Shorting Oil, Hedging Tesla

[jhm]

I think the steep part of the dropoff in ICE sales will occur when the faster depreciation rate of ICE vehicles really starts to take hold. People will be dissuaded from buying because of that, and trade-ins will be worth far less. This will be far more of a large effect than people waiting for an EV.

I think of that as the anticipation of obsolescence. Oddly enough that could lead to holding onto an older vehicle longer than you might otherwise do. So the value of used vehicles could go up for a while. But then as production of lower cost EVs steps up, the bottom could fall out of the used ICE market. The only thing that ways temporarily propping up the price of used ICE was a lack of cheap EVs.

 

[ggies07]

EVs, Oil, And ICE: Impact By 2023 And Beyond EVs, Oil, And ICE: Impact By 2023 And Beyond | Seeking Alpha

And another thing - the gov't better not ****ing bail these companies out again when the collapse happens. Will be so pissed if they do after years of shitting on Tesla and not promoting them as an American company.

 

[jhm]

OPEC: Oil Demand Growth To Slow In 2019 | OilPrice.com

Here's an interesting development: OPEC's forecast for oil demand in 2019, 1.45 mb/d, is down 200 kb/d from 2018 which was 1.65 mb/d. In the headlines they point to demand concerns, but in the details we see where the weakness really is:


So Europe, like most of OECD countries, will return to demand decline that began over a decade ago. This is a simple response to higher oil prices and the availability to switch to more efficient vehicles. They make this out to be about slowing economic growth, but I think it is just price response.

Now what is this new euphemism, "planned substitution programs"? It sure sounds like EVs, EVs, and yet more EVs. We also see that the focus really is more about China, than the whole Asia-Pacific region. The ready-made spin here is to immediately divert to Latin America or the Middle East as the hot spots for oil demand growth. Apparently India does not get a special mention any more because China will suck so much demand growth, that India is lost to the demand growth void known as the Asia-Pacific market. Ok, so if OPEC is pinning demand growth hopes on Latin America and self-consumption in the Middle East, EVs in China, Europe and the North America must be starting to cause posterior pain for OPEC.

Net demand for OPEC oil is expected to FALL 800 kb/d in 2019 according to OPEC. So let's break this down EVs and oil price response erodes 200 kb/d, while non-OPEC producers pick up another 600 kb/d. Collectively this reduces demand for OPEC oil by 800 kb/d.

IS THIS PEAK OPEC?

According to its own analysis, OPEC production needs to fall 800 kb/d or the market becomes oversupplied. Now certain members may well take this hit so that other members still have a chance at growth. But on balance this is not a healthy situation for the cartel.

So back in July 2018, I asked if we have seen peak OPEC production. OPEC has released its Dec report, and it is not good. To review,

2015 31.9 mb/d OPEC production
2016 32.9 mb/d OPEC production
2017 32.6 mb/d OPEC production
2018 32.4 mb/d estimated demand for OPEC oil
2019 31.4 mb/d forecast demand for OPEC oil

So OPEC appears to have peaked in 2016 and will continue to decline. Specifically, OPEC is forecasting the following changes for 2019

World Oil Demand +1.29 mb/d
Non-OPEC Supply +2.16 mb/d
Demand for OPEC crude -1.0 mb/d

This must be a frustrating position for OPEC members to be in. To secure the price, they must cut production while the rest of the world's oil producer grab market share from OPEC. But keeping the price high also means oil demand does not grow so fast. I don't really see a way for OPEC grow its production. There is simply not enough net demand growth for OPEC for Brent over $65.
OPEC Sees Demand For Its Crude Oil Lower In 2019 | OilPrice.com

 

[adiggs]

So back in July 2018, I asked if we have seen peak OPEC production. OPEC has released its Dec report, and it is not good. To review,

2015 31.9 mb/d OPEC production
2016 32.9 mb/d OPEC production
2017 32.6 mb/d OPEC production
2018 32.4 mb/d estimated demand for OPEC oil
2019 31.4 mb/d forecast demand for OPEC oil

So OPEC appears to have peaked in 2016 and will continue to decline. Specifically, OPEC is forecasting the following changes for 2019

World Oil Demand +1.29 mb/d
Non-OPEC Supply +2.16 mb/d
Demand for OPEC crude -1.0 mb/d

This must be a frustrating position for OPEC members to be in. To secure the price, they must cut production while the rest of the world's oil producer grab market share from OPEC. But keeping the price high also means oil demand does not grow so fast. I don't really see a way for OPEC grow its production. There is simply not enough net demand growth for OPEC for Brent over $65.
OPEC Sees Demand For Its Crude Oil Lower In 2019 | OilPrice.com

This larger context is why I keep expecting the really big producers in OPEC+ (mostly Russia, Saudi Arabia) to get 'pissed' at some point and just start producing with abandon. We're still in a window where they can prop up the market by taking their own production off the market, but at some point, they've cut far enough to sustain everybody else's prices, that they flip and take market share at any price.

