Largest Oil Reserve Released in History & Porsche Has Lost its Luster

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0:31Ray Blakney:Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Raymond Liu. Today, a historic release of oil reserves did little to calm the market.

0:39Neal Freeman:Then, Porsche's in the dumps. What can turn around its flailing business? It's Thursday, March 12th. Let's ride.

0:50Ray Blakney:Good morning. Yes, that's producer Ray you're hearing, who is stepping out of the control room into the studio to host with me today. For everyone looking for a new hobby this spring, I've got a proposal for you. Make butter while running. It's all the rage. In videos that have racked up millions of views online, content creator Libby Cope and her boyfriend show how it's done. You pour heavy cream and salt into sealable bags, stick them into your running vest, and then head out on your run. Once you've finished, fish out the bags, and thanks to science, voila, you have butter. Spread it on some toast or an English muffin for a post-workout snack.

1:25Neal Freeman:churn and burn right churn and burn you know this takes weighted running into a whole new level if you want to take your running game to the next stage um honestly this is just basically it boils down to science you just need to agitate some cream but is this something that you would

1:41Ray Blakney:do i know you like to go on runs every now and then of course it's multitasking i love exercising i love making food why not just do them at the same time but i wouldn't just stop with butter i I do love butter, but in fact, you can also make a lot of other products with this running and churning method. People have posted online recipes about making ice cream, and as a huge ice cream fan, that seems like something I would be into. So I encourage people who are interested in this idea, look it up. There are so many videos, and people are putting out simple recipes that you can make ice cream or butter or whatever you want while on your run.

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2:51Ray Blakney:Just add to taxact.com slash business dash returns to get started. That's taxact.com slash business dash returns. Facing the biggest oil disruption in history, the Western world is calling in the reinforcements. Yesterday, the International Energy Agency said it will release 400 million barrels from reserve stockpiles, its biggest emergency distribution ever. The move is intended to soothe oil prices that have gone haywire over the closure of the Strait of Hormuz, which is already causing economic pain all over the globe and spiking gas prices here in the U.S. What is the IEA? It is a group of 32 Western countries and their allies that was set up in the 1970s to confront this exact challenge, a massive energy disruption stemming from the Gulf.

3:34Ray Blakney:They've tapped their oil stockpiles just a few times before. You can count them on one hand, but nothing compares to 400 million barrels a day. The previous record was 182 million barrels unleashed on the market after Russia invaded Ukraine in 2022. Tapping the oil rainy day fund is a signal that with the war in Iran ongoing, there is little belief that the Strait of Hormuz may not open to commercial shipping anytime soon. And the threats only appear to be multiplying. Iran has reportedly been laying down 10 mines in the strait, while six more oil tankers have come under fresh attack, some of them being consumed by flames.

4:08Ray Blakney:The release also did little to calm oil prices, which actually gained this morning to touch$100 a barrel yet again. That is far from their peak near$120 on Monday, but very much elevated from the low 70s before the war. Ray, how much can the reserves actually help with this crisis?

4:24Neal Freeman:I mean, it's going to be a long, long, arduous process. I mean, the reserves, I think one of the biggest concerns is that once you release the reserve, it's like, how do you fill those reserves up? And that's going to be a problem down the line. So a lot of analysts and economists saying, like, this is not a sustainable solution. But one thing that we do want to talk about is while the energy markets have focused on the oil supply risks, analysts say that there's also a threat to fertilizer supply chains through the Strait of Hormuz. So other commodities are definitely in risk here. Beyond energy, another risk receiving less attention is potential knock-on effect of food prices, fertilizer, as I mentioned, and it could push agricultural costs even higher.

5:07Neal Freeman:And that's actually a quote from Wolf Research chief economist, Stephanie Roth, that was said on Tuesday. Yeah.

5:13Ray Blakney:So basically the Strait of Hormuz is essentially closed. Iran is only escalating their attacks. The problem is that, yeah, it's not just oil that's being essentially trapped on one side. It's not able to go to the rest of the world. There are a ton of fertilizer inputs. One of them that people have been pointing to is urea, roughly one-third of the world's traded urea, which is the dominant form of nitrogen fertilizer. That passes through the Strait of Hormuzin. So you're seeing spiking fertilizer prices. Urea prices are up 35 % since the war began. But you just go down the line. Every commodity actually has a huge presence in the Gulf because what is there is cheap energy.

5:51Ray Blakney:So that's where a lot of industrial processes that make fertilizer, sulfur, aluminum, urea, have located because there's just abundant energy there with the oil and gas that we mentioned. And right now, that is all trapped. It couldn't come at a worse time, too, because farmers all over the globe, especially in lower-income countries, rely on this fertilizer to make their crops productive. And right now is the spring planting season, so they need that fertilizer. Right now, it is being trapped. Prices are spiking. And so agricultural experts are worried about the impact of food prices down the line.

6:20Neal Freeman:Yeah, you're seeing this cascading effect. I just want to run through some of the numbers. Aluminum prices jumped to the highest level in almost four years on Monday. Ethanol jumped about 10 % from the start of the war through the end of trading on Monday. Roughly one-third of the world's traded urea normally passes through the Strait of Hormuz, which you said. And those prices have risen as much as 35 % since the war began. So you're kind of seeing everyone was kind of focused on oil at first, right? Because that's like the most obvious commodity and the main concern because people are like, you know, the gas prices.

6:49Neal Freeman:What are you that's like your first thought? But we're seeing these all these other extra commodities being affected as this war, you know, goes on. You know, a lot of people are concerned about that.

