Shorting Oil, Hedging Tesla

[SebastianR]

Ok, my money is on Tesla. So let's watch this race. At Friday close,

WTI Jan 2018 $51.21
Tesla (TSLA) $351
Exxon (XOM) $79.92

Let's which one lands the biggest return by year end.

We're probably all pulling for Tesla, but this could be fun to watch.

The broader relevance here goes to how that financial markets allocate capital. I threw in Exxon so we could compare a stock to a stock, and not just to a commodity. Should the markets be pouring more money into EV makers than oil? We shall see.

So just to clarify - we all play for browny points and have a virtual $10.000 to invest - the race is won by whoever makes most money by closing of last trading day of 2017 in NYSE?

Then all my money is on TSLA (I expect TSLA to be between $380 to $400 - depending on how the ramp goes I could be very wrong, but I don't want to jinx it...). I expect WTI to be below $60 and XOM between $70 and $90

On a different note: I really liked the slide in the BNEF presentation that showed $79bn of dept in Chapter 11 for US oil and gas alone (since 2015) - that's a ton of money being wasted in fossil fuel. Keep that in mind when betting on XOM ;-)

 

[generalenthu]

FWIW, I am obviously long TSLA and short a small amount of XOM via short otm calls.

 

[ValueAnalyst]

Oil hits seven-month high as producers say market rebalancing

I repeat: Oil prices will likely rise throughout the next several months and years, and this is just the beginning.

When Tesla's estimating demand for its products, it may be wise to use a $4/gallon gasoline estimate for national average.

As high as demand is now, it will multiply when oil prices rise.

 

[jhm]

Let's put WTI Jan 2018 into perspective. Here is what has happened to its price over the last three years. Make of it what you will.

 

[Oil4AsphaultOnly]

Oil hits seven-month high as producers say market rebalancing

I repeat: Oil prices will likely rise throughout the next several months and years, and this is just the beginning.

When Tesla's estimating demand for its products, it may be wise to use a $4/gallon gasoline estimate for national average.

As high as demand is now, it will multiply when oil prices rise.

I like this line from the article:
"The Organization of the Petroleum Exporting Countries, Russia and several other producers have cut production by about 1.8 million barrels per day (bpd) since the start of 2017, helping to lift oil prices by about 15 percent in the past three months."

It makes the rise sound very impressive, and then you overlay that with jhm's chart, and see that a rise from $44/b to $51/b isn't really that much to crow about, especially with a 1.8 million barrel per day cut!

 

[ValueAnalyst]

I like this line from the article:
"The Organization of the Petroleum Exporting Countries, Russia and several other producers have cut production by about 1.8 million barrels per day (bpd) since the start of 2017, helping to lift oil prices by about 15 percent in the past three months."

It makes the rise sound very impressive, and then you overlay that with jhm's chart, and see that a rise from $44/b to $51/b isn't really that much to crow about, especially with a 1.8 million barrel per day cut!

The impact of the cuts, which I believe were unnecessary, is yet to be felt.

 

[jhm]

The oil futures market is slipping into substantial backwardation. The front peak is Apr 2018 @ $52.45/b, which is a modest rise from Nov 2017 @ $51.75/b. Thus, there is little motive for traders holding inventory to roll contracts forward. We can expect to see crude coming out of inventory. Meanwhile the back end of the futures curve is rising by a nickel or dime, as the front end is up by a dollar.

It sure looks like the front end market is all hyped up with nowhere to go. If we really are headed above $60 in 2018, then why do mid to back end futures remain so stubbornly low?

Dec 2023 futures are show no signs of long-term demand that shale can't keep up with. The long view of oil just keeps declining.

 

[TheTalkingMule]

It's my understanding that supplies are back to building in the US over the last three weeks. That seems bad, especially considering a concerted Saudi effort to limit deliveries to the US.

 

[renim]

i reckon this indicates oil is getting ready for another brief trend down.

 

[dalalsid]

View attachment 250061

i reckon this indicates oil is getting ready for another brief trend down.

There is probably a line one can draw on the chart where the oil price stays within +/-X of that line and become the myusername of oil price predictions

 

[jhm]

Rising diesel consumption is main driver for higher oil demand in 2017: Shell

Tightening diesel demand. US pulls back on exports to Europe, and Europe pull exports from Asia. This re-routing of diesel seems to tie up more diesel en route. Could just be a transient effect.

 

[ValueAnalyst]

2017: global oil demand > global oil supply

demand growing (china + india + even OECD)
supply shrinking (mexico, venezuela, china, and even U.S. conventional)

2018: global oil demand >> global oil supply

guess what happens to prices when demand exceeds supply at an increasing rate...

 

[renim]

Diesel vehicles are permitted in mining, petrol vehicles are illegal. Petrol vehicles are poisonous and combustible in ways that diesel is not.

long term,

go to about 9:30

Mining tunnelling projects are about 1/10 the cost of a civil tunneling project. Barring petroleum powered vehicles is a must for cost effective tunnels. Miners can (and have) made tunnels to avoid surface tolls, tunneling is not that expensive, but civil tunnels are supremely expensive.

I'm skeptical about hyperloop, but I think that Steve Jurvetson has nailed it with transport tunnels being EV only (not even PHEV). I could see Diesel/EV also being feasible.

