Oil sales from the U.S. Strategic Petroleum Reserve were only supposed to last until October, and then through November, but the Biden administration today will extend the releases into December. While the time frame keeps getting prolonged, the next 15M barrels coming to market will be part of the original 180M barrel release that was first authorized in March – due to inflationary shocks from the war in Ukraine. So far, 165M barrels have been sold from the SPR this year, bringing volumes in the emergency stockpile to just 405M barrels, marking their lowest level since 1984.
Snapshot: The extension intends to offset any market volatility that is expected once a European oil embargo goes into effect on Dec. 5, and to ensure prices keep falling from the historic highs recorded earlier this year. It also comes after OPEC and its Russia-led allies agreed to slash output by a whopping 2M barrels per day from November. Don’t forget that midterm elections are around the corner, and prices at the pump have been said to be a defining factor of any outcome, especially with voters worried about inflation and the economy.
What remains to be seen is if the administration will go beyond its mega 180M barrel release, and if it does, how much farther will it go (watch President Biden’s speech at 1:15 p.m. ET). Reports suggest that the Department of Energy is also weighing limits on exports, while looking to put a mechanism in place to replenish the reserves at a fixed price. Only time will tell if the “buy low, sell high” strategy will work out, but the plan is to scoop up crude when costs are at or below about $67-$72 per barrel, an approach that “will protect taxpayers and help create certainty around future demand for crude oil.”
Commentary: “The SPR was built for crisis – we’re in a crisis, and it’s not getting any easier,” related Daniel Yergin, Vice Chairman of S&P Global. Others say that the U.S. should be better prepared for a return of sky-high oil prices of over $120/bbl, given new shortfalls from geopolitical tensions, an energy war with OPEC and Russia, and higher global demand as China emerges from pandemic lockdowns. “That’s when you really need the SPR,” noted Neil Beveridge, senior analyst at Sanford C. Bernstein. “And if the SPR has been partially exhausted, it can lead to a steeper escalation in prices.” (10 comments)
Great numbers from Netflix (NFLX) sent the stock up 13% after the bell on Tuesday as investors applauded the streamer’s return to growth. The company added 2.41M customers in the third quarter, expanding in every region and topping Wall Street’s expectations. The company also expects additions of 4.5M subs in the fourth quarter, and co-CEO Reed Hastings suggested in his mind, the worst was over.
Quotes: “Thank God we’re done with shrinking quarters,” he declared, adding that it’s “a big deal to go back to the positivity.” Fourth-quarter guidance is “reasonable, not fantastic,” but “then we’ve got to pick up the momentum” in all areas. Foreign exchange is a “huge hit” that’s not going to go away, but “other than that, all the stars are lining up very well for us.”
Netflix is still shifting its focus to revenue as its primary top line metric, as it develops new revenue streams – advertising and paid password sharing – where membership is just one component of its revenue growth. Netflix also highlighted its profitability vs. streaming rivals like Disney+ (DIS), Discovery+ (WBD) and Paramount+ (PARA). “Our competitors are investing heavily to drive subscribers and engagement, but building a large, successful streaming business is hard. We estimate they are all losing money, with combined 2022 operating losses well over $10B, vs. Netflix’s $5B-$6B of annual operating profit.”
Outlook: As for $17B in annual content spending, co-CEO Ted Sarandos announced the company is now getting more bang for its buck, noting the popularity of Stranger Things Season 4 and Monster: The Jeffrey Dahmer Story. “Both the scope and scale as well as the range and the cadence of hits is improving,” he said, “so that I feel better and better about that $17B of content spend, because what we have to do is get better and better at getting more impact per billion dollars spent than anybody else.” Spending is “about the right level,” he continued, though as the company reaccelerates revenue, “we’ll revisit that number, of course.” (15 comments)
Economic troubles continue to pile up in the U.K. as inflation and a cost-of-living crisis continue to batter households and businesses. The consumer price index soared 10.1% in September, more than five times the Bank of England’s 2% target, with food, energy, transport and household goods all the biggest contributing factors. A double-digit increase was first seen in July, but a return to the 10% mark is another alarm for the BoE, which will likely be forced to act aggressively in November (100 bps hike?).
Bigger picture: U.K. policymakers have already dealt with a financial meltdown over the past month as sterling, gilts and stocks got rocked. The government has since reversed nearly all its proposed tax cuts, as well as less generous relief on household energy costs. The Bank of England still expects to go ahead with its quantitative tightening program from November, though it will only sell short and medium-dated bonds, with the 30-year gilt at the center of the recent fears plaguing the pension industry.
“I understand that families across the country are struggling with rising prices and higher energy bills,” said Jeremy Hunt, the new Chancellor of the Exchequer. “This government will prioritize help for the most vulnerable, while delivering wider economic stability and driving long-term growth that will help everyone.”
How to fund all of this? Looking to bring Britain’s deficit under control, Hunt is reportedly preparing some fresh windfall taxes on banks and extending those imposed on energy company earnings. “I am not against the principle of taxing profits that are genuine windfalls,” he told parliament. “But… in the energy industry, it is very cyclical industry and there are businesses that have periods of feast and famine and you have to be very careful that you don’t tax companies in a way that drives away investment. We have said that nothing is off the table.” (1 comment)
Top luxury automakers are jumping into the EV game by ditching their engines and revving their motors. Rolls-Royce (OTCPK:BAMXF) just unveiled its first electric vehicle called the Spectre, with the first cars slated to come off the assembly line in 2023. The vehicle comes with a whopping price tag of $413,000, making it one of the most expensive EVs on the market, and creates a new auto class the company refers to as “Ultra-Luxury Electric Super Coupé.”
Specs: Sporting a 557-horsepower motor, the Spectre has an estimated range of 323 miles and can go from 0-60 miles per hour in 4.4 seconds. The doors and roof will also feature Rolls’ famous stars, making passengers feel like they are surrounded by lights. However, unlike most other EVs that are controlled by a large touchscreen, the Spectre will rely on manual controls, though its famous “Spirit of Ecstasy” hood ornament was redesigned as a more modern icon.
“It needs to be a Rolls-Royce first,” CEO Torsten Muller-Otvos declared, adding that the company already has hundreds of orders in the U.S. “That means stability, brilliant quality, timeless materials, flight-on-land, silent propulsion. It carries all these genes Rolls-Royce is famous for.”
Elsewhere: Cadillac (GM) this week unveiled its Celestiq electric vehicle, which will start at more than $300,000. Orders are slated to open later this year, followed by production beginning in December 2023.
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