of an industry, have a better record of success.

Continue reading “Justice Dept. Trumps Blockbuster AT&T, Time-Warner Deal on Antitrust Grounds”

Trump’s Travel Ban: Third Time Not a Charm

It’s deja vu all over again for President Trump’s travel ban. This week, a federal court in Hawaii blocked the latest version of the president’s controversial executive order from going into effect, only seven months after the same court put a similar hold on Trump’s second travel ban.

Much has happened in those seven months. After multiple unfavorable lower level rulings, the second ban finally reached the Supreme Court this summer. But the justices ultimately declined to hear the case during the court’s fall session, arguing that the issue was moot since the order had already expired.

Continue reading “Trump’s Travel Ban: Third Time Not a Charm”

Advertising in the Digital World

Advertising on the internet is now bigger than on TV and is growing fast. Many businesses are jumping on the internet and social media bandwagon to hawk their wares, or just to build brand awareness. Some advice for businesses:

Stick your toe in the water by building brand awareness on social media.  Advertising on Facebook is cheaper than on Google, and is best for expanding your business’s online visibility. Ads appear in Facebook’s news feed and can be targeted by location, language, age, gender, workplace, college, interests, relationship status, education level, college major or your own email lists. Eighty percent of the time, Facebook is viewed on smartphones, where simple branding-type ads work best. However, product-selling ads are also used. Ads that require the customer to input lots of information, such as financial services ads, should be targeted only at desktop computers.

A trial ad campaign can be set up for as little as $1 per day, though $5 to $30 per day is better to gauge effectiveness. If you’re going to go to the trouble of producing decent ads, then you’ll want to give them a good test. Facebook will generate metrics for you, such as number of clicks, likes and shares. The average cost-per-click for Facebook ads is 28 cents in the U.S. Test multiple versions of ads to see which generates the most response. A company like AdEspresso will help you design effective Facebook ads, if you need help.

Google AdWords is a little more expensive, but also gets lots of attention. Ads can be assigned to certain search words, or products can be advertised in Google’s Shopping Ads (Product Listing Ads or PLA). Amazon also has a large reach. Other social media platforms include Instagram, Snapchat, Pinterest and Twitter, but the limitations of each of these needs to be considered.

To save time, consider using an advertising management platform like Hootsuite, Salesforce or Nanigans, which allow you to automate a lot of the ad process. Other companies will help you design ads or both design and manage the entire marketing effort. For larger campaigns, third-party ad management can drive the cost-per-click below 1 cent. The trick is to spend enough on an ad in order to have it appear with reasonable frequency, but not to overspend.

A search engine optimization (SEO) expert can help drive your company up the search rankings in Google, ensuring that users see your website.

Native advertising is growing as a share of ad spend, as opposed to banner ads, which can suffer from “banner blindness.” Native advertising contains content that is related to the same topics as the regular content on a website. It often consists of a product testimonial or description written by the advertiser. The idea is to provide an informational service as well as advertising, which may garner more attention from viewers.

Progressive web apps are gaining ground at the expense of regular apps. It is becoming apparent that, on average, consumers use only seven apps on their mobile phones and ignore the rest. Apps can be a hassle because consumers must download updates and revalidate their accounts. But apps are still valuable because they result in a lot of online orders, if you can get customers to use them. Because of this, Google has developed progressive web apps. These are versionless apps that work just like accessing the web via a browser and never have to be updated. Apple has been reluctant to compromise its revenue selling traditional apps, but is likely to come around, eventually.

Retail outlets and restaurants will especially want to pay attention to their Google Maps listing, which also has star ratings. Currently, these have a small number of reviewers leaving comments, so just a few can have a large effect on the overall rating, for better or for worse.

Use closed captioning on video ads. Many people don’t turn on the sound on their computer and so don’t pay attention to muted videos that play automatically.

In electronic gaming, rewards advertising is rapidly gaining ground. This is advertising that promises an in-game reward, such as game “money,” abilities or lives in return for a willingness to view the ad first: A good way to get the attention of an increasingly video game-addled population.


Hurricane-Proofing a City: How Houston Should Prepare for the Next Big Storm

Houston is still reeling from Hurricane Harvey, a record-breaking tropical storm that has drenched the Texas coast with an estimated 21 trillion gallons of water since Aug. 25 and inflicted untold damage on both lives and property.

As with previous hurricanes, many people are asking: What could have been done differently this time to mitigate the damage? And what can be done to prepare for the next storm?

Continue reading “Hurricane-Proofing a City: How Houston Should Prepare for the Next Big Storm”