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Shorting Oil, Hedging Tesla

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

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  1. ItsNotAboutTheMoney

    ItsNotAboutTheMoney Well-Known Member

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    A chunk of the oil import step is replaced by moving money to other Americans who then use that money to import other goods.

    No change to trade deficit, but the extra movement of money within the economy increases domestic wealth.
     
  2. Doggydogworld

    Doggydogworld Member

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    Recurring losses, repeatedly failing to meet forecasts, only kept afloat by investor money -- for a minute I thought I was back on Seeking Alpha reading a writeup on our favorite EV company :)

    Fracking economics are terrible, but the effect on global oil markets is undeniable.
     
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  3. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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    It does show that losing money continuously doesn't stop businesses from operating, as long as they can keep finding new investor money. This phenomenon has some pretty major effects on the entire capitalist system.

    I have no idea when the dumb money will stop backing the frackers. It started going in around 2000 -- I didn't expect the flow of dumb money to last for 20 years, and now I have no idea how long it's going to last. Investors have been sounding the warnings repeatedly, as one foundation after another pulls their money out of the oil sector because it's been the worst-performing sector in the last decade, but somehow, dumb money keeps flowing in...

    I actually came up with the conspiracy theory that the US military or the CIA, or some faction thereof, was funnelling the money into the frackers through shell companies, out of the bloated, unaudited military budget. Because they would see the domestic oil production as being in the national interest, and would see it as a national security matter, and would therefore want the fracked oil to be produced even if it was unprofitable. This would explain why the unprofitable fracking business has only been big in the US, and would explain where the money was coming from. I don't really believe this, but it is a possibility, I suppose.
     
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  4. Paracelsus

    Paracelsus Member

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    #5304 Paracelsus, Jun 29, 2019
    Last edited: Jun 29, 2019
    Peak Oil appears to have arrived with a huge Thud in Alaska, and yet the political culture of Alaskans is still not allowing them to successfully embrace this very forecastable event as Norway successfully did. The Governor is scrambling to veto $444 million in budget proposals, which include massive cuts to the University of Alaska system that will be passed on in the form of Student Tuition..............yet he is trying to maintain the full annual payout to each citizen in the form of the Permanent Fund Dividend - which was supposed to be a rainy day fund to cover a transition to a different economy when this day came (again - like Norway has done). You won't get re-elected in Alaska if you reduce everyone's annual dividend dispite very low crude prices and record low production levels......... Alaska's predicament is noteworthy IMO because its catalyst appears to be peak oil demand, and the incredulous economic prioritization decisions being made are reflected in what we are starting to see on a larger National scale when our politicians make decisions influenced by fossil fuel and health care lobbyists. The biggest losers in his veto selections appear to be Education, Public Broadcasting, Public Safety Officers, and Senior Benefits Programs among many others ('cut education, health care, and retirement benefits first whenever possible' mode of thinking). Included in his veto with any impact on the budget was a $3.4 Million cut to the Ocean Ranger Cruise Ship pollution inspection program (this was funded from the cruise ships themselves so this is appears to be an opportunity to increase profits for cruise ship companies at the expense of the environment).

    "Alaska House Speaker Bryce Edgmon, I-Dillingham, said the governor’s budget presents an “imminent threat" to Alaskans.

    “The fundamental question is now squarely before Alaskans. What’s more important: a healthy economy, our schools, university, and seniors, or doubling the Permanent Fund Dividend at the expense of essential state services? The governor has made his choice clear,” Edgmon wrote."

    Alaska North Slope oil production is about to be at its lowest fiscal-year level since pipeline startup
     
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  5. TheTalkingMule

    TheTalkingMule Distributed Energy Enthusiast

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    China is on pace to sell 4M fewer ICE vehicles this year than last. Yikes.

    So far my short WTI thesis of last week is looking as strong as my SCTY options plays of 2016. But the week is young!
     