7:00Ray Blakney:Yeah. And it does seem to be going on. And maybe the release of the strategic reserve was somehow a negative signal to that effect, because what these countries are essentially saying by releasing the stockpiles is that, yeah, we don't see a resolution anytime soon. Matthew Zietland, who's an energy reporter on Exit, I wonder if one reason why SPR releases, that is the reserve releases, don't have huge immediate price effects is because an SPR release is basically a confirmation that whatever issue is going to be serious and persistent. Gas prices in the United States have risen for the 11th consecutive day on Wednesday.

7:35Ray Blakney:Drivers are now paying 20 % more at the pump. The national average was below$3 a gallon before the war. Now it is up to$3.60. Meanwhile, the war has created, kind of divided the world into certain economic winners and losers so far. It's only been a few weeks, but it's very clear that some nations are reeling from the war. Some are actually benefiting. The one area of the world that really is feeling some serious negative impacts, and it could stem to an economic crisis, is Southeast Asia. Countries like India, Thailand, the Philippines and Vietnam have taken some serious steps to curb energy out curb energy consumption because of spiking oil prices.

8:16Neal Freeman:Yeah, you have a country like Vietnam where the government is basically asked companies or told call companies to encourage remote working. And this is one of those things where you have an external event. Maybe the start of like how it was over here with the pandemic is maybe opening up this whole new way of working with remote working. and they're basically just trying to cut down the amount of car and transportation and reliance on the oil. Right.

8:40Ray Blakney:Those those countries are huge energy importers. And so their energy prices are spiking. It's not getting through. So that's a huge problem for them. There are some countries that are that are benefiting from them. One country that has been benefiting from this war is Russia. The United States actually issued a 30 day waiver for India to buy Russian oil that's already at sea. So Russia is earning money from oil that used to be sanctioned. The price of Russian crude is now trading above the global benchmark. So Vladimir Putin is sitting there in Moscow, very happy that oil prices are spiking and that the U.S.

9:16Ray Blakney:is sort of tamping down some sanctions in order to get more oil, Russian oil sold to ease the supply crunch. Other countries that perhaps are benefiting are basically any countries that are major energy exporters not in the blast radius of the Middle East countries like Canada, Norway, Latin America, Colombia. Those countries are probably looking at what's going on and saying, yes, it's horrible, but at the same time, rising oil prices are good for our economy.

9:43Neal Freeman:All right. Well, let's move on. Family dinners at Volkswagen are kind of awkward right now. Europe's biggest automaker saw its operating profit fall 53 % year over year, thanks as no small part to the performance of its problem child, Porsche. Porsche's profits fell to a whopping 98 % as the brand slumps in popularity after a failed push into EVs. The automaker, even though it's part of Volkswagen, trades under its own ticker on the European stock market. Its value has halved since 2022 and was recently dropped from Europe's largest index. It's a far, far, far, far drop. Nothing has gone right recently.

10:23Neal Freeman:It's losing ground in China, its margins are disappearing, and last year it took a$3.1 billion hit on its push into electric cars. Tariffs haven't helped either. Porsche imports every single car it sells in the U.S., meaning it ate roughly$800 million in extra costs. New CEO and former McLaren boss Michael Leiter is stealing a page from big tech's playbooks to kick off its turnaround plan. He wants to streamline Porsche's management structure to get rid of bloated hierarchies and speed up decision making. Good old gas-powered cars are going to be a focus too. Leiter thinks EVs are kind of too competitive that internal combustion engines, quote, continue to offer potential for the brand.

11:05Neal Freeman:Neil, Porsche is an iconic brand, but that doesn't mean it's immune to competition or the luxuries market distaste for EVs. Can it pull a Huey and come back from the brink?

11:15Ray Blakney:Well, if you went into a lab and said, let's invent a car company that would be negatively impacted from everything that's going on in the world right now, you'd probably come up with something that looks like Porsche because Porsche has a huge dependency on China. But in China right now, there is a cutthroat price war, and that is not good for Porsche. deliveries in China fell 26 percent. People just last year, people in China are not buying Porsches anymore. Meanwhile, it was one of the brands that dove full on into EVs. Well, it actually got ahead of consumers there. Meanwhile, it only makes cars in Germany and it has to import, export those cars into the United States, which is its largest market because rich people here love to buy Porsches.

11:57Ray Blakney:Well, there's been a 15 % tariff on car imports from Europe to the United States. So it's at the vortex of pretty much every sort of geopolitical or business story that's happening right now, and everything is negatively impacting it. Maybe this guy has a turnaround plan, but it could be a big hole to dig out from.

12:18Neal Freeman:Yeah, I want to talk a little bit about the product strategy pivot that actually it's actually going even more premium on EVs. The battery electric vehicle market is characterized by intense price competition, which we will not follow for the economic and brand relations. And that's a quote. What's being added instead is models positioned above existing two doors, sports cars and the Cayenne SUV. I think a lot of people are kind of wondering, well, at this point, maybe they ought to step back from the premium, but It seems like their strategy, they want to go even more premium on that. Is that a smart move?

12:52Ray Blakney:Yeah, I think they are looking at possibly two paths ahead. Right now, Porsche is maybe in the middle of BMW and Mercedes. Their German peers are below them in terms of pricing. And then you have Ferrari above them. And they're saying they want to be more like Ferrari than BMW and Mercedes because the new CEO wants to prioritize profits over volume. He wants to make fewer cars, but wants to price them at a higher level. But they are moving in that particular direction. They're looking at Ferrari, who's actually making so much money right now, not selling that many cars at all. There's Ferrari users like to personalize their vehicles, and that drives up the sticker price so much.

13:28Ray Blakney:So right now, Porsche is sitting in the messy middle. It hasn't been working for them, and they're trying to move up market.

13:32Neal Freeman:All right, let's take a quick break, and when we come back, it's Neil's Numbers.

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