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Shorting Oil, Hedging Tesla

Discussion in 'TSLA Investor Discussions' started by jhm, Mar 15, 2016.

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  1. TheTalkingMule

    TheTalkingMule Distributed Energy Enthusiast

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    • Informative x 3
  2. adiggs

    adiggs Active Member

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    And complete with a catchy acronym. You must be in marketing @jhm! :)
     
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  3. AwlBidnz

    AwlBidnz Old Guy to be driven around for yrs to come

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    Buying distressed shale producers may not prove to be your best suggestion.
     
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  4. jhm

    jhm Well-Known Member

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    Desperate times call for desperate measures!
     
  5. adiggs

    adiggs Active Member

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    And we know from the coal market that there IS a cheap enough price where these assets will become desirable :) If you can buy somebody else's producing assets for less than you can put in your own new producing assets, then why not, eh?
     
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  6. jhm

    jhm Well-Known Member

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    That works too, but I was originally suggesting a different motivation. It probably got buried in my rambling post. Let me set it clearly here.

    Suppose a time when oil demand is falling faster than the natural decline rate for certain OPEC producers but slower than the natural decline rate for shale producers. The problem for OPEC is how to cut enough production to stabilize oil prices. Option 1 is to cut production faster than the natural decline rate on traditional OPEC asset, meanwhile setting a price that encourages more shale to go into production. Or option 2, buy out shale assets and allow the natural decline rate of those asset and the long-life traditional asset to draw down production sufficient to stabilize price.

    I am suggesting that option 2 may be more capital efficient for OPEC than option 1. Essentially it is a play to buyout marginal producers to shut down their production. It can be more economical to shut down short-lived, marginal production than to shut in long-lived highly profitable oil fields. That is exactly what a competitive market would do. But if OPEC wants to maintain prices above a competitive market it may want to go after those marginal assets in ways other than having low prices push them out of the market.

    Option 1 has been the standard game plan for OPEC. But as demand decline pushes OPEC to cut production faster than their natural decline rates, option 1 become an increasingly costly way to maintain high oil prices. Option 1 becomes massive asset impairment on OPEC balance sheets.

    So maybe there is an option 3 to consider here. I'd like to here alternatives. But I do think that option 1 will become untenable as it pushes OPEC to cut much more aggressively than natural decline rates. So what choices do they have?
     
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  7. adiggs

    adiggs Active Member

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    Your option 2 makes sense to me. OPEC might need to invest in some heavy production to push some of those shale producers over the financial edge so they can then buy them up on the cheap, and then pull back on the heavy production and allow the natural decline rates of their new more full featured selection of portfolio assets to decline naturally (all transpiring at a better price for themselves, naturally). :)

    I'm glad I don't work in that industry. I wish that I saw a glide path to a smoothish landing for that industry - the rest of the world is going to want it if nothing else.
     
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  8. TheTalkingMule

    TheTalkingMule Distributed Energy Enthusiast

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    Apparently they're listening... LOL

    Saudi Aramco Is Said to Consider Shale Investment With Equinor


    Bloomberg - Are you a robot?
     
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  9. jhm

    jhm Well-Known Member

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    Hmm, apparently their stated objective is natural gas, not oil. But I do wonder if this would be associated gas, which would give them exposure to crude as well as gas.

    At least the idea of Aramco buying up some shale oil assets does not seem so far fetched.
     
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  10. ggies07

    ggies07 Supporting Member

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    Because....

    All the ideas that were discussed in here. Thanks for the valuable info guys! Even if some of it is just theorizing on different outcomes, the intense research and thought put into these posts is amazing and much appreciated. :)
     
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  11. TheTalkingMule

    TheTalkingMule Distributed Energy Enthusiast

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    The idea Saudis would use LNG from the US to power their grid is absurd, considering their solar potential. Not buying it. Far cheaper to just build out tons of solar
     
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  12. jhm

    jhm Well-Known Member

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    Yeah, I can't figure out why they'd want to import LNG. They are right next to Qatar, the biggest LNG producer in the world, but a simple pipeline would suffice for importing natural gas at lower cost. Perhaps they are wanting to import LNG to some other country where they are making petrochems, but I though they were making those investments within the kingdom.

    I'm also confused why they'd be wanting natural gas for petrochem when they have an abundance of cheap crude.

    LNG for power generation is even worse than petrochem considering the solar and wind options.

    Let's be clear any country can import LNG and make petrochems, but does it make sense to turn it around and export the petrochem products too? It seems to make more sense to convert gas to petrochem near the source of gas, then export the petrochem product. So I Aramco interested in petrochem production in the US?

    Dunno. This is not adding up for me.
     
  13. jhm

    jhm Well-Known Member

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    BTW, Henry Hub natgas is at $2.535/MMBtu, the lowest its been in the last 5 years (maybe longer, as my chart does not go back any further).

    So if you wanted to score some cheap shale gas assets, I guess this would be a good time to go shopping.
     
  14. jhm

    jhm Well-Known Member

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  15. jhm

    jhm Well-Known Member

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  16. jhm

    jhm Well-Known Member

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    The Tesla effect: Oil is slowly losing its best customer - CNN

    Tesla Effect: I like seeing this kind of reporting in the more mainstream business news outlets. Still kinda light on how quickly the peak can come, but it gets framed as a matter of uncertainty. And uncertainty leads to caution. Even so, EVs are presented as the inevitable winner.

    The article concludes:
    So I like that this sort of article is normalizing two key issues:
    EVs are coming.
    Get out of oil.
     
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  17. TheTalkingMule

    TheTalkingMule Distributed Energy Enthusiast

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    Saudi exports to the US hit what looks like an all time low of .311Mb/day last week. Perhaps doubling down on their strategy of masking global oversupply by purposely shrinking US stockpiles?

    Oil "markets" were of course up yesterday on the news that US commercial stockpiles shrunk by 3M barrels. We're still at a near record glut, but that's unimportant.
     
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  18. canoemore

    canoemore Member

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    #5098 canoemore, May 9, 2019
    Last edited: May 9, 2019
    I've been reading a blog called dollarsperbbl for a little while now. It deals with the energy transition and oil/fossil fuels with a very similar tone and (at least to my level of understanding) with a similar appreciation for complexity. It's by a guy named Harry Benham. I though folks here might appreciate it if they haven't run across it yet. I can't remember where I learned of it - come to think of it, it's entirely possible I saw a link to it posted here when I was lurking a while back...
     
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  19. generalenthu

    generalenthu Member

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  20. mblakele

    mblakele pre-jackpot member

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