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  6. TheTalkingMule

    TheTalkingMule Distributed Energy Enthusiast

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    This bet is starting to look better today. Saudi Arabia essentially welcomed Russia into OPEC today and announced a "marriage" that will last forever..................Brent then plunged 4.5%.

    EIA report must be horrendous this week. We shall see.

    OPEC Formally Embraces Russia, Other Non-Members In Expanded "OPEC+"

    Oil Makes a Mockery of OPEC’s Big Plans
     
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  7. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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  8. canoemore

    canoemore Member

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  9. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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    Blackjewel files for bankruptcy, sends workers home from two Powder River Basin coal mines - Institute for Energy Economics & Financial Analysis

    OK, so this is coal. The big news is not the bankruptcy. Coal companies all went bankrupt already. The big news is that they could not get a bank loan to keep operating in bankruptcy, so the mines actually just closed. That is unusual for a bankruptcy and indicates that coal is considered so unprofitable by banks that no bank will refinance a coal mine. This is huge. The mines will start closing very fast now.
     
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  10. TheTalkingMule

    TheTalkingMule Distributed Energy Enthusiast

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    Drawing parallels to oil....what should that peak look like from an investment perspective? Do we see all the oil super-majors lose 50% of their value by 2022, maintain operations for 4 years and then have a cataclysmic drop in production once banks completely give up in say.....2026?

    The 2020's are going to be amazing.
     
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  11. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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    Probably something alone those lines, though I wouldn't guess dates. I have made a prediction that ExxonMobil will declare bankruptcy by 2030 -- I was being conservative on the timing.
     
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  12. ABCTG

    ABCTG Member

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    Renewables cheaper than existing coal and new gas power

    I'm sure most here know this already, it's encouraging to see the pace quickening


    Conservative Indiana Chooses Renewables Over Gas As It Retires Coal Early

    Conservative Indiana Chooses Renewables Over Gas As It Retires Coal Early

    We kind of made an assumption that natural-gas generation would be the most cost-effective option,"

    we were surprised to see that wind—and then solar, were significantly less expensive than new gas-fired generation."




    Los Angeles solicits record solar + storage deal at 1.997/1.3-cents kWh

    Los Angeles solicits record solar + storage deal at 1.997/1.3-cents kWh

    The Los Angeles Department of Water and Power is preparing a potentially world record-setting power purchase agreement for solar + storage at 1.997 cents and 1.3 cents per kWh, respectively.

     
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  13. adiggs

    adiggs Active Member

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    I don't have a guess at dates either, but I won't be surprised if the timeline is more stretched out than your guesses. Coal has been at this (steadily losing market value) since the mid oughts (2005 or 6 I think was peak market value for coal mining companies). It took a decade to get this far.

    Reasons it takes longer - oil & gas have a deeper relationship to today's modern economy, being used both to produce electricity, as well as a foundational use today in transportation (personal, commercial, agriculture, ocean going, air, and other heavy machinery. Oh - and war machines!). Where coal can be replaced in the production of electricity in a fairly straightforward fashion, most of the markets that use oil & gas don't yet have scaled or viable replacements (personal transport is finally showing A sign of life on the scale side - all the rest are either not yet viable, or viable but still lab style proofs of concept).

    Reason it goes faster than coal - investors have the coal example to lean on, and might all decide to bail out before everybody else does (if enough investors bail early, and stop lending money, O&G will shrink faster :)


    One bit of larger context - last I looked, the US share of energy from coal had shrunk from ~33% to ~25% over the last decade. The market value in the companies is gone, but coal is still a big contributor to US energy. It has a LOT more shrinking to do. O&G starts of bigger than coal, and all the technical hurdles aren't yet solved.
     
  14. adiggs

    adiggs Active Member

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    That first link is, in my estimation, the money link. The Indiana person being quoted makes the point that they prefer letting the economics dictate the outcome.

    The way I see it, subsidies and renewable energy standards can help jump start a market and help new technologies get some scale (thank you Norway, California, Germany, ..). But to convert the world to the new energy system, it HAS to pay for itself. At worst, it has to be a wash financially, and if its only a wash, then inertia will keep the old system going for a long, long time.

