Will Fuel-Conscious Drivers Block OPEC’s Bid to Raise Oil Prices?

Rising U.S. oil production is not the only thing getting in the way of OPEC’s efforts to drain a global glut. American drivers are not helping either. The Organization of Petroleum Exporting Countries (OPEC) is counting on growing demand to bolster the production cuts it is making in a bid to balance the market. But motorists in the U.S., the world’s largest consumer of gasoline, are using less, not more. And that is not likely to change any time soon.

About 40% of the crude in America is processed into the motor fuel, government data show. As the price of gasoline has risen more than 30% since February 2016, drivers are burning less, swelling supplies to near record highs. Meanwhile, new cars offer consumers an ever-widening variety of more efficient options to cut back on fuel use. “Don’t expect the U.S. driver to save the market this year; he cares about the price now,” Kevin Book, Managing Director of the Washington-based research firm ClearView Energy Partners, said in a telephone interview. He continued, stating that “There’s now a strong correlation between price and gasoline demand.”

As people trade in old cars, the new vehicles they are driving are between two and 10 miles per gallon more efficient, Book said. “This is likely to lead to a flattening or even decline of U.S. demand as early as late this year.” The U.S. fleet of passenger cars and light trucks averaged a record 24.8 miles per gallon during the 2015 model year, an increase of 0.5 mpg from 2014, according to an annual report on automaker efficiency from the Environmental Protection Agency (EPA). In November, the agency projected an overall average of 25.6 mpg in 2016.

One curve ball: required advancements in vehicle fuel efficiency could come to a halt if the current administration strikes a deal with Michigan automakers to bring more factory jobs to the U.S. in exchange for weaker environmental standards. While it would take time for a policy change like that to be incorporated into production lines, it could change fuel-use dynamics in the future.

The average price of regular gasoline at the pump nationwide was $2.29 a gallon in February, up 31% from a year earlier, AAA data show. In February 2016, the fuel touched $1.696 at a time when the price of crude dropped to $26.05 a barrel in New York, the lowest since 2003. As prices have risen, Americans have cut back on driving, reducing consumption 1.7% so far this year from 2016, according to recent Energy Information Administration (EIA) data. The fallout: U.S. gasoline inventories rose to a record 259 million barrels in the week ended Feb. 10. Gasoline and diesel-powered vehicles are not the only options for motorists anymore; electric cars are gaining popularity. Manufacturers from Toyota Motor Corp. to General Motors are joining Elon Musk’s Tesla Motors Inc. in developing new models. Volkswagen AG plans to produce 3 million of them a year within the next decade. “Demand isn’t as inelastic as it used to be,” Stephen Schork, President of Schork Group Inc., a consulting company in Villanova, Pennsylvania, said, adding “There are substitutes now.”

The outlook is not entirely bleak for oil producers, as some industry observers see it. Recent consumption looks soft after two consecutive years of strong demand increases, said Dan McTeague, a Toronto-based Senior Petroleum Analyst at GasBuddy Organization, which tracks retail prices and availability. “As consumers we are still very important,” Tamar Essner, a New York-based energy analyst at NASDAQ Inc., said by telephone. “About 9% of global oil output goes to making gasoline for U.S. drivers.” The rise in American gasoline supplies is based on “transient” factors and the decline in demand is overstated, according to analysts at Goldman Sachs Group Inc. Actual consumption is down by “a more modest” 85,000 barrels a day from a year earlier, not the 460,000 barrels shown in weekly data, analysts including Jeffrey Currie and Damien Courvalin said in a recent report.

Over the last 10 years, stockpiles have climbed to their annual peak in January and February, when winter weather curbs driving, monthly data from the EIA show. U.S. demand for gasoline typically peaks between the Memorial Day holiday in late May and Labor Day in early September, when Americans traditionally take vacations. Demand in California, where drivers love their cars and consume more gasoline than any other state, has been slowed by record rains and heavy snow in recent months. But the state’s rainy season typically lasts from October to April, so weather should improve before peak driving season arrives, allowing demand to recover. Nonetheless, “this year has been disappointing if you’ve been bullish for petroleum demand,” said Kyle Cooper, director of research with IAF Advisors in Houston, in a telephone interview. “If you’re a bull, you’re hoping for OPEC’s success cutting supply because the other factors aren’t going your way.”

Citations

1. http://bloom.bg/2mOsRIz Bloomberg
2. http://bit.ly/2mYg4oC – Grist.org

Amazon Wants to Be the Voice of the Bot in Your Smartphone

Apple, Amazon, and Google are at war over the future of personal computing, and now Amazon is taking the battle to its rivals’ home turf: the smartphone. All three are convinced that voice-controlled virtual assistants have the potential to transform how we interact with our devices. Apple has Siri, Google has Google Assistant, and Amazon has Alexa. They believe that in the future, you will not swipe or tap your device—you will just talk to it, as you would another human.

It is a radical frontier—a change on par with the shift from the command line interfaces to visual operating systems like iOS and Windows. Whoever gets ahead now has the potential to define the next major era of computing. The three have had slightly different approaches. Amazon, an early leader in this area, focused on its Echo smart speaker with Alexa. Google put Google Assistant inside its Google Home smart speaker and a few Android smartphones, while Apple’s Siri was focused on the iPhone. But now, in a bid to invade the smartphone, Amazon is putting Alexa up against the other two voice-controlled virtual assistants in a race for dominance.

People who are familiar with Siri but not other voice assistants might have the wrong impression. While Siri predated the rise of Alexa and Google Assistant, it has not managed to keep up with their evolution. Siri can be useful for short-burst needs, but it is also slow, and somewhat limited. Alexa has greater depth. Thanks to Amazon’s aggressive courtship of developers, Alexa has 10,000 “skills” onboard, which are like apps that users talk to instead of tapping. Nearly all of those skills will come to the iPhone as well, in addition to being able to summon up songs from Amazon Music, or to listen to books in your Kindle collection. Alexa can control your smart home, check the traffic, or give you a news briefing, all from within the Amazon app.

Recently, Amazon announced that Alexa would be available in its main shopping app on iOS, letting users shop for items, control smart-home products, and check the news and weather using their voice. A limited version of Alexa had been available for Apple’s iOS via a standalone app. But this opens it up to far more users who otherwise might not have sought it out.

Alexa is creeping into Android phones as well. Amazon has teamed up with Huawei to embed Alexa into its Mate 9 smartphone, and the company is working with Lenovo-owned Motorola to integrate Alexa into some future Moto smartphones.

This all amounts to a kind of Trojan horse. Amazon failed to get a foothold in the smartphone sector. Its own phone, the Fire Phone, failed miserably. But as voice-controlled assistants become more common, if people see Alexa as the leading option, Amazon has a way to fundamentally control their smartphone experience anyway. But this goes far beyond just phones. Google and Amazon are now racing each other to get their virtual assistants into as many devices as possible, such as cars and home appliances. Each is trying to get the kind of virtuous network effects that would reinforce usage and lock in its dominance.

Both firms know that users do not want to have to switch between assistants that cannot communicate with one another. They want a single assistant that follows them everywhere they go, from their phone to their thermostat. The more places a company makes its assistant available, the stronger its position in the user’s life. And once a user is locked into an assistant, the more difficult it becomes for them to swap, because unlike replacing a phone, they might also need to replace the appliances in their house. That is probably not going to happen, so the stakes are very high. Microsoft’s Windows won the PC wars, and Google’s Android has dominated smartphones worldwide. But with voice-controlled computing, it is still an open contest, and Amazon is determined not to lose out.

Citations

1. http://read.bi/2nuVJsz – Business Insider
2. http://bit.ly/2nhoPLr – Wired

The Good News Is . . .

• U.S. factories produced more autos, steel and computers in February for the sixth straight monthly increase in manufacturing output. The Federal Reserve says factory production rose a seasonally adjusted 0.5% in February for the sixth straight monthly increase in manufacturing output. Mining output rose 2.7%, spurred partly by more oil and gas drilling. Factories are benefiting from greater consumer and business optimism. Companies are spending more on big-ticket items such as industrial machinery, and Americans are buying cars at near-record levels. Overseas growth has also spurred more exports.
• Oracle Corp., a global database technology, cloud applications, and platform services firm reported earnings of $0.69 per share, an increase of 7.8% over year-earlier earnings of $0.64 per share. The firm’s earnings topped the consensus estimate of analysts by $0.07. The company reported revenues of $9.3 billion, an increase of 3.0%. Management attributed the results to strong growth in its cloud-based service business segments.
• Intel announced it was acquiring driverless car technology firm Mobileye for $15.3 billion. The chip maker’s acquisition of the Israeli company that makes sensors and cameras for driverless vehicles is one of the largest in the fast-growing sector and sets the stage for increasing competition between Silicon Valley giants, as well as traditional automakers, over who will dominate the world of autonomous cars. The sector is estimated to be worth $25 billion annually by 2025. Faced with threats to its legacy computer business, Intel has focused on autonomous cars as a new and potentially lucrative market. Driverless vehicles will require immense computing power, including the latest microchips able to crunch massive amounts of data in seconds to keep the cars operating safely. And by acquiring Mobileye, whose digital vision technology helps autonomous vehicles safely navigate city streets, Intel aims to broaden its offerings beyond just chips to a wider suite of products that driverless vehicles will require.

Citations

1. http://bit.ly/2nAJl72 – Federal Reserve Board
2. http://cnb.cx/2lwnm3s – CNBC
3. http://bit.ly/2mRPmMQ – Oracle Corp.
4. http://nyti.ms/2nwDRNU – NY Times Deal

Planning Tips

Guide to Vacation Timeshares

How would you like to have a wonderful vacation in a beautiful location at a reasonable price? Would you like to repeat that vacation every year? That is the pitch timeshare sales people use to convince consumers to purchase billions of dollars of timeshares each year. But there are many hidden pitfalls to timeshare ownership. Below are some brief guidelines to vacation timeshares. Like any major purchase, the decision to buy into a timeshare requires careful consideration. Be sure to consult with your financial advisor to determine if the purchase of a vacation timeshare is appropriate for your goals and situation.

What a vacation timeshare is – Timeshares are based on the concept of fractional ownership in a property. For example, if you purchase one week at a timeshare condominium each year, you own 1/52 portion of the unit. If you purchase one month, you own 1/12 of the unit. Other buyers purchase the remaining fractions. There are two general purchase options:

• Deeded – You purchase an ownership interest in the property.
• Non-Deeded – You lease the right to use the property for a specific amount of time each year for a preset number of years.

From there, the various ownership structures become more complex. You can purchase a fixed week, which means that you own the right to use the unit during the same week each year, or you can purchase a floating week, which generally gives you the right to use the property during a predetermined period of time. Some properties operate on points systems. These are often referred to as “vacation clubs.” With these, you purchase a specific number of points that can be redeemed at a variety of destinations. Some plans let you “bank” unused points. Timeshare properties can often feature larger and more luxurious accommodations than standard hotels and are generally located in desirable places.

Trading May Not Be Easy – Points-based systems come with no guarantees. Just because the salesperson tells you it is easy to trade your week for another week or your property for another property, does not mean it will be easy. It is also important to remember that everybody wants to travel to the same places and on the same weeks that you do. The desirability factor aside, trading often results in an additional fee.

Fees and Charges – In addition to the monthly loan payment, which comes with a high interest rate when financed through the timeshare company, the annual maintenance fee will also set you back a few hundred dollars a year. Also, if the property needs a new roof or a new sewage line, a “one-time” assessment will be levied. Some properties also charge miscellaneous fees, such as a “publications” fee if you want to view other properties that may be available for trade, and additional fees if they help you sell your property.

Timeshares Are Not Investments – A timeshare is not an investment. Investments are designed to appreciate in value, generate income, or do both. A timeshare is unlikely to do either, despite what the salesperson says. The huge volume of used timeshares on the market, the appeal of buying new versus used, and the marketing muscle of the firms selling new timeshares all work against the idea that you will make a profit reselling your used timeshare. Thus, selling for a profit is an uphill battle considering you need to convince someone to pay more for a used unit and factor in all the fees you paid over the years. If a timeshare is not an investment, then what is it—besides a vacation destination? It is an illiquid asset that is likely to lose value over time. Buy a timeshare because you want to enjoy spending time at the destination, not because you expect to make a profit from it.

How to Buy a Timeshare – If you have found a vacation destination that you absolutely love and want to return to every year and have decided that a timeshare is the perfect way to achieve your goal, go ahead and buy one, but buy it used. Current owners that are tired of the maintenance costs, tired of the destination, or have grown frustrated with their efforts to trade their slot so that they can visit a different destination are willing to give their timeshares away at a fraction of the original cost. A quick search online often reveals a glut of timeshares for resale. Buying used gives you all the benefits of ownership at the fraction of the cost. Even if you choose a more expensive unit, you can save money by financing your purchase with a personal loan, which should offer you an interest rate that is considerably lower than the rate the timeshare company charged the original owner. Also carefully consider the management company. Will the management company that sold you the timeshare be around three decades from now? If you are considering a timeshare in a foreign country, you must also understand the laws and know what the result will be if the timeshare management company closes.

Citations

1. http://bit.ly/2nNVwge – US News & World Report
2. http://bit.ly/2mBokrk – Nolo.com
3. http://bit.ly/2mEeMg4 – Investopedia
4. http://usat.ly/2mYmRi5 – USA Today
5. http://bit.ly/2dM5wqP – MoneySense.com