After all, at some point, there will be realization that every identified barrel in the ground will not be mined and sold, and there will be a rush on to mine and sell every barrel before the market end arrives.

How low does OPEC / OPEC+ go before they decide to sustain market share at the expense of price? 30mb/d? 25mb/d? I'd assume long before 25 mb/d (when they're accustomed to well over 30 mb/d).


Cheap(er) energy will be arriving (I believe) before the overproduction of energy by renewable sources will bring it.

 

[jhm]

This larger context is why I keep expecting the really big producers in OPEC+ (mostly Russia, Saudi Arabia) to get 'pissed' at some point and just start producing with abandon. We're still in a window where they can prop up the market by taking their own production off the market, but at some point, they've cut far enough to sustain everybody else's prices, that they flip and take market share at any price.

After all, at some point, there will be realization that every identified barrel in the ground will not be mined and sold, and there will be a rush on to mine and sell every barrel before the market end arrives.

How low does OPEC / OPEC+ go before they decide to sustain market share at the expense of price? 30mb/d? 25mb/d? I'd assume long before 25 mb/d (when they're accustomed to well over 30 mb/d).


Cheap(er) energy will be arriving (I believe) before the overproduction of energy by renewable sources will bring it.

Yep, if they do sufficient cutting, they will be conceding 1% point of market share. The market power of OPEC depends a lot on market share. In 2016 OPEC crude had 34.3% market share. That falls to 33.8% in 2017. If they were to balance the market in 2019, it would drop to 31.4%. This is a decline of about 1% point per year. if this continues, eventually they break ranks and give up trying to support the price or they simply lose sufficient market power to support the price. I think that latter would take longer than the former, but either way you get to a point where OPEC does not support the price. Oil falls to competitive market prices. The folly here for US shale is that they pretty much act as if OPEC is always going to support the price. But the more share US shale takes from OPEC, the less able OPEC is to fulfill that function in the market. Russia gets it and has been coordinating with OPEC. But I don't think that US producers will really align themselves with OPEC, and legally they cannot not. So the US is largely pushing oil into competitive prices, which will not end well as renewables and EVs scale.

The really sad thing in all this is that the hope of limiting climate change to less than 3 degrees is quickly being snuffed out. US, Russia and Saudi Arabia seem aligned to form the dark axis of climate destruction.

Current Climate Targets Put Us On Track For 3.0˚C Of Warming By 2100 | CleanTechnica

 

[neroden]

The US will reverse course and start fighting global warming as soon as Trump is removed from office. Saudi Arabia will collapse, very soon.

The big problems are Putin's Russia, *rogue provinces* and *rogue companies* in China who are promoting coal against the edicts of the central government, the fascist in Brazil, and Indonesia which is doing absolutely everything wrong. Of course we have to solve the US problem and let the Saudis collapse, but those are likely; I don't see a solution for Indonesia or Brazil or Russia right now, and the rogues in China are gaining power.

 

[jhm]

MIT team gains ground on molten silicon energy storage concept

Apparently it is possible to generate solar power (PV) while the sun is not shining.

 

[TheTalkingMule]

Not only is China going to buy every drop of oil Iran send them.....Venezuela will likely now magically resume normal exports(and send the profits to ConocoPhillips).

Poof! Magic!

Chinese-Venezuelan Joint Venture Doubles Oil Production | OilPrice.com

 

[RobStark]

California to phase in electric, fuel-cell transit buses

All new transit buses must be zero emissions by 2029.

 

[Oil4AsphaultOnly]

California to phase in electric, fuel-cell transit buses

All new transit buses must be zero emissions by 2029.

As a Californian, I'm dismayed that CARB still has hopes for fuel cells.

 

[jhm]

California to phase in electric, fuel-cell transit buses

All new transit buses must be zero emissions by 2029.

I'm not sure how this will make any difference. My outlook is that electric buses will saturate the municipal market many years earlier. Of course, if I'm overly optimist here, this will have some teeth. But even then 2029 is so far off to stop new diesel buses from being built. What would have more teeth is a rule that by 2030 no municipal bus can be carbon emitting. This would have teeth right now because any new diesel buses today would need to serve their entire useful life by 2030 or eventually be sold out of state potentially at a loss. So this would give transit districts motivation to search out emission-free alternatives immediately and avoid acquiring too many new buses that are not emissions free.

