Shorting Oil, Hedging Tesla

[jhm]

Comparing Tesla stock price to Exxon and oil tracking ETF (OIL), it seems that there is little correlation. Correlation may have even become negative. (I'll need to check with data to confirm this, but it looks negative to my eye.)

So going back to the original premise of this thread, shorting oil to hedge TSLA, it seems that would have been a waste of time over the last 12 months. (Excluding nimble trading, which is pretty much the opposite of hedging.)

The big question is going forward. Will next year be a good year to hedge Tesla with oil? And do you hedge Tesla by going short or long on oil? I guess if that latter question is uncertain, you have no real basis for a hedge in the first place.

I'm hopeful that Tesla may finally be at a place where the stock price can grow, and sustain growth even if oil tanks. Is this just wishful thinking?

 

[TheTalkingMule]

Ignoring the projection of the EIA in red, you can see that US production has leveled off. So apparently marginal US producers are backing off as Brent orbits $60/b.

Don't we have those numbers on a weekly basis? It feels to me like the opposite is true. US imports have plummeted over the last two months,pushing us (just in those last two months) into a whole new level of "energy independence". WTI remains elevated for vague China-based reasons, but we are certainly pumping like never before.

Will look for actual production figures to back this up, but I think the oil majors being in the Permian has put a brick on the gas pedal so to speak. They can afford to keep pumping in a pricing downturn.

 

[jhm]

Don't we have those numbers on a weekly basis? It feels to me like the opposite is true. US imports have plummeted over the last two months,pushing us (just in those last two months) into a whole new level of "energy independence". WTI remains elevated for vague China-based reasons, but we are certainly pumping like never before.

Will look for actual production figures to back this up, but I think the oil majors being in the Permian has put a brick on the gas pedal so to speak. They can afford to keep pumping in a pricing downturn.

Yes, you're right. We should have more recent actual data on US. Let us know what you find.

 

[mspohr]

This just grabbed me. Photosynthesis uses photons from the sun to supply the energy required to move the electrons from the oxygen to the carbon and the result is a stable storage medium for the energy: cellulose.

Right. Just plant trees; let forests and grasslands grow back. Stop burning the Amazon.

 

[ajdelange]

That is the message, I suppose but what really interests me is the insight (came to me yesterday in the dentist's chair) that most of our energy comes from the sun and that we, and most other living things (green plants, at least), that capture it do so by moving electrons from oxygen to carbon and/or hydrogen and that when we want to use it allow the electrons to flow back to oxygen. The real insight is that we do the same when we want to store energy in out BEV batteries. Electrons are transferred to carbon (the graphene in the anode) and thence to Li+ so the stable storage medium in this case is lithium carbide whereas with plants it's some hydrocarbon. At discharge the electrons flow back to the oxygen in the cathode (lithium, transition metal oxide).

 

[mblakele]

That is the message, I suppose but what really interests me is the insight (came to me yesterday in the dentist's chair) that most of our energy comes from the sun and that we, and most other living things (green plants, at least), that capture it do so by moving electrons from oxygen to carbon and/or hydrogen and that when we want to use it allow the electrons to flow back to oxygen. The real insight is that we do the same when we want to store energy in out BEV batteries. Electrons are transferred to carbon (the graphene in the anode) and thence to Li+ so the stable storage medium in this case is lithium carbide whereas with plants it's some hydrocarbon. At discharge the electrons flow back to the oxygen in the cathode (lithium, transition metal oxide).

Have you read much Bucky Fuller? He had his moments.

Critical Path



Closer to the thread topic:

Iran says newly discovered oilfield is country's second biggest

 

[TheTalkingMule]

The public narrative on peak oil demand seems to have turned on a dime in 2019 from crazyland 2050+ scenarios to something almost approaching reality.

Breakingviews - Aramco has first-class seat on oil-tanker Titanic

 

[jhm]

Another interesting tidbit from Patterson's article is that he notes that remaining proven reserves (the latest 50B barrel find in Iran notwithstanding) is about 1.7T barrels while total cumulative production stands at about 1.4T barrels. Why does this matter? Assuming as early peak theorists did that cumulative production follows a logistic curve, peak production occurs when the globe produces 50% of the ultimate recoverable amount. This is why these peak theorists car so much about how oil reserves. When proven reserves become less that total cumulative production, you know that you've passed the peak. Lately (before the Iran find) about 1 in 6 barrel produced have been replaced. So we've been closing in on this midpoint.

Now let's do the math. The world is producing about 30B barrels per year. So in 10 years this brings cumulative production to 1.7T. Meanwhile, 50B Iran plus 1/6 of 300B is added to reserves as 300B is produces, leaving 1.5T in proven reserves ten years out. So this means we cross this theoretical peak production year within the next 10 years, by 2028.

So it is an interesting cosmic coincidence that traditional peak theory and our own peak demand theories are pointing to peaks in some time from 2023 to 2028. Part of the coincidence here is that expensive to find oil has helped motivate the search for alternatives while weak oil prices have discouraged investment in oil exploration. Basically as we approach peak demand, there is almost no reason to keep searching for new oil. So in a way peak demand can drive us closer to peak supply as it shuts down exploration.

Now, I am not particularly persuaded that the production midpoint is necessarily where peak production happens, but the idea does have a certain charm to it. It is a bigger problem however to those how wish to put off peak demand 20 to 30 years. 10 years out we've got 1.7T produced with 1.5T in reserves, 20 years out 2.0T produced with 1.25T to go, 30 years out 2.3T produced with 1.0T in reserves. So maybe the production midpoint is off a little, but going 30 years out we are most likely well past the production peak.

Weakening demand will make it near impossible to sustain production levels. We get back to a place where the world must spend more than $100 a barrel just to maintain production levels. Weak demand just won't tolerate this. Try to imagine just how valuable a Tesla Semi would be in a world forking over $100 a barrel for crude. So peak demand and peak supply looks like a lethal 1, 2 punch. It could be that the Saudis of the world are thinking post supply peak will be favorable for them. Peak theory has always imagined that the scarcity value of oil would go sky high. But declining demand sucks all the scarcity upside out of oil. Indeed that scarcity value only drives EV and RE adoption at a faster pace.

So it think the potential for peak supply and peak demand forces to work synergistically reinforces the idea that we should be watching price and production volumes.

 

[jhm]

The public narrative on peak oil demand seems to have turned on a dime in 2019 from crazyland 2050+ scenarios to something almost approaching reality.

Breakingviews - Aramco has first-class seat on oil-tanker Titanic

You gotta love that title.

 

[jhm]

Maybe folks could help me sort out these different metrics of oil consumption and production per BP statistical review. Let me paste some of the notes that BP provides.

Oil Production: "Includes crude oil, shale oil, oil sands, condensates (both lease condensate and gas plant condensate) and NGLs (natural gas liquids - ethane, LPG and naptha separated from the production of natural gas)."

Crude Oil and Condensate (C&C) Production: "Includes crude oil, shale oil, oil sands, condensates (both lease condensate and gas plant condensate) and NGLs (natural gas liquids - ethane, LPG and naptha separated from the production of natural gas)."

Natural Gas Liquids (NGL) Production: "Includes ethane, LPG and naphtha separated from the production of natural gas. Excludes condensates."

Oil