Shorting Oil, Hedging Tesla

[jhm]

Can Oil Prices Go Above $60? | OilPrice.com

The shale band, $40 to $60 per barrel. If shale can really hold the price in this range, then there is no need for OPEC and friends to withold some 1 mb/d of supply. Basically, they could produce that and shale would still hold the price in a $40 to $60 range. I also think China is helping to hold this range too.

Additionally, the futures curve continues to fall into deeper long-term backwardation. Front end is about $52 while back end is about $50. So the futures market sees the midprice of the $40 to $60 range. Looks pretty dull.

 

[SwTslaGrl]

"China is in the midst of an all-out blitz on polluters flouting emissions standards, closing tens of thousands of factories in a massive effort to address the nation’s catastrophic pollution problems."
China has shut down up to 40% of its factories in an unprecedented stand against pollution

 

[ValueAnalyst]

Brent is trading above $60 for the second day in a row. In August, I had projected $70+ by year-end, which seemed crazy at the time when Brent was at $52, but the underlying trends were supportive of a surge in 4Q17. Today, the fundamental factors continue to point to higher prices, and my $70+ by year-end estimate may prove conservative.

Beyond year-end, I don't see the severe undersupply picture changing anytime soon as U.S. shale oil production growth continues to disappoint and global demand continues to surprise to the upside, both as predicted earlier this year.

Despite the high and increasing demand for renewable energy and all of Tesla's products, I expect this trend to accelerate in the coming months.

 

[TheTalkingMule]

Electricity spot prices turned negative for most of the weekend in Germany. If only they had a few hundred powerpacks and a half million Model 3s to soak that up!

In other news....Iran just signed a deal for 2GW of solar capacity that will directly offset electricity production from oil. Are we accounting enough for oil electricity production being displaced by renewables? It's been mostly talk up until recently, but the UAE, Ian and even Saudis look like they're finally forced into installing for economic purposes.

 

[ggr]

Back in July, I mentioned I was going to dip my toe in DRIP, which is a geared negative oil industry ETF. Well, today I got out again with a 20% loss. :-( It seemed like a good idea at the time.

 

[TheTalkingMule]

XOM dropping some laughable EV/demand commentary today. Should be some good reading here tomorrow!

 

[ValueAnalyst]

This is less than 30-40% probability...

... but I see a path to $80 oil by year-end.

 

[adiggs]

I read the title to this article and I couldn't help but laugh out loud:
Big Oil Urges OPEC: Keep Floor Under Oil Prices | OilPrice.com

Of course I want my competitors to artificially constrain their production to keep the prices I can sell my output higher. And heck - oil is a market I can sell future production and lock in today's prices if I like them well enough.


Meanwhile, the Australian energy market is so borked, you have industrial consumers that are deciding they're better off if they invest like they are going to become their own energy producer:
Whyalla steel city goes green with 1GW of solar and storage

(Big steel producer in Australia is aiming to lower their energy bill by building their own dispatchable power production by install GW worth of solar).

 

[ValueAnalyst]

XOM dropping some laughable EV/demand commentary today. Should be some good reading here tomorrow!

Exxon Is Not Threatened by Tesla

 

[ValueAnalyst]

I read the title to this article and I couldn't help but laugh out loud:
Big Oil Urges OPEC: Keep Floor Under Oil Prices | OilPrice.com

Of course I want my competitors to artificially constrain their production to keep the prices I can sell my output higher. And heck - oil is a market I can sell future production and lock in today's prices if I like them well enough.


Meanwhile, the Australian energy market is so borked, you have industrial consumers that are deciding they're better off if they invest like they are going to become their own energy producer:
Whyalla steel city goes green with 1GW of solar and storage

(Big steel producer in Australia is aiming to lower their energy bill by building their own dispatchable power production by install GW worth of solar).

