Oil’s Stuck in the Middle

Good morning.

Vowels were never cheap on Wheel of Fortune, either. Inditex, the parent company of fast-fashion brand Zara, is facing pushback from Sicilian coffee roaster Zicaffe over the name of its new chain of coffee shops. In November, Inditex opened its first Zacaffe next door to one of its Zara locations in Madrid. Zicaffe has appealed to the European Union's Intellectual Property Office to block it from using that name, which trades an initial 'i' vowel for an 'a' and nothing else.

They could always try Stirbucks or drop the apostrophe and call the cafes Dunking.

A spill of new data Wednesday sent oil futures slipping and sliding in opposite directions, a day after an industry bellwether said lower prices eroded fourth-quarter earnings.

The fluid situation has folks wondering whether the tank is half-full or half-empty.

Slicked Back or Forward

Oil prices have climbed in recent days to the highest levels since October, boosted by supply concerns in sanctioned Iran and Russia. The latter failed to meet its OPEC+ target last month (analysts at Eurasia Group cautioned in a report earlier this month that prices are "being propped up by enduring geopolitical tensions").

Rising job openings reported in the US this week and continuing fiscal stimulus in China have also bolstered prices, foretelling energy demand in the world's two largest economies.

The US Energy Information Agency said Wednesday that commercial crude supplies fell by 1 million barrels last week to 414.6 million, the seventh week in a row of declines for crude stockpiles.

Analysts polled by S&P Global expected a 100,000 barrel increase. Coupled with a 10,000 barrel-per-day decrease in US oil production to 13.56 million, that helped cut tank storage at the Cushing, Oklahoma hub, the world's largest crude oil storage facility, by 2.5 million barrels to 20 million, the lowest level in a decade. The tighter supply could indicate higher prices, but not so fast:

• Refining activity, on the other hand, picked up. The EIA noted supply gains of 6.3 million barrels of gasoline and 6.1 million barrels of distillates, well beyond analyst expectations of 1.5 million and 600,000.
• Oil futures, as a result, trended in conflicting directions amid the mixed signals: West Texas Intermediate crude for February fell by nearly 1.2%, or 88 cents, to $73.37 as of mid-afternoon Wednesday. International benchmark Brent Crude for March rose 4 cents, or 0.05% to $76.20.

The View from the Board Room: Houston-based oil giant Exxon cautioned investors on Tuesday that a variety of factors had shaved fourth-quarter profit compared with the previous three months. Shares in the bellwether firm fell 1.8% Wednesday. The company said lower sales margins would shave $300 million to $700 million from its oil refining business. On top of the above (mixed) signals, oil firms have had to cope with a normalization in demand after a post-pandemic burst and an oversupply of new global refining capacity, tacking on more factors that weigh on the fluctuating value of their commodities. Now you know why the oil Scarecrow is pointing both ways.

Written by Sean Craig

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Call us paranoid, but it sure looks as if artificial intelligence is gunning for biotech lab technician jobs.

Our proof? A pair of deals announced Wednesday. First: Novo Nordisk announced an expanded deal with healthtech firm Valo Health to use AI to fuel drug discovery. Then, AI chipmaker AMD announced a deal to invest in drug-discovery firm Absci, with plans to integrate its AI tech to help discover new drugs.

Sizing Up

As with chess, applying AI to drug discovery is most powerful when paired with humans — or human data. At least, that's Novo Nordisk's philosophy. On Wednesday, the Danish pharma giant behind Ozempic and Wegovy said in a statement that it plans to employ Valo's extensive human dataset and AI-enhanced computation in the discovery and development of treatments for cardiometabolic diseases, its bread and butter.

The deal with Valo Health marks a major expansion from an original agreement with the firm back in 2023. And while Novo has soared to incredible highs since then, it might just be starting to get antsy looking for its next major win:

• Last month, Novo shares took a tumble after the company announced disappointing results in a late-stage trial for its next-gen weight-loss drug CagriSema — knocking off some $125 billion in market value. That came after a September earnings call in which the company narrowly missed earnings growth expectations.
• Wednesday's announced deal will drastically ramp up drug discovery operations with Valo. In 2023, the firms agreed to develop 11 drug programs primarily focused on cardiovascular disease, with $2.7 billion in milestone payment incentives given to Valo. The new deal expands that list to 20, with a heavier focus on obesity and type 2 diabetes treatments, with Valo eligible for payments up to $4.6 billion.

Lab Rat Race: For AMD, meanwhile, breaking into healthtech is a way to catch up to industry frontrunner Nvidia — with this latest investment in Absci cutting into Nvidia's lead directly. For $20 million, AMD will score an equity stake (size still undisclosed) in Absci, which is focused on using generative AI to build up a drug pipeline. The firm currently employs around 470 Nvidia AI chips, but it told The Wall Street Journal on Wednesday it will start to migrate some of its workload to AMD chips. "We're starting to see this big shift from designing drugs in the wet lab to now designing drugs on AI, and that means compute is extremely important. Our compute spend has skyrocketed," CEO Sean McClain told the WSJ.

Written by Brian Boyle

Owning a Rolls-Royce really isn't good enough. You're nobody until you have a unique Rolls-Royce.

The 118-year-old British luxury car icon announced on Wednesday that it's planning to invest over £300 million ($370 million) in expanding its factory and headquarters specifically so it can manufacture more bespoke vehicles for its crème de la crème clientele. It's a strategy that fellow luxury carmaker Bentley has also pursued, and by pushing for the very top 1% of clients, the companies might be able to counter the depression that the luxury consumer market has been grappling with.

They See Me Rolls-Roycin'

Per the BBC, Rolls-Royce's sales volume for 2024 fell 5% from the previous year to 5,712 vehicles. For many companies, a decline like that would be a troubling development (just ask Tesla) but in Rolls-Royce's case, the profit margins on those sales went up because more buyers opted for expensive customizations.

Rolls-Royce said the price of customizing vehicles rose 10% in 2024 compared with the year before, per The Guardian, and that the price of bespoke cars is usually 25% higher than regular, off-the-rack Rolls-Royces. To be fair, some of the customizations listed do sound a bit pricey:

• One customer ordered a car with a solid gold bonnet sculpture (gotta be careful not to ding that), and another had an LED light display installed that could project the stars from a specific date onto the car's ceiling. The date in question? Their dog's birthday. Paging screenwriters for next season's White Lotus.
• Last year, Bentley said roughly 70% of customers were opting for customizations that cost more than $43,000. Given Rolls-Royce's cheapest model, the Ghost, clocks in at £280,000 ($346,000) and the company's saying customizations bump the price up by a quarter, its price tag for extra bits and bobs sits somewhere closer to $87,000.

Carpool: For Rolls-Royce, expensive add-ons are the future. For more mass-market carmakers, the future holds a lot of carbon accounting. Faced with new EU rules on emissions this year, major car brands including Stellantis, Toyota, and Ford are pooling with firms that sell more EVs — e.g., Tesla and Polestar — and buying carbon credits off them to avoid millions or possibly even billions of euros in fines.

Written by Isobel Asher Hamilton