Chapter 1: What recent events are impacting the global oil market?
On the program today, oil for a bit, tariffs for a bit, and then some economic odds and ends from American public media. This is Marketplace. In Los Angeles, I'm Kai Risdahl. It is Thursday. Today, this one is the 2nd of April. Good as always to have you along, everybody.
Well, among the many, many words the president spoke in his 19 minute speech last night were words that indicated this war is going to go on for another two to three weeks. So mid to late April, before we see some semblance of a resolution, whatever that might look like. What it definitely is not going to look like is the global oil market rubber banding back to normal overnight.
So we asked Marketplace's Elizabeth Troval to play out our short-term economic future.
Imagine it's mid-April. Military actions against Iran have stopped. Now?
The bigger question facing the global economy is what will the status of the strait be?
Gregory Brew with Eurasia Group says the next milestone is opening up the Strait of Hormuz, which Iran now controls. And there's a lot TBD on how and when that might happen.
Will volumes recover to such an extent that goods can come and go the way that they were before? What kinds of risks will still exist?
The future of the Strait looks messy, says Joe DeLauro with Rabobank.
The strait will still take months to clear if Iran even wants it to be open. And then on top of that, you have refinery damage, pipeline damage and production shut-ins.
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Chapter 2: How will military actions influence oil supply stability?
The timing it takes to get back to normal and to rebuild those drawn-down inventories and to get all the oil where it needs to be is really challenging. So we're going to be dealing with this through the summer driving season into the fall.
For Americans, he expects gas prices will be well above $3 a gallon through the rest of the year. I'm Elizabeth Troval for Marketplace.
Wall Street today. Honestly, I don't know what to tell you. The major indices opened deep in the red after the president's speech last night and then finished within either side of spitting distance of even. We will have the details when we do the numbers. Oil traders do seem to have a more firm grip on the risk environment now than stock traders do.
Crude prices, that is both benchmarks, solidly back over $100 a barrel today. And yet, producers in the Permian Basin, the pumping heart, if you will, of the American oil sector, They seem disinterested.
According to a survey by the Federal Reserve Bank of Dallas that was fielded in mid-March, just 21 percent of oil executives in Texas and surrounding states say they are planning to significantly increase the number of wells they're going to drill this year. Half of them say they're not planning to drill more at all. Daniel Ackerman made some calls out to West Texas to see what's going on.
Usually, rising oil prices have a predictable impact on oil producers.
To incentivize a greater level of supply. That's Econ 101 right there.
But Carr Ingham, president of the Texas Alliance of Energy Producers, says drillers in the Permian Basin don't seem to be ramping up production right now. One reason is they simply haven't had enough time. The war has been going on for just over a month.
It's just virtually impossible to have any kind of meaningful... increase in production or supply in that period of time. The system just doesn't work that way. There's not a spigot. There's not a valve.
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Chapter 3: What challenges are faced in reopening the Strait of Hormuz?
He says it's not clear if Middle East oil supply will be restricted for long enough to justify that investment. Garrett Golding of the Dallas Fed says domestic producers have gotten more disciplined in reacting to market swings. 10 years ago, 15 years ago, they were more prone to chase higher prices with more activity. And we have a large graveyard of bankruptcies that are the result of that.
Golding says some small producers are considering boosting rig count, but the biggest producers, with the most ability to impact oil prices, aren't quite as nimble and are going to take a little more time. Even if producers do choose to increase drilling, Golding says it would be just a few hundred thousand barrels a day extra. When this is a five million barrel a day disruption at a minimum,
and likely much more. So Golding says the solution to high oil prices probably isn't coming from the Permian. I'm Daniel Ackerman for Marketplace. Until a month and five days ago, tariffs had, as you know, been the story of this economy.
So as we sit here a year to the day after President Trump rolled out his plan to tax imports from the entire planet, a little introspection seems to be in order. The Yale Budget Lab, a frequent source of ours, has done just that. Natasha Sarin is the president and co-founder. Welcome to the program.
Thanks so much for having me.
So I have this paper that you all put out the budget lab today. The title is one year of tariff analysis, what we got right, what changed and what we learned. Let's start with what we got right part. You know, we we all did some analysis when President Trump had his tariff thing on the 2nd of April last year. What did what did you guys get right?
Yeah, you know, at the time, it feels like now 100 years ago. But what we got right at the time was that the volatility associated with these type of rapid swings in our trade policy was going to have very significant economic consequences. And these are, in fact, the most inflationary policies that have been pursued in our lifetimes. And that is what is showing up on the data.
Let's talk about that volatility and, of course, the uncertainty that gets passed down to businesses and also consumers. There's a great chart in here. Tariff policy, tariff rates have been changed like 50 times or something in the past 12 months.
We've all kind of like lived through it. You see tariff pauses go into place. You see new rate announcements. You see a commercial that the president doesn't like in Canada and the response is new punitive tariff rates. And part of what is so important for economic analysts is that It's not just that the level of the tariffs is so much higher now than it was before the second Trump term.
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Chapter 4: How long will it take to restore oil production levels?
Natasha Sarin is a professor of law at the Yale Law School, as I just said. Also, for our purposes, the president and one of the co-founders of the Yale Budget Lab. Natasha, thanks a lot for your time. I really appreciate it.
Thanks so much for having me.