Sub-$50 oil led to three years of severe underinvestment in long-cycle oil production, which means, in four to eight years from 2014/15, we will see structural (i.e. unpreventable) undersupply. Signs of this have already been emerging this year. This happened with OPEC keeping a floor at $40-45 throughout 2017. If OPEC had not done this, oil would have gone to $20, and the severe underinvestment would have turned out even worse.

What the world needs to do is get its act together, put aside politics, and massively push renewable energy projects NOW. Even with that, however, we will have an energy crisis in the coming years, because of mistakes made in 2015 through 2017.

This is inevitable.

 

[dc_h]

In other news....Iran just signed a deal for 2GW of solar capacity that will directly offset electricity production from oil. Are we accounting enough for oil electricity production being displaced by renewables? It's been mostly talk up until recently, but the UAE, Ian and even Saudis look like they're finally forced into installing for economic purposes.

That is pretty modest in the big scheme of things. Basically one large nuclear or coal plant equivalent. Getting the Saudi's to sign a 100GW project, or Tesla and S. Australia to sign a multi-gigawatt program to be done next year could start bending the needle. Saudi is perfect for Solar and S. Australia is perfect for mixed solar\wind\battery. It will be interesting to see what happens as China brings 100's of GW of solar this year and next. When will we see coal demand start declining? Will economic growth allow coal to plateau, or is the solar push big enough to start driving coal demand down by next year.
The big leading indicators for renewable replacement of fossils seems to be in China the next couple of years. Will the Chinese solar installations start pushing coal demand down by next year? Will EV buses and trucks start pushing diesel demand down year over year in 2017 and 2018? Based on the clearer financial models for trucks and buses, China diesel demand should be a good leading indicator for gasoline, and I would guess about 3-5 years ahead of gas demand. If diesel demand is down again this year in China, oil should follow by 2021 and that should be enough to change the global oil market.

I think VA has a good point that EV's won't have a material impact on gasoline demand for the next 3 years, but I do think combined EV and hybrid vehicles are having an impact on oil demand and restraining growth. As far as pricing restraint, the big question is US shale production. It does seem that US producers are not expanding as rapidly and it is tbd if they are maxed out, or just showing more restraint. Based on the number of DUCKS out there, it does seem that US producers could increase production at least 1mm barrels per day very quickly. At this point are shale producers holding back on adding production because their marginal costs are rising, or because they believe future prices will be higher? If shale producers hold out on selling production in the futures market and cracking their wells until oil hits 52-55 a barrel, perhaps the pricing band has shifted up? I still don't think +60 for WTI is likely, but we should know better by Q1. It does seem that WTI and Brent should converge more in 2018 as US producers expand exports and the Saudi's continue to hold back on exports to the US.

From a personal perspective, I guess higher oil prices should be good for Tesla, especially TE on the solar and battery side of the business. I think oil\fuel prices are just one variable for Tesla car buyers, but that would only be one attribute in the purchasing decision.

 

[ValueAnalyst]

That is pretty modest in the big scheme of things. Basically one large nuclear or coal plant equivalent. Getting the Saudi's to sign a 100GW project, or Tesla and S. Australia to sign a multi-gigawatt program to be done next year could start bending the needle. Saudi is perfect for Solar and S. Australia is perfect for mixed solar\wind\battery. It will be interesting to see what happens as China brings 100's of GW of solar this year and next.

I don't think this is enough. The world will soon be using 200,000 TWh of energy each year, increasing rapidly year after year, and 100's of GW of solar capacity translates to, what, few hundred TWh of energy per year? This doesn't even cover a fraction of the annual growth of global energy consumption, which will accelerate as China/India middle income grows...

Until we see TW's of solar capacity coming online each year, it's too early to talk about oil demand declining sustainably. My WAG is ~2030+.

... it does seem that US producers could increase production at least 1mm barrels per day very quickly.