    But if there's a significant economic benefit to changing, then pretty much the only thing that matters is how fast the manufacturers and installers can scale. They've got a BIG worldwide infrastructure to replace. So we need the economics to favor renewables (which they have in many use cases for several years), and then we need more and more utilities to realize it and start thinking about a new business model, instead of business as usual.


    I continue to believe that in something like a several years to a few decades (my probable lifetime!), the fraction of the worldwide economy that goes to buying energy to run the rest of the worldwide economy will be shrinking. That's going to mean more resources for other things than energy (and maybe fewer conflicts and wars over energy).
     
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  15. mblakele

    mblakele pre-jackpot member

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    The Economist
    OPEC’s predictable deal cannot hide its giant problems
    How long will the cartel accept losing market share to American shale?

    Excerpt:

    OPEC’s decision to trim output points to further uncertainties within the alliance. The first is how long it will be willing to continue losing market share to America. In 2014, as American oil flowed freely, OPEC declined to curb output, hoping that slumping prices would teach gung-ho American oilmen a lesson. The ensuing crash pained petrostates and wildcatters alike. But shale production has roared back—last year America produced more crude than any other country—and OPEC has become reluctant to let prices dive again. The result is that OPEC’s share of global production has dipped, from 42.2% in 2016 to 39.2% in March, and America’s has risen, from 10.9% to 14.5% (see chart).

    The second question is whether Saudi Arabia and Russia will start to feel the pain of production cuts more acutely. Sinking output in Venezuela and Iran has helped OPEC to keep a lid on supply even as American output has risen. Wood Mackenzie, an energy-research group, estimates that America (excluding Alaska and Hawaii) will pump 1.2m more barrels of crude a day this year than it did in 2018. Iran will pump 1m fewer.​
     
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  16. mblakele

    mblakele pre-jackpot member

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    The Economist
    The world’s biggest potential IPO may be on again
    Investment bankers are buzzing with excitement

    Excerpt:

    Aramco is building on that openness by promising to hold its first earnings call in August. This could be good preparation for the interaction with investors that would be required of a listed company.

    High hurdles remain. Aramco’s lawyers are against listing it in New York for fear district attorneys will hound it over allegations that the kingdom provided support to the perpetrators of the September 11th 2001 terrorist attacks. Though the London Stock Exchange has courted Aramco assiduously, the City is becoming more ambivalent about oil and gas investments for environmental reasons. Saudi Arabia’s Tadawul exchange is too small to handle potential stock trades of trillions of dollars. Ultimately the whereabouts of the listing may be a geopolitical call.​
     
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  17. mblakele

    mblakele pre-jackpot member

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    The Economist
    Shell’s boss delivers some hard truths on oil and climate change

    Excerpt:

    [...] for all the cynicism that oil firms are “greenwashing” their way through the energy transition, Shell’s efforts should be taken seriously. But how seriously? Despite the urgency to tackle climate change, Mr van Beurden has no intention of going all in on a post-carbon future, and warns against Shell sticking its neck out too far. To explain why, he sets out a few hard truths.
    Summary of van Beurden's "hard truths":
    • Shell's shareholders demand high returns, and those from renewables are smaller than those from oil and gas
    • Demand for coal and oil may have peaked in the west, but other markets will continue to grow
    • It isn't enough to slam big oil: the world has a shared responsibility to tackle climate change
    Tangentially, this reminded me of a recent story about VW's new CEO and his efforts to shift that company's focus toward EVs.
     
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  18. dc_h

    dc_h Active Member

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    Kodak was a leader in digital photography, alofak had a plan, Kodak was sued by its own shareholders demanding they stick to film, where all the money is. If they bought adobe, which is closer to film processing then digital cameras and printers, they would have survived and become a key brand and solution in a digital world.
    No one on the oil, gas or coal industry has cracked the code to monetize renewable energy. Maybe none will and maybe there’s no code to crack.
     