(for example, in a coastal city, subject to rare flooding, a water surge tunnel could be constructed to drastically reduce the severity of the flood (for instance like at Houston), the same tunnel could be used for EV traffic for 20,000 days, and then used for flood mitigation for the other 10 days.

Can't do that with a tunnel for petroleum cars.

 

[jhm]

Let's talk about US commercial crude inventory approaching the five year average.

This week the excess inventory is at 92 mb down from 125 mb just 52 weeks ago. Super progress toward balancing the market, am I right?

But let's break that down. This week inventor is at 471 mb and the five-year average is 379 mb. Hence, a surplus of 92 mb. But 52 weeks ago, inventory was at 472 mb, the average at 347 mb, and excess 152 mb. So the actual inventory level has barely budged. It's down just 1.1 mb. The only thing really moving here is that the five-year average has gone up 32 mb. Thus, the excess has fallen 33 mb almost entirely on grounds of a rising average.

The overbuilt inventory is not really going away. Rather, the market is simply becoming more comfortable sitting on a large inventory. If the market really wanted to get to inventories prevalent before the price of oil collapse in 2014, then we need to be looking at a 330 mb level. The US inventory is presently about 141 mb above that mark.

But, hey, if the market is happy about five-year averages continuing to climb, who am I to doubt it?

 

[ValueAnalyst]

Let's talk about US commercial crude inventory approaching the five year average.

This week the excess inventory is at 92 mb down from 125 mb just 52 weeks ago. Super progress toward balancing the market, am I right?

But let's break that down. This week inventor is at 471 mb and the five-year average is 379 mb. Hence, a surplus of 92 mb. But 52 weeks ago, inventory was at 472 mb, the average at 347 mb, and excess 152 mb. So the actual inventory level has barely budged. It's down just 1.1 mb. The only thing really moving here is that the five-year average has gone up 32 mb. Thus, the excess has fallen 33 mb almost entirely on grounds of a rising average.

The overbuilt inventory is not really going away. Rather, the market is simply becoming more comfortable sitting on a large inventory. If the market really wanted to get to inventories prevalent before the price of oil collapse in 2014, then we need to be looking at a 330 mb level. The US inventory is presently about 141 mb above that mark.

But, hey, if the market is happy about five-year averages continuing to climb, who am I to doubt it?

This post discusses only one of literally 50+ equally important and constantly moving pieces in the global oil demand/supply picture...

 

[generalenthu]

Here is a follow up from Michael of BNEF to keynote from earlier this week

In Energy and Transportation, Stick it to the Orthodoxy! | Bloomberg New Energy Finance

 

[neroden]

Here is a follow up from Michael of BNEF to keynote from earlier this week

In Energy and Transportation, Stick it to the Orthodoxy! | Bloomberg New Energy Finance

Thanks for the link. Always like reading his stuff.

 

[Oil4AsphaultOnly]

Here is a follow up from Michael of BNEF to keynote from earlier this week

In Energy and Transportation, Stick it to the Orthodoxy! | Bloomberg New Energy Finance

Il faut épater l’orthodoxie!

 

[renim]

its official, April fools day 2018, China new PH/EV quota and Fuel Economy laws come into effect.
乘用车企业平均燃料消耗量与新能源汽车积分并行管理办法
http://www.asahi.com/ajw/articles/AJ201709280035.html

it seems that it is substantially unchanged except for deleting the 2018 NEV requirements, (ie 2019, and 2020 stay at 10% an 12%)

seems like it still has no PH/EV financial penalties, just the droll hand that says buy credits from others or cease sales/manufacture

sighs of relief from Germany/Japan, mixed with understanding that its set in concrete, they must sell in 2019 or else.

this piece of legislation is in scope, massive

Chinese 2019 car market is double of USA, and about 6x larger than CARB states.
Chinese 2019 ZEV requirements about 50% more severe than CARB's 2019
Chinese 2019 ZEV requirements simply exclude Tesla model 3, (TM3 make CARB credits close to valueless)

in summary
failure to make ZEV credits in China could be 10x more expensive than same failure in CARB states.
credits required in China is about 10x than credits in CARB states
10x10 = 100
roughly speaking, this Chinese legislation is about 100x more serious to global automakers than California' CARB regs..

 

[SebastianR]

its official, April fools day 2018, China new PH/EV quota and Fuel Economy laws come into effect.
乘用车企业平均燃料消耗量与新能源汽车积分并行管理办法
China sets 2019 deadline for car makers to meet green-car quotas：The Asahi Shimbun
[...]failure to make ZEV credits in China could be 10x more expensive than same failure in CARB states.
credits required in China is about 10x than credits in CARB states
10x10 = 100
roughly speaking, this Chinese legislation is about 100x more serious to global automakers than California' CARB regs..

Thanks for this. It is also all over German news today. I hope that folks start to understand how serious this is. I think this alone will put a lid on oil demand for China very soon.

EDIT: On a different note: there is second employee of Audi who has been arrested in conjunction with Dieselgate in Germany now: Dieselskandal: Weiterer Audi-Mitarbeiter in Untersuchungshaft - SPIEGEL ONLINE - Wirtschaft (use Google to translate). We will see if this results in a conviction but typically white collar crime does not go to arrests / prison quickly so this is significant...