I think this is optimistic. Maybe at $100+ oil, but they couldn't even add a few hundred thousand b/d this year... See the ongoing significant downward revisions to EIA weeklies? EIA-914 monthly is the report to follow for more accurate data.

I still don't think +60 for WTI is likely, but we should know better by Q1. It does seem that WTI and Brent should converge more in 2018 as US producers expand exports and the Saudi's continue to hold back on exports to the US.

Some expect exports staying above 2.0 mbd in November, which could mean WTI moves above $60 in short order... and possibly $70 by year-end, because Brent will also be moving higher significantly. I'll be watching tonight's API and tomorrow EIA's inventory numbers. I think they will show eye-opening draws.

From a personal perspective, I guess higher oil prices should be good for Tesla, especially TE on the solar and battery side of the business. I think oil\fuel prices are just one variable for Tesla car buyers, but that would only be one attribute in the purchasing decision.

I think the primary (and crucial) benefit of higher oil prices to Tesla is ability to keep ASP high, which drops straight to the bottom line.

Tesla can funnel this extra cash to accelerating subsequent Gigafactories.

 

[Reciprocity]

I don't think this is enough. The world will soon be using 200,000 TWh of energy each year, increasing rapidly year after year, and 100's of GW of solar capacity translates to, what, few hundred TWh of energy per year? This doesn't even cover a fraction of the annual growth of global energy consumption, which will accelerate as China/India middle income grows...

Until we see TW's of solar capacity coming online each year, it's too early to talk about oil demand declining sustainably. My WAG is ~2030+.



I think this is optimistic. Maybe at $100+ oil, but they couldn't even add a few hundred thousand b/d this year... See the ongoing significant downward revisions to EIA weeklies? EIA-914 monthly is the report to follow for more accurate data.



Some expect exports staying above 2.0 mbd in November, which could mean WTI moves above $60 in short order... and possibly $70 by year-end, because Brent will also be moving higher significantly. I'll be watching tonight's API and tomorrow EIA's inventory numbers. I think they will show eye-opening draws.



I think the primary (and crucial) benefit of higher oil prices to Tesla is ability to keep ASP high, which drops straight to the bottom line.

Tesla can funnel this extra cash to accelerating subsequent Gigafactories.

I agree with VA on this oil stuff. My question for the forum is when do I start shorting OIL for the long drop into obscurity. My current plan is to use this drop as a hedge for the upcoming recession. No one knows when it will be or how big of a retrenchment it will be, but it will happen and there is little doubt. I think Oil will be one of the hardest hit in recession because of the timing as it relates to less dependence and ever increasing supply. The other question is whats better to short, OIL the commodity or oil companies. One issue that I am having is that Nat Gas will still be valuable for a lot longer then some of oils other byproducts which makes me lean towards the commodity rather then the companies. Right now, im targeting about 3-6 months after the Saudi Aramco deal because i think they will pump the price of oil up going into that event and I want to start shorting at the highs. I think am thinking a simple ETF like USOD or DRIP for companies, would love recommendations.

 

[ValueAnalyst]

I agree with VA on this oil stuff. My question for the forum is when do I start shorting OIL for the long drop into obscurity. My current plan is to use this drop as a hedge for the upcoming recession. No one knows when it will be or how big of a retrenchment it will be, but it will happen and there is little doubt. I think Oil will be one of the hardest hit in recession because of the timing as it relates to less dependence and ever increasing supply. The other question is whats better to short, OIL the commodity or oil companies. One issue that I am having is that Nat Gas will still be valuable for a lot longer then some of oils other byproducts which makes me lean towards the commodity rather then the companies. Right now, im targeting about 3-6 months after the Saudi Aramco deal because i think they will pump the price of oil up going into that event and I want to start shorting at the highs. I think am thinking a simple ETF like USOD or DRIP for companies, would love recommendations.