 

[mspohr]

At last, divestment is hitting the fossil fuel industry where it hurts | Bill McKibben
---
Now the contagion seems to be spreading to the oil and gas sector, where Shell announced earlier this year that divestment should be considered a “material risk” to its business. That’s how oil companies across the world are treating it – in the US, petroleum producers have set up a website designed to discredit divestment,. and for a while had me under round-the-clock public surveillance. The pressure is not preventing anyone from acting: when Yale arrested 48 brave students who were occupying its investment offices last week, they left chanting: “We’ll be back.”

 

[RobStark]

I'm not sure how this will make any difference.

Politics is the art of the possible.

Heavy EV makers don't have the capacity to convert all ICE municipal bus sales to EV bus sales immediately. We have seen Chinese EV bus makers have problems meeting expectations for quality of American customers. Proterra et al just don't have the capacity.

This tells manufactures that there is guaranteed demand starting in 2030.

This tells CA municipalities they need to lay the groundwork and infrastructure to switch.

IF you have to switch, even if you think it doesn't pencil out immediately, you might as well start preparing for the switch immediately.

Outside of China, this is better than anyone else.

 

[mblakele]

Justin Trudeau’s climate plans are stuck in Alberta’s tar sands

The last paragraph doubles as a decent summary:

Even the most starry-eyed scientists do not imagine that Alberta can revamp its economy overnight. Oil and gas account for a quarter of the province’s gdp (see chart), and will continue to be the largest slice for decades. The next two most important sectors, construction and property, rise and fall with the oil industry. But the reluctance even to face the need for change is worrying. “A lot of people think we’ve always been oil and gas and they don’t think it’s possible to pivot,” says Terry Ross of the university’s Schulich School of Engineering. For a province of horse-riders, that is a dangerous shortcoming.

 

[jhm]

Politics is the art of the possible.

Heavy EV makers don't have the capacity to convert all ICE municipal bus sales to EV bus sales immediately. We have seen Chinese EV bus makers have problems meeting expectations for quality of American customers. Proterra et al just don't have the capacity.

This tells manufactures that there is guaranteed demand starting in 2030.

This tells CA municipalities they need to lay the groundwork and infrastructure to switch.

IF you have to switch, even if you think it doesn't pencil out immediately, you might as well start preparing for the switch immediately.

Outside of China, this is better than anyone else.

Good points. I was not thinking so much about the impact on bus makers. Curiously, when a government mandates a certain demand level (even when that level is likely to be the case regardless, it does help to derisk the investment that companies must make to meet those demand levels.

This is a curiosity because the typical outlook of those who prefer freer markets is that this sort of government mandate is an unwelcome intrusion into a market. And yet, if government mandates prove to derisk the endeavor it actually beneficial. Conversely, a freer market might not transition as quickly if only because of the risks involved in building out supply for a market that may or may not materialize.

Of course, in this case, the consumers of these electric buses are government entities. So we're not talking about a pristine free market, but government procurement. And yes, those municipalities do need to get started working out the specific infrastructure they will need to go fully electric. I do hope most of them will get there 5 years earlier.

Edit, I forgot to mention that derisking a transition like this for suppliers also enable them to get lower cost financing. So it actually has the benefit of allowing the transition to happen at lower cost, which benefits most parties involved.

 

[jhm]

6th Largest US Coal Company Files For Chapter 11 Bankruptcy | CleanTechnica

This is what failure to divest looks like.

 

[EinSV]

At last, divestment is hitting the fossil fuel industry where it hurts | Bill McKibben
---
Now the contagion seems to be spreading to the oil and gas sector, where Shell announced earlier this year that divestment should be considered a “material risk” to its business. That’s how oil companies across the world are treating it – in the US, petroleum producers have set up a website designed to discredit divestment,. and for a while had me under round-the-clock public surveillance. The pressure is not preventing anyone from acting: when Yale arrested 48 brave students who were occupying its investment offices last week, they left chanting: “We’ll be back.”

Given the dire conclusions of the recent climate reports, the disappointing results of COP24 and the ability of fossil fuel companies to gain control of policy in the US and other countries, it is the right time for the divestment movement to kick into high gear.

Hopefully college students will lead the charge on campuses while investors press funds to do the responsible (and wise) thing by divesting from fossil fuel-oriented companies.

 

[neroden]

I'm not sure how this will make any difference.

It'll shake the smaller, sleepier transit agencies which weren't paying attention and were running on autopilot buying diesel buses without thinking about it. Now if they want to buy diesel buses they have to write an essay and submit it to CARB explaining why they can't afford battery buses.

This sort of regulation actually tends to have a huge impact.

 

[TheTalkingMule]

Down down down we go.....Brent slips below $57.

Saudi 2019 budget released.....up more than 7%, no cut to welfare payouts. Tick tock, tock tock.

 

[mspohr]

For your entertainment, here's a "study" from the notorious Chamber of Commerce that blames those pesky environmentalists for $91 Billion in economic damage.

Chamber blames anti-fossil fuel activists for over $91 billion in economic losses