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Shorting Oil, Hedging Tesla

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

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  1. jhm

    jhm Well-Known Member

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    An under-the-radar way to measure economic growth in China is painting a bleak picture


    This is a curious example of how journalists and even economists can misunderstand the impact of vehicle electrification on the economy. China reports GDP growth at 6.4% in Q1 this, but this is called into question as diesel demand has be plummeting, down 14% and 19% in March and April. The journalist congratulates himself on finding the dark underbelly of the Chinese economy.


    But wait a minute, what else could be impacting specific diesel demand in China and growth in the economy. The journalist overlooks the fact that China has be growing a massive fleet of electric buses and is also building out electric trucks too. BNEF has estimated that electric buses displace about 270 kb/d of diesel. This displacement should be taken with a grain of salt, however, because there are microeconomic factors that can greatly amplify the displacement effect. Electric buses operate within fleets that also include diesel buses, but the electric have a much lower operating cost. Both the fuel cost per mile and maintenance per mile are lower, and this is a strong enough opex advantage as to offset the higher capex requirement for electric buses. But low cost per mile is what drives utilization throughout the year. To minimize fleet opex, an operators will seek to get the most mileage out of vehicles with the least running cost. This means an electric bus could have twice the displacement of fuel if it is utilized twice as much as the average diesel bus. So BNEF’s nominal estimate of displacement 270 kb/d could be off by a factor of 2 over the course of a year.


    This ratio also depends on what fraction of the fleet electrics comprise. Suppose it is some fraction P. If P/(1-P) is small, then diesel utilization must be close to the average for the fleet because there are just not enough electric buses to relieve diesels from duty when demand is low. But as P/(1-P) increases, then diesel service can be relegated to being backup vehicles used only when demand really high. So here the utilization of diesel buses can fall off a cliff. Maybe they used to be operated 80% of the time, but that falls to less than 20%. Meanwhile, the electrics are used near 90%. So when P was small, one electric maybe did the work of 1.125 diesels, but as P increases, one electric does the work of 5 marginal diesels. So the point here is that in fleet service fuel displacement is not constant, but an increasing function of P.


    Furthermore, let’s consider how demand for transit bus service can change with the seasons. It is possible that on a nice spring day, some riders will prefer to do more walking, riding bikes or scooters. This means that marginal, backup diesels are not needed so much and spend less time in service. Seasonal variation in demand can also induce the leveraging effect of P in the previous paragraph. If this leverage is strong enough would could see an amplification of seasonality in diesel demand. As electrics displace diesel, seasonal fall off in demand will be sharper than it was in prior years. So a seasonal fall off in spring could be a function more electrics in transit fleets.


    Is this enough to see diesel demand fall off 14% and 19% in March and April? Maybe not entirely, but energy economists need to be doing a much better job at analyzing the impact of electric fleets on the seasonality of diesel demand.


    Turning to the GDP side, we also can note that building out these electric fleets of buses, trucks and cars is consistent with growing China’s economy while reducing fuel demand. Specifically, net imports of fuel can be offset by China’s manufacturing prowess. So this has implications both for the labor market and the balance of trade. And in particular, it makes China’s economy more resilient to the effects of a tariff ‘war’ with the US. It is simply a matter of time and scale. At some point the growing EV industry adds more to GDP growth while displacing oil demand that undermine diesel demand as a proxy for economic growth. Yes, the economy can be growing just fine as diesel demand plummets. This is not a “bleak picture.” It is a brighter horizon.
     
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  2. RobStark

    RobStark Well-Known Member

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    I think it is telling us total gasoline sales.

    California has in the last few years been importing gasoline from Nevada, Washington, and British Columbia.

    But I did not read that as being only California refineries. California gets data from taxes being paid, out of State refiners also pay taxes.
     