I think we are at least a year away from a recession or shorting oil. I don't short, but I'll probably look into this more as we get closer to a recession. Time better spent right now on analyzing when Tesla will get to 4,000/week Model 3's at 20% gross margin. That's the quarter in which Tesla will be GAAP profitable, which will attract investors who wouldn't touch TSLA with a ten-foot pole until then. I'm thinking 1Q18 in an optimistic scenario, 2Q18 base case, 3Q18 more conservative. If oil is at $70+ then Tesla can keep Model 3 ASP high through 1H18, which would accelerate/ensure this timeline.

 

[Reciprocity]

I think we are at least a year away from a recession or shorting oil. I don't short, but I'll probably look into this more as we get closer to a recession. Time better spent right now on analyzing when Tesla will get to 4,000/week Model 3's at 20% gross margin. That's the quarter in which Tesla will be GAAP profitable, which will attract investors who wouldn't touch TSLA with a ten-foot pole until then. I'm thinking 1Q18 in an optimistic scenario, 2Q18 base case, 3Q18 more conservative. If oil is at $70+ then Tesla can keep Model 3 ASP high through 1H18, which would accelerate/ensure this timeline.

Agree on more then a year away.. I think the Aramco deal is a year away so I am assuming at least 18 months, maybe a bit more. Timing should be very good for Model 3 ramp and Model Y reservations. I have never shorted a single stock, but I have used leveraged ETFs before to hit or miss results. But I never had as good a plan or preparation as I have and will have in 18+ months. To me its less about shorting and more about hedging. May not matter if TSLA is trending over 1k, though I do worry about the 30-50% drop that stocks in general will be hit with during a recession, hence the hedge.

 

[winfield100]

I don't think this is enough. The world will soon be using 200,000 TWh of energy each year, increasing rapidly year after year, and 100's of GW of solar capacity translates to, what, few hundred TWh of energy per year? This doesn't even cover a fraction of the annual growth of global energy consumption, which will accelerate as China/India middle income grows...

can you give a link to this please. i'm aware the US was using 4,500 - 5,000 TWh/year a few years back. does the rest of the planet use the rest?
thanks 4 any answer

 

[ValueAnalyst]

can you give a link to this please. i'm aware the US was using 4,500 - 5,000 TWh/year a few years back. does the rest of the planet use the rest?
thanks 4 any answer

World energy consumption - Wikipedia

Check the table on the right, and note that global growth has accelerated in a major way since 2014.

 

[TheTalkingMule]

That is pretty modest in the big scheme of things. Basically one large nuclear or coal plant equivalent.

Sure, one 2GW solar farm offsetting production previously sourced from oil might be small, but scale it up by 25 of these and the numbers are significant. There's a lot of desert(and demand) out there in the ME.

0.0016 barrels of oil to produce 1 kWh
1,500,000 kW @ peak = 2,400 b/hour
6 sun hours per day = 14,400 b/day
25 similar regional plants = 360,000 b/day in decreased demand

Is that about right? 50GW of installed solar that directly offsets production from oil would be a 360k barrel per day hit to demand. That's not insignificant.

 

[winfield100]

World energy consumption - Wikipedia

Check the table on the right, and note that global growth has accelerated in a major way since 2014.

ah, thanks. another one I've been looking for. I suspect with India, China, Africa coming online it will continue to accelerate.
been looking at these charts, US only
See All U.S. Energy Consumption in One Giant Flow Diagram

 

[winfield100]

Sure, one 2GW solar farm offsetting production previously sourced from oil might be small, but scale it up by 25 of these and the numbers are significant. There's a lot of desert(and demand) out there in the ME.

0.0016 barrels of oil to produce 1 kWh
1,500,000 kW @ peak = 2,400 b/hour
6 sun hours per day = 14,400 b/day
25 similar regional plants = 360,000 b/day in decreased demand

Is that about right? 50GW of installed solar that directly offsets production from oil would be a 360k barrel per day hit to demand. That's not insignificant.

another nice factoid to use to do forcasting with, love it, thanks