Shorting Oil, Hedging Tesla

[jhm]

Are Energy Markets Responsible For The Brexit? | OilPrice.com

This is a thoughtful peice. I do believe that high energy prices lead to lower labor productivity, which in turn can depress wage growth. The case of the UK is interesting. Around 2005 North Sea oil production declined enough to make the UK a net oil importer. Meanwhile the price of oil went way up. Naturally this would be a contributing factor to wage stagnation up to the present moment. The shift from oil exporter to importer challenges the ballance of trade and can leave the public questioning the merits of free trade and related policy.

Kurt Cobb is a peak supply oil thinker. So he is inclined to see oil scarcity drive oil prices up to the point where it adversely impacts general consumption levels. This spells disaster for peak theorists as you can see in his concluding paragraph. I used to subscribe to this theory, but have moved a peak oil demand perspective. The key difference is that I believe high oil prices specifically undermine demand for oil specifically and not general demand in some sort of intractable way. The segments of the economy that will grow best are ones that minimize consumption of oil. So energy productivity is the key economic issue going forward. It is true that labor needs energy to enhance productivity, but some labor needs more oil while other needs more electricity. So there needs to be a transition from oil dependency to renewable energy thoughout the economy. So peak oil demand, as I understand it, means that the global economy learns how grow using ever decreasing quantities of oil. So general demand can be quite healthy even as specific demand for oil declines. The countries that figure this out first will grow best into the coming decades. I do think that China and India have figured this out.

 

[neroden]

We might want to think about how Tesla's share price might be impacted under an oil whipsaw scenario.

It'll probably whipsaw -- I'm a long-termer so I'll just ride that out.

 

[doggusfluffy]

Chevron, Exxon Commit to $36.8 Billion Expansion Project in Tengiz

But the Chevron announcement on Tuesday is “an inflection point,” said Jefferies senior oil analyst Jason Gammel, noting that it is the first investment of more than $10 billion this year. “It’s a very large project and it’s a reflection of the companies having got their cash cycles under control,” he said.

 

[jhm]

Curious price movement. Tesla is down 1.7%, which may be mild considering the Q2 deliveries miss. But oil is down about 5% to $46.67/b. Natural gas and gasoline are falling even harder. S&P is down 0.9%. So considering all the macro factors bearing down on oil and stocks, Tesla seems to be holding its own.

 

[TheTalkingMule]

Curious price movement. Tesla is down 1.7%, which may be mild considering the Q2 deliveries miss. But oil is down about 5% to $46.67/b. Natural gas and gasoline are falling even harder. S&P is down 0.9%. So considering all the macro factors bearing down on oil and stocks, Tesla seems to be holding its own.

Seems we sit here worrying about price movements day-to-day while the institutional investors already had their discussions with Elon months ago and have bought into the plan.

Brexit, oil tanking, NHSTA investigation, massive 2Q miss.......the stock bounces right back to $214. Amazing. People must be accepting that the vision is becoming reality.

I'm officially pro-SCTY-merger if this kind of stability is what can be expected.

 

[neroden]

Chevron, Exxon Commit to $36.8 Billion Expansion Project in Tengiz

Ah, throwing good money after bad.

 

[jhm]

Commodity Price Charts

There is a very strong long-term correlation between gasoline RBOB prices and WTI crude prices. The price for gasoline appears to be headed down again. Last year the seasonal trend was quite clear. Gas was low in Q1 and then led oil back up in Q2, only to fall precipitously in Q3 all the way down to Q1 in the next year. This is what drove the price of crude down to the low 30s this year. Gasoline is the most important oil product. It tends to command a relatively high price compared to other products and is about 67% of the mix by volume. So as the price of gasoline falls, refiner demand for crude takes a big hit. Refiners like to stock up on gasoline in Q2 in anticipation of peak summer demand. But if consumer demand fizzles in the summer, the price of gas will take a big hit. So it is significant that gas is taking a nosedive following the Fourth of July weekend.

Latter today the EIA will release its weekly petroleum report. If gasoline stocks are continuing to build, it won't be good for oil.

 

[jhm]

India Sends Shockwaves Through Coal Markets | OilPrice.com

India looks to become a coal exporting country. This should not be a surprise, but somehow it is.

India has discovered that it is cheaper to build out new solar plants than new coal plants. Since the beginning of the year, they have been saying that they are just two to three years away from curtail all imports of coal. Meanwhile, the domestic coal producers are growing. So they need an export market.

This should be a lesson to other fossil producers looking to Asia for a growing import market. As soon as renewables or EVs can offset demand for imported fuels, imports will fall rapidly. Soon whatever domestic supply there may be will seek to compete with other exporters. The flip from net importer to net exporter can happen in just a few years with big impact on the export market. I belive this is also playing out with LNG. The US used to be a net importer of natural gas from Canada. Now the US is an LNG exporter. This is crushing to Canadian gas producers who desperately need LNG export capacity to relieve their supply. The folly of both the US and Canada getting into the LNG export market is that it too is oversupplied such that no one makes money. Exports are a precarious solution to the problem of domestic over supply, especially at a time when renewables are disrupting domestic markets everywhere. Solar and wind are cheap everywhere.

 

[jhm]

WTI crude tumbles to $45/b on news of modest 2.2 million barrel drawdown. Total commercial petroleum inventory grew by 3.4 mmB. So end consumers are still not digesting all this oil.

BTW, I still hold some SCO as a hedge. It's gratifying to see it go up 9% on a day when Tesla also climbs.