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  3. Doggydogworld

    Doggydogworld Member

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    I disagree. EIA measures consumption by "product supplied". I couldn't find CA product supplied, but here is product supplied for PADD5 which is dominated by CA (plus AK, WA, OR, NV, AZ and HI). Note that it does not show a dramatic decline over the past decade. Now look at your metric, retail gasoline sales by refiners, for PADD 5. It does show the dramatic decline.

    I'm too lazy to research it, but I think retail sales by refiners only applies to gas stations owned by companies with refineries. Shell, Chevon, Exxon, etc. That used to be the norm, but these days there is much less vertical integration. Even a lot of branded stations are independently owned and may or may not count as "retail sales by refiners".
     
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  4. Oil4AsphaultOnly

    Oil4AsphaultOnly Active Member

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    There's a "referrer page" link that seems to focus on just the refinerer sales: California Motor Gasoline Refiner Sales Volumes



    I don't know what the breakout of the resales mean, but it seems to support your thought. What's interesting is the historical data for the resales still shows a ~4,000 thousand-gallons-per-day reduction over the same 5 years.

    California consumes its own blend of gasoline during the summer months to help fight smog. So the refinerer resales should still represent statewide consumption, which is trending down significantly. If the culmulative EV (BEV + PHEV) sales for the past 7 years could be overlayed over it, couldn't we get a better idea of how many ICE vehicle-miles are displaced per BEV sale?
     
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  5. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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    Most two car households do this. The first EV becomes the preferred car with the old ICE becoming the backup car. We did this. For a while EVs will displace about 1.5 to 1.9 cars worth of oil demand in two car households... Until the second car is replaced with an EV too.
     
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  6. jhm

    jhm Well-Known Member

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    Yes, my family too, but we moved to buy a second Model S within a year of the first. Tomorrow we will trade in that S for a new X. We may name the back ext/white int X, Henri.

    But I digress. This phenomena is particularly important for understanding the impact of fleet EVs like EV buses. If you look at the chart in the article I linked, you can see that diesel demand peaked in 2014 in China and has been in steady decline. So much is compatible with diesel buses being replaced with EVs and natgas vehicles. But diesel demand is volatile and seasonal. I think that there are reasons why heavy duty EVs could amplify seasonality and other volatility in addition to causing average consumption to decline. So it has everything to do with fuel powered vehicles playing a backup role to EVs in fleets. The backup vehicles respond to residual demand for fleet service.

    This is dynamic I had not anticipated before, but we could see diesel and gasoline demand become much more volatile as EVs become the low opex vehicles of choice. To use a rough analogy from power generation, EVs are becoming "baseload" transport, while fossil powered vehicles become the "peaking" transport. In any case, the peaking role or backup role leads to much more seasonality and volatility of fuel demand.

    [​IMG]
     
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  7. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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    Makes sense. Luckily, it's quite possible to store fossil fuels, which makes them great for peaking transport applications. Whereas it's more expensive to store electricity. So when the seasonal peak hits, we will see diesel supplies drawn down, and then during the other months when there's no demand, they'll slowly be replenished. The refineries *should* see the seasonality averaged out to some extent by local storage -- bus fleets often have their own diesel tanks at their bus bases.
     
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  8. RobStark

    RobStark Well-Known Member

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  9. TheTalkingMule

    TheTalkingMule Distributed Energy Enthusiast

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    Crude continues to plummet, Brent now @ $65 and falling. Will we test $55 or even $50?
     
  10. jhm

    jhm Well-Known Member

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    Holey Cow, Brent has fallen to $62 and WTI to $53.5. How low must the oil price fall until oil & gas lobbyists are redeployed to stoke the "I" word?
     
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  11. TheTalkingMule

    TheTalkingMule Distributed Energy Enthusiast

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    The same messaging now coming from oil traders. Farther out futures are dropping so inventories must be tight. Meanwhile US stockpiles remain near record levels and rising. The rest of the globe is opaque.