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  19. ABCTG

    ABCTG Member

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    Summary of van Beurden's "hard truths":
    • Shell's shareholders demand high returns, and those from renewables are smaller than those from oil and gas
    He's correct; returns from renewables are smaller,

    (and don't all shareholders of any company demand high returns?)


    but it just seems to me that all these conversations about future returns from oil and gas really are moot.


    Oil and gas is a shrinking industry; Its tough to comprehend, especially for those employed or invested in the industry, but it happens, just like Nokia or Kodak, one day its a huge corporation with lots of large buildings, and thousands of employees, and surrounding invested communities, and the next day, its nothing.

    just gonna repost this;

    New Solar + Battery Price Crushes Fossil Fuels, Buries Nuclear

    New Solar + Battery Price Crushes Fossil Fuels, Buries Nuclear

    Later this month the LA Board of Water and Power Commissioners is expected to approve a 25-year contract that will serve 7 percent of the city's electricity demand at 1.997¢/kwh for solar energy and 1.3¢ for power from batteries.

    Ratepayer advocate Fred Pickel cautioned commissioners to anticipate even lower prices for energy storage:

    If 2c/kwh wholesale means the ratepayer pays, say, 5c/kwh, for renewable power, of course they will choose plugging in an EV over paying for gas for an ICE vehicle.

    EVs are the future mainstream vehicle.
    Why?
    Because China and Europe are mandating EVs, and the economics and elegance of them vs. fossil fuel vehicles will win over the consumer in the US.
     
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  20. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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    Correct, unfortunately.

    Peak market value for oil companies was in 2008, however. :) So the starting point isn't much later. So it already has taken longer.

    So, it'll go a lot quicker than that, because you're wrong about the markets.

    Oil is, to a first approximation, only used in transportation. All the other significant markets -- heating, electricity -- disappeared after the 1970s oil crisis when the price went way up.

    Yes, oil is used for making some plastics and lubricants, for which there is no good substitute, but these markets together are tiny -- comparable the size of the "metallurgical coal" market in steelmaking, for which there is still no commercially-deployed substitute. Metallurgical coal didn't save the coal mines, and plastics won't save the oil wells.

    Oil is used for asphalt only because asphalt is an unwanted byproduct of refining. If you needed to pump oil specifically to make asphalt, you wouldn't; if the asphalt price gets too high, road-builders switch to concrete, which is better in almost every way.

    Gas still has markets for electricity and heating, as well as cooking, and is actually a more popular feedstock for plastics than oil. However, gas is again an unwanted byproduct of oil production. That's what keeps it cheap, and makes it viable in the electricity and heating markets. Remove the oil production, and the gas goes away.

    Standalone "dry" gas drilling isn't profitable at current prices, and if the gas prices get high enough to make standalone gas drilling profitable, then gas becomes commercially non-viable for heating and electricity. Heat pumps are already close to breakeven with gas (depending on climate), and renewables are already cheaper than gas for electricity production. Double gas prices, which is necessary to make standalone gas wells profitable, and gas loses its markets.

    We can hope.

    Everything depends on replacing oil in *transportation*. This causes the demand for oil to crash, and then the price of oil crashes. This ends new oil drilling. After a couple of years, the shale fields dry up and gas production drops sharply. Then the gas price goes up, but not enough to justify new drilling -- and with the gas price up, the markets for gas disappear as people switch to heat pumps and renewables.

    Yeah, the market value always disappears before the disappearance of the industry. Coal market value disappeared over the last several years as every company went bankrupt, but only now do we see mines actually *closing*.

    If investors were paying attention, the money would already have left the O&G industry -- we've probably passed world peak gasoline car sales already, electric trucks are being built, electric airplanes are being built, renewables are already replacing gas for electricity and heating -- but investors are a little slow. Eleven years of returns worse than T-bills aren't enough to scare all the investors out of oil & gas yet, apparently. Maybe 12 years will do it?
     
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