 

[jhm]

Shrinking Chinese Demand About To Slam Oil Prices | OilPrice.com

Analysts at JPMorgan Chase & Co. believe that China is close to filling its strategic oil reserves by August of this year, which will lead to a 15 percent reduction in imports.

“China has taken the opportunity of lower oil prices since early-2015 to accelerate the strategic petroleum reserve builds,” Wang said in the report. “This volume might be close to the capacity limit, in our view, and together with potential teapot utilization pullback and slower-than-expected demand from China could increase near-term risks to global oil prices,” reports Bloomberg.

I had been led to believe that it would take many years for China to fill up its strategic reserve, but if they are full by August this spells near term problems for oil prices. China has maxed out its import capacity year to date. Pulling back on filling reserves would take out about 1 mb/d of demand.

Obviously, China could pull back any time they want whether or not their reserves are full. So they have the scale to swing the market should prices get too high or too low.

 

[jhm]

Oil Bulls Beware Because China’s Almost Done Amassing Crude

This is helpful. China has be stockpiling 1.2 mb/d in its SPR.

They may need to taper off, unless they really do want to tank the market when the SPR is full. The pun here is far too literal.

 

[renim]

U.S. Weekly Heating Oil and Propane Prices (October - March)

compare global propane prices to USA propane prices. Saudi Aramco sets June propane price at $330.00/T | Agricultural Commodities | Reuters

the point is, 3 key events will happen over the near term.
1) Massive amount of USA utility solar comes online bigtime from July to Dec 2016. After nothing for first 6 months. Its the start of solar being a true market driving energy source in USA.
2) Cheniere LNG export terminal ramps up big time over next 4 years.
3) Panama canal expansion just completed.

In summary, USA shale plays will become able to sell more product at higher prices, product which on a global market displaces oil.
So their success will be contributing to lower oil prices,

USA gasses prices will inch upward, utility solar inch downward, in Texas they will pass each other, and a full on utility boom will occur in Texas, similar to what happened with wind.

Who will buy all that Texan solar electricity? It will be cheaper than anyone else's gas powered electricity during noon time. Texan wind will also continue its ramp up.

Just what happens when Texan natural gas increases in price because they can export it, and Texan solar becomes cheaper than exportable natural gas?

 

[neroden]

U.S. Weekly Heating Oil and Propane Prices (October - March)

compare global propane prices to USA propane prices. Saudi Aramco sets June propane price at $330.00/T | Agricultural Commodities | Reuters

http://af.reuters.com/article/commoditiesNews/idAFD5N16E005
So the US wholesale prices are almost *twice* the Saudi prices? (534 gallons / tonne) That seems like quite a dislocation to me. I'd expect importation of propane to the US.

 

[renim]

redo your calcs.
Expanded Panama Canal a boon for fuel-hungry Japan - Nikkei Asian Review

 

[TaoJones]

Anyone else mildly amused that Texas, not the most Tesla-friendly geopolitical entity, stands to profit handsomely from not-too-distant future events related to non-oil?

 

[jhm]

Anyone else mildly amused that Texas, not the most Tesla-friendly geopolitical entity, stands to profit handsomely from not-too-distant future events related to non-oil?

How so?

 

[jhm]

I find 521 propane gallons per tonne: Oil and Gas Industry Overview. Also 91,500 btu per propane gallon.


So here is what I get...

So Saudi propane is at $330/T = $0.633/gal = $6.92/mmbtu.

US propane $0.513/gal = $5.61/mmbtu

Note that the global price for LNG is about $4.5/mmbtu

So LNG is competive with both from a thermal content price view point, which is important for power generation markets.

 

[renim]

Propane is a premium fuel, not for use in power generation except as off grid.

Jan 2014, Propane was $1,000 a ton Saudi Aramco LPG Prices | Gas Energy Australia

now Saudi is losing real market share to USA

roughly speaking, compared to gasoline Propane has reduced in price from 50% to 33%
Propane / RBOB Gasoline Price Ratio - IndexMundi

that is quite a break, due to USA producers

point is, resiliency of USA producers can be increased in a declining oil market, because USA propane is a substitute for crude oil in global market.

second point was that USA LNG exports will assist both USA utility solar and USA shale gas producers. A rising tide, so to speak.

 

[neroden]

I find 521 propane gallons per tonne: Oil and Gas Industry Overview. Also 91,500 btu per propane gallon.


So here is what I get...

So Saudi propane is at $330/T = $0.633/gal = $6.92/mmbtu.

US propane $0.513/gal = $5.61/mmbtu

Note that the global price for LNG is about $4.5/mmbtu

So LNG is competive with both from a thermal content price view point, which is important for power generation markets.

Aaaaah, I was looking at the wrong line.

Propane is marked up by a *factor of 4* from wholesale to retail? You'd have to be crazy to use retail propane for anything, and so I expect to see a lot of people switching away from it.

Heating oil only has a markup of a factor of 2 (similar to electricity). And it's been true for 20 years that anyone using heating oil should replace their heating system, like, yesterday, because it's so cost-ineffective.

 

[jhm]

In the US, about 2/3 of propane is derived from natural gas. It is an NGL. So it exist in an overlap market of oil, natural gas and NGL. Dry natural gas is what you get after the more valuable natural gas liquids have been stripped out.

Other NGLs are important as petrochemical feedstock, particularly ethane which is in a glut for plastics market. So as renewables push natural gas out of power generation, the rejected gas competes with crude in the NGL markets.