-
Want to remove ads? Register an account and login to see fewer ads, and become a Supporting Member to remove almost all ads.
ValueAnalyst
Closed
Solely because of juvenile trolling by @TheTalkingMule, I will not be contributing to this thread any longer.
@AudubonB @ggr
@AudubonB @ggr
Last edited:
Yeah, the interesting observation in this article is that peak oil thinkers had not imagined that shale investors would be willing to sustain so much cash burn. Of course, the glamour of having an oil supply once production enters structural decline may have proven deceptive. Investors can be quite willing to sustain cash burn in hopes of some big pay off when the market is tight. One need only take an option theoretic point of view to see how even a well that is expected to lose money can have value as a sort of put option on future oil price spikes. This sort of option value also supports holding ever bigger stockpiles.
TheTalkingMule
Distributed Energy Enthusiast
SebastianR
Active Member
So now there is this: Chinese Oil Demand Growth Could Slow Down Soon | OilPrice.com
If the teapots are really shutting down much of their imports, this could be the end of oil demand growth in China.
Mod: edited typo "teapods" to "teapots", mentioned in the article. --ggr.
If the teapots are really shutting down much of their imports, this could be the end of oil demand growth in China.
Mod: edited typo "teapods" to "teapots", mentioned in the article. --ggr.
Last edited by a moderator:
SebastianR
Active Member
I thought a bit more about your comment and honestly I have a problem understanding this: I get the basic rationale outlined by you. But then I don't get the structural difference between US shale and Canadian oil sands. I mean yes, I may hold onto an investment that's losing me money right now, if that will give a massive payoff in future, but wouldn't that be the same for the Canadian investments? Or is the difference really solely due to access to Wall St. / legal / capital market structural differences between the US and Canada?
TheTalkingMule
Distributed Energy Enthusiast
Another -5% day for Brent as this looming supply crunch seems less certain.
Oil Falls as Traders Anticipate Higher Supply
It would be interesting to have insight into contracts US frackers have signed over the last couple months. They seemed overjoyed to have WTI back over $60 at the beginning of the year.....how much more future production has $74 created?
Certainly we're absorbing any increased global demand and then some. Doesn't Russia want a piece of the action? Doesn't SA need a piece of the action?
Oil Falls as Traders Anticipate Higher Supply
It would be interesting to have insight into contracts US frackers have signed over the last couple months. They seemed overjoyed to have WTI back over $60 at the beginning of the year.....how much more future production has $74 created?
Certainly we're absorbing any increased global demand and then some. Doesn't Russia want a piece of the action? Doesn't SA need a piece of the action?
It think there are difference is costs and quality of crude that could explain the differences in investment. Also one key advantage that shale has if a fast investment cycle. For example, deep water projects have a very long investment cycle and high cost, so not as attractive as an option on short cycle, low cost shale. So if you think of an oil field as a set of call option, they will vary in strike price, underlying (quality specific market index) and duration.
I saw this too. A tax change is changing the profitability of the teapot refiners. So the bigger story here is what political and policy issues are driving the tax change. Specifically, I wonder if the government is pursuing this as a way to reduce dependency on imported oil. They have also cut back on subsidies for EV, so an increase in taxes on motor fuels would also support migration to EVs. Imposing these taxes now might also curtail expansion of refinery capacity and avoid asset stranding in the future.
Brent Futures Curve | ERCE
These futures curves are interesting to look at. I wish they had something newer.
Oil Market Shifts From Contango to Backwardation: Implications for Investors
This is a nice little explainer that highlights when the futures curve flipped from contango to backwardation.
In backwardation if the spot price stays constant, you can get a yield from buying a long dated future at below the current spot price. Then as time passes the value of the future increases to meet the spot price.
So this is the basic incentive for traders to go long on futures. This in turn provides hedging for oil producers to sell futures on their future production stream. Of course, if producers produce too much, the spot price will fall. So the producer who hedges is transferring that market risk to the futures investor.
Recall that in contango a physical oil trader could buy oil at spot, sell a future at above spot and store the oil to service the futures contract. Thus in a contango market, the market is paying for the storage of physical oil. Conversely in backwardation, if you are storing oil, you are incentivized to sell oil into the spot market. The market is paying futures investors to finance increased production.
With these basics in mind, if should not be surprising to supply continue to grow during a backwaradtion market with stable spot prices.
This is a nice little explainer that highlights when the futures curve flipped from contango to backwardation.
In backwardation if the spot price stays constant, you can get a yield from buying a long dated future at below the current spot price. Then as time passes the value of the future increases to meet the spot price.
So this is the basic incentive for traders to go long on futures. This in turn provides hedging for oil producers to sell futures on their future production stream. Of course, if producers produce too much, the spot price will fall. So the producer who hedges is transferring that market risk to the futures investor.
Recall that in contango a physical oil trader could buy oil at spot, sell a future at above spot and store the oil to service the futures contract. Thus in a contango market, the market is paying for the storage of physical oil. Conversely in backwardation, if you are storing oil, you are incentivized to sell oil into the spot market. The market is paying futures investors to finance increased production.
With these basics in mind, if should not be surprising to supply continue to grow during a backwaradtion market with stable spot prices.
TheTalkingMule
Distributed Energy Enthusiast
Electricity Investment Exceeds Oil, Gas For Second Year In A Row | OilPrice.com
The shift in energy investments from fossils to electricity is pretty important.
Let's look at the competition.
So all this time Tesla has been burning cash to bring EVs to market, they've been in competition with a segment of oil industry willing to burn cash at a massive scale to bring incremental supply to the market.
So if shale producers are near to becoming free cash flow positive, so is Tesla. We shall see how investments flow around such alternatives.
The shift in energy investments from fossils to electricity is pretty important.
Let's look at the competition.
So all this time Tesla has been burning cash to bring EVs to market, they've been in competition with a segment of oil industry willing to burn cash at a massive scale to bring incremental supply to the market.
So if shale producers are near to becoming free cash flow positive, so is Tesla. We shall see how investments flow around such alternatives.
shale is single country tech that is yet to go global.
EVs are an asian tech (china/japan/korea)
both have pretty bright futures
EV Sales: Global June '18 Top 5 - Half game bet
1st is japanese but globally produced
2nd is chinese
3rd is USA
4th is japanese
5th is chinese
1st is 40kWh
2nd is 20kWh
3rd is 80kWh
4th is 9kWh
5th is 13 or 16 kWh
so EVs are 40kWh +100% -50%
PHEVs are 9kWh + 50% or 80%
1,2,3,5 are from motivated companies, 4th is a reluctant entry.
1st and 4th are from 2 of the world's top 3 car companies, good for transition from oil to electrons.
"Sentiment", as they call it. For some reason, the frackers are slicker salesmen and can get more dumb money out of Wall Street than the Canadian oil sands guys.
Soooo they're down from spending $1.80 for each dollar of revenue to spending $0.90 for each dollar of revenue, and all they had to do was to shut down operations in every single field except the Permian, which is half conventional oil anyway?
I am so unimpressed by the shale oil guys.
I'm going to propose a different interpretation. Suppose that the markets have *finally* caught up with peak demand theory and are expecting a long-term drop in the value of oil, and that this is driving a long-term downward sloping futures curve.
The market reaction should now drive the emptying of inventory at the front end. We'll see if this is sufficient to restore front-end contango. The normal shape of the oil futures curve is humped -- contango in the short term, backwardation in the long term.
Nice! I like the idea of measuring sales in units of MWh, which you can get to by multiplication.
Similar threads
