Shorting Oil, Hedging Tesla

[jhm]

Silliness.

Oil supply is elastic wtih a *time lag*, which is only partly buffered by storage. If demand goes up this week, supply goes up two years from now. This predictably leads to swings up and down (it's easy enough to do the math to show that this always happens). The only way to reduce volatility is for the *time lag* to go away (not happening) -- or for a cartel or regulator to fix prices or fix production.

Oil demand is of course more elastic than before, and with a shorter time lag than supply. That does mean that we should see recurrent gluts in oil, but the price will still swing.

Well, the article was not being explicit about how supply elasticity was being measured. Given the lag from the spot price to the creation of new production as you point out, the spot price per se is not really the price metric of concern. Rather, it is sensitivity to expected future prices which matter. The question is whether producers get their price expectations from the futures market or from their gut so-to-speak. To the extent producers are hedging new production to lock in sufficient return, then there will be real price sensitivity to the futures market. This at least is quantifiable; whereas price sensitivity to gut feeling is not. So this is how I'm inclined to interpret the idea that producers are becoming more price sensitive.

A futures market can reduce volatility. Or more accurately, it transfers market risk from producers to speculators and other traders. A robust futures market makes a cartel less important.

 

[neroden]

True about the futures market.

Mathematically, response lags on negative-feedback controls are basically how you generate oscillations. The pervasive presence of response lags in response to price signals is why equilibrium economics doesn't work. (It's sad how bad mainstream economics is.)

The oil futures market tends to track the spot market surprisingly closely, indicating that knowledge about the future of oil prices among participants is minimal. (Which absolutely does not surprise me.) As such, I think producer response is basically in response to spot prices; I know consumer response is almost entirely in response to spot prices. I may work up a proper mathematical model of the oscillatory behavior but I probably won't (feel free).

 

[renim]

Why even have a spot price?

Or to more precise, why not price on a yearly spot price instead of a daily spot price? Isn't that just as valid a way to determine price?

 

[jhm]

True about the futures market.

Mathematically, response lags on negative-feedback controls are basically how you generate oscillations. The pervasive presence of response lags in response to price signals is why equilibrium economics doesn't work. (It's sad how bad mainstream economics is.)

The oil futures market tends to track the spot market surprisingly closely, indicating that knowledge about the future of oil prices among participants is minimal. (Which absolutely does not surprise me.) As such, I think producer response is basically in response to spot prices; I know consumer response is almost entirely in response to spot prices. I may work up a proper mathematical model of the oscillatory behavior but I probably won't (feel free).

Predator-prey models illustrate this. It is curious that classical economics is so adverse to models with feedback loops. I think this is viewed as a violation of rational expectations. However, with rational expectations, it is hard to model boom-bust cycles, even though many markets experience these with some regularity. I can't help but feel that some of this blindness reflects a desire to believe that free markets are stable apart from external regulation. The problem with bubbles, however, is that governments can get just as caught up in them as any other player in a market. So really no entity has an objective view and can exert external corrective action. We are all participants.

 

[Mader Levap]

TL;DR: market is not rational. You are welcome.

 

[neroden]

The future of economics is absolutely boom-bust models. If I were an academic economist, I'd be churning 'em out.

 

[RobStark]

40% of US corn goes to ethanol in gasoline blends.

When gas consumption implodes so will the price of corn.

The Corn Belt will be in the same bind as Texas and Louisiana.

As Electric Cars Shift Into Mainstream, The Corn Belt Ponders A Post-Ethanol Future

 

[mspohr]

A Black Swan event?
The $32 Trillion Push To Disrupt The Entire Oil Industry | OilPrice.com

Increased shareholder activism, combined with global warming policies of institutional investors and NGOs, are pushing IOCs in a corner, constricting financing options for oil companies.

The first signs of a green revolution in the shareholder-investors universe are there, as investors have forced Dutch oil and gas major Shell to officially change its strategy, investing in more renewable energy and energy storage.

 

[jhm]

A Black Swan event?
The $32 Trillion Push To Disrupt The Entire Oil Industry | OilPrice.com

Increased shareholder activism, combined with global warming policies of institutional investors and NGOs, are pushing IOCs in a corner, constricting financing options for oil companies.

The first signs of a green revolution in the shareholder-investors universe are there, as investors have forced Dutch oil and gas major Shell to officially change its strategy, investing in more renewable energy and energy storage.

Amid a dying industry, clamoring for relevance, a solitary voice raises fist to air, "You'll be sorry!"

 

[jhm]

Reuters: Exxon Tries To Block Investor Push For Emission Reduction | OilPrice.com

What's to keep these institutional investors from simply exiting these stocks?

 

[jhm]

Hmm, could big oil, gas and coal be getting interested in making methanol the next hydrogen?