     
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  12. TheTalkingMule

    TheTalkingMule Distributed Energy Enthusiast

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    Time to revisit this sentiment from 17 months back. Looks in retrospect like the Saudis did a more than decent job keeping prices high through a period that was in reality oversupplied for the duration.
    So far....relatively quiet. Maintaining the same strategy of "OPEC"+R supply cuts has "worked" up til now, but things look to be coming apart at the seams with Brent drifting down to $60. This could be a major turning point that forces a pivot in Saudi strategy and action.

    US production is skyrocketing as projected.
    Global demand is plateauing faster than projected.
    Monetizing Aramco is off the table.
    Banks barely let Aramco buy Sabic.

    There are some smaller revenue levers left to pull, but an extended 6 month run of Brent <$60 should force drastic action from MBS. What could it be other than to pump like mad and hope US fracking goes under? At some point this is the only option left.

    All this pending drama would be a lot more exciting if TSLA weren't in the shitter. (<--hoping to bump this bit ironically in 9 months:))
     
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  13. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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    So cheap oil should be a bit of a headwind for EV adoption. Do we think it'll reach the critical $20/bbl levels at which switching back from electricity to gasoline may save people money? (My guess: no. Even if the Saudis decide to kill shale with massive pumping, I bet they stop around $30/bbl.)
     
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  14. TheTalkingMule

    TheTalkingMule Distributed Energy Enthusiast

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    I don't think cheap oil will have any meaningful effect on Tesla sales over the next 18 months. People buying M3/Y now aren't too worried about fuel cost. In fact cheap oil could almost be seen as a positive since it should keep us out of a global recession.
     
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  15. TheTalkingMule

    TheTalkingMule Distributed Energy Enthusiast

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    Here comes the banks hedging demand growth on behalf of producers. I can hear the year-end narrative now.

    What slowing activity?
     
  16. TheTalkingMule

    TheTalkingMule Distributed Energy Enthusiast

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    US commercial stockpiles up another 7M barrels to 483.3M......and we're about to crash right through $60 on Brent with no idea where the bottom lies.
     
  17. RobStark

    RobStark Well-Known Member

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  18. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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    Bad headline. It's now possible to sue over the new order, arguing that it exceeded Presidential delegated powers (perhaps by violating the National Environmental Policy Act) or that it had no rational basis. Expect another round of lawsuits -- which has already started.

    Washington Examiner is an untrustworthy right-wing rag but they got this one right:

    Trump court victory offers temporary relief for Keystone XL

    No construction will start this year.
     
  19. ZachF

    ZachF Active Member

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    Enjoyed.

    I've personally been penciling in $50/Kwh for batteries and $0.5 per Kwh for utility solar for the late 2020s for a while now.

    At those prices, absolutely nothing can really compete with solar+ storage.

    At those prices, building a 5GW solar bank with 24GWh of storage (enough to put out a average 1GW plus a day of storage) would cost less than $4 billion. A 1.2 GW coal plant costs more than that, and an AP1100 nuke plant costs $8b+, both of those have far higher operational costs as well.

    People are going to be seriously surprised how cheap energy gets in the late 2020s
     
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  20. ZachF

    ZachF Active Member

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    OPEC can't afford to left oil go too low.

    While people often like to point out how their pump costs are much lower (it's true), they don't take into account enough how these governments are massively dependent on oil revenues. There is not enough of a value-added economy outside of oil in these countries to tax to pay for their governments. Oil revenues pay for imports, and oil revenues pay for the government. Without the oil revenues many of these countries would rapidly regress into third world status.

    Saudi Arabia couldn't take much more than a year of $30 oil before it collapsed. They'd either need to install massive austerity that would cause the populace to riot (SA basically bribes it's citizens), or they would have to break the dollar peg, induce massive inflation, which would cause austerity and now you're back to riots.

    The gulf countries should have spend more of their money getting their populace ready for when the oil is not there... instead they spent it on Ferraris, empty skyscrapers, and yachts.

    Honestly, I think the biggest coming problem for the end of the oil era will be the potentially huge amount of destabilization that could come from the middle east as oil becomes geopolitically worthless.
     
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