According to the U.S. Drought Monitor, that's a map and a data resource run by the University of Nebraska-Lincoln, 83% of the American West is in some form of drought, a spectrum that runs from abnormally dry to exceptional drought, which is a step beyond extreme drought. One of the clearest manifestations of that is that the Colorado River is drying up.
So across parts of this country, cities, farms and tribes are of necessity cutting back on how much water they use. Doing that, though, gets expensive. But as Alex Hager from KJZZ in Phoenix reports, there is some new money helping to pay for that conservation. It's a cool morning in the desert and water is rushing through a canal next to a field of crops.
This water is used by the Gila River Indian community, south of Phoenix. David DeYoung manages irrigation here, and he's watching the water spill out onto a field of alfalfa through a system of high-tech motorized gates. So as the water advances, that sensor is picking up where the water is at. DeYoung says they used to run water across this field for 8 to 12 hours to get it fully soaked.
But with the new tech, it only takes about one. The key here is to get the water across the field as quickly as possible. The Gila River Indian community has spent the past few years accepting big checks from the federal government to make its water systems more efficient, leaving the water it's not using in Lake Mead, the nation's largest reservoir.
But now it's not just the feds helping foot the bill. Shannon Quinn leads water conservation at Procter & Gamble.
Water is essential to our business. We need it to make our product, and everyone needs it to use our product.
P&G, along with Google, paid for more than half of this new irrigation system, which cost a little more than $1.5 million.
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Chapter 5: What factors will affect future oil prices?
Companies are stepping up their investments in water conservation for two big reasons. Todd Reeve knows them well. He's the CEO of Bonneville Environmental Foundation, which connects companies with money, like P&G, to people who can put it to work in conservation, like the Gila River Indian community.
For a while, he says, corporations were too focused on the short term, and he couldn't convince them that water shortages would hurt their business. But then... All of a sudden there was sort of an awakening that all these places that companies thought, hey, we have no water risk at all, they realized, like, we've got exposure, we've got risk, and we need to pay attention.
The second reason, Reeves says, is about reputation. As the West gets drier, do you want people thinking your company is making it worse or trying to help?
When we're facing long-term drought, we're facing water cutbacks, etc., instead of people pointing fingers, which is usually what happens right away, is people will say, you know, this company has been a partner here for 10 years, helping Arizona do more with less water. The Biden administration spent billions on water infrastructure in the West, but that spending has gone way down under Trump.
Reeves says corporate money won't replace that spending, but it can help. There's a huge opportunity to use corporate money in very flexible ways to fill some of these critical gaps that are not being met by federal funding at present. Nate Reese agrees with that. He's the Arizona director for the conservation group Trout Unlimited.
It's broadened the pool of funding for sure and just diversified it.
Reese's group is working on restoring a big meadow in eastern Arizona. It's trying to improve wildlife habitat and make the space more resilient to drought. Trout Unlimited got federal money for the behind-the-scenes parts of the project. Then a foundation and two companies, including Microsoft, kicked in about 40% of the total $1.8 million cost to get it across the finish line.
Federal dollars cover, at least in my case, have covered planning portions of these projects. And then corporates come in for implementation on the landscape. Reese says he's hoping corporations see how this project goes and get more involved in the future. And because the Colorado River is poised to stay dry, the need for water conservation and the money to pay for it is likely to keep going up.
In Phoenix, I'm Alex Hager for Marketplace. Coming up... It's been predictably unpredictable because tariffs seem to, you know, they'll go away and then they come back. Oh, yes, they do. First, though, let's do the numbers. Dow Industrials down 61 points today, one-tenth, one percent, 46,504. The Nasdaq grew 38 points, about two-tenths percent, 21,879.
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Chapter 6: Why are Permian Basin producers hesitant to increase drilling?
Our last gasp on President Trump and what his tariffs have done to this economy over the past year. Last gasp, of course, until something else happens. Comes to us from Wesley Rule. He and his wife own Knoxville Fine Violins. They are in Knoxville, Tennessee. I guess it's been predictably unpredictable because tariffs seem to, you know, they'll go away and then they come back.
You know, it's really hard to keep up with. And as a small business, we just kind of have to keep extra money in the account to make sure that we can pay for any tariffs that may or may not occur. One of my distributors was doing a kind of a tariff add-on fee so that the additional charges were reflected in whatever the tariff was that they had to pay for it.
And so that distributor has been really nice about it and the prices are fluctuating. But all of my other distributors, you know, prices rose. I don't think they're ever going to go back down. We're having to sort of prepare for gas prices going up, which is going to affect shipping.
One of my distributors actually recently lost money shipping me cellos from California because they quoted me the normal price for shipping. And then it turns out all of the shipping prices have changed dramatically and their shipping went up by 300%.
And so fortunately, they didn't charge me that extra cost, but they had to warn me that next time we ordered, it would be potentially, you know, almost as much as one of the cellos. I've been slowly preparing my customers for price hikes. Lauren and I have both been hesitant to raise prices unless we have to.
We're trying to be thoughtful about that, but I've been telling customers about, hey, you know, just expect small price hikes in the future because they're unavoidable. We're just going to try and introduce them slowly and gradually. Wesley Rule, he owns Knoxville Fine Violins with his wife, Lauren. They are in Knoxville, Tennessee.
This final note on the way out today in which astronauts, they're just like us.
And I also see that I have two Microsoft Outlooks and neither one of those are working. If you want to remote in and check Optimus on those two Outlooks, that would be awesome.
All right, we will join in on your PCV and we'll let you know when we're done.
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