U.S. Production Of This Alternative Fuel Is About To Surge | OilPrice.com
Major methanol project in northern Alberta would eclipse local plant five fold - Medicine Hat News
EV Startup AIWAYS Considers Methanol Fuel Cell Setup
Methanol Market Share, Size, Demand, Price & Trends, Application, Opportunities, Sales & Revenue, Industry Growth, Key Players and Global Forecast to 2023
Project launched to convert high-ash coal into methanol
Methanol Industry Data Now Available
Green Maritime Methanol Project Gets a Boost
It seems odd to me that these articles are coming out in such high volume I the last few days.

This older article from CME actually provides a good overview.
https://seekingalpha.com/article/4224679-methanols-u-s-revival-global-growth-scenarios

Call me suspicious, but this looks like a bunch of greenwashing.

 

[mspohr]

Hmm, could big oil, gas and coal be getting interested in making methanol the next hydrogen?

U.S. Production Of This Alternative Fuel Is About To Surge | OilPrice.com
Major methanol project in northern Alberta would eclipse local plant five fold - Medicine Hat News
EV Startup AIWAYS Considers Methanol Fuel Cell Setup
Methanol Market Share, Size, Demand, Price & Trends, Application, Opportunities, Sales & Revenue, Industry Growth, Key Players and Global Forecast to 2023
Project launched to convert high-ash coal into methanol
Methanol Industry Data Now Available
Green Maritime Methanol Project Gets a Boost
It seems odd to me that these articles are coming out in such high volume I the last few days.

This older article from CME actually provides a good overview.
https://seekingalpha.com/article/4224679-methanols-u-s-revival-global-growth-scenarios

Call me suspicious, but this looks like a bunch of greenwashing.

Methanol and H2 fuel are both made from natural gas. This is just a way to keep the fossil fuels flowing.

 

[ItsNotAboutTheMoney]

Hmm, could big oil, gas and coal be getting interested in making methanol the next hydrogen?

U.S. Production Of This Alternative Fuel Is About To Surge | OilPrice.com
Major methanol project in northern Alberta would eclipse local plant five fold - Medicine Hat News
EV Startup AIWAYS Considers Methanol Fuel Cell Setup
Methanol Market Share, Size, Demand, Price & Trends, Application, Opportunities, Sales & Revenue, Industry Growth, Key Players and Global Forecast to 2023
Project launched to convert high-ash coal into methanol
Methanol Industry Data Now Available
Green Maritime Methanol Project Gets a Boost
It seems odd to me that these articles are coming out in such high volume I the last few days.

This older article from CME actually provides a good overview.
https://seekingalpha.com/article/4224679-methanols-u-s-revival-global-growth-scenarios

Call me suspicious, but this looks like a bunch of greenwashing.

Be happy. It means that everybody's given up on hydrogen.

 

[jhm]

http://www.seatrade-maritime.com/ne...ic-alternative-marine-fuel-of-the-future.html

This sounds like a better option for shipping than LNG.

 

[jhm]

Methanol and H2 fuel are both made from natural gas. This is just a way to keep the fossil fuels flowing.

That's my worry. It can be made from coal and oil too. But also from any biomass or via electrolysis. So it has some potential in 0% fossil fuel world.

Is it better than H2 in a fossil free world? That's what I'd like to know.

 

[ItsNotAboutTheMoney]

Methanol – an economic alternative marine fuel of the future?

This sounds like a better option for shipping than LNG.

There is of course the problem that methanol is toxic. That's why it's not already widely used.

 

[SwTslaGrl]

They run city buses and cars on food waste here Biogas - Wikipedia

 

[mspohr]

That's my worry. It can be made from coal and oil too. But also from any biomass or via electrolysis. So it has some potential in 0% fossil fuel world.

Is it better than H2 in a fossil free world? That's what I'd like to know.

Both H2 and methanol can be made from biomass but most is made from natural gas. As a practical matter, it's cheaper to use natural gas than biomass so that is what will be done unless we outlaw fossil fuels. This is just smoke and mirrors to keep the fossil fuel industry in business.

 

[adiggs]

Methanol – an economic alternative marine fuel of the future?

This sounds like a better option for shipping than LNG.

That sounds like miracle fuel for shipping. Not only is it easy to convert existing ships and engines, but if I'm understanding it right, you can use your ballast tanks (which usually carry water) as an additional fuel tank for methanol. I guess it stays enough separate from the water that you can suck it up as you need it. And methanol can even carry along some water with it and maintain its efficiency when combusted.

 

[adiggs]

That's my worry. It can be made from coal and oil too. But also from any biomass or via electrolysis. So it has some potential in 0% fossil fuel world.

Is it better than H2 in a fossil free world? That's what I'd like to know.

Liquid at room temperature, can store it WITH water in water tanks and still use it as fuel. That's WAY better than hydrogen. (Probably don't use the water for drinking in this case )

I'd assume it's also got less energy per unit of (whatever) than hydrogen, but as long as it's in the ballpark for energy density (at least a usable energy density - it's use as a rocket fuel suggests its in the ballpark at minimum), tells me "yeah - much better than H2 in a fossil free world".

The only reason no would be if it's just too hard to make, relative to H2. And it would have to be a LOT, LOT harder to overcome the storage and use of H2 for anything other than industrial purposes - hydrogen is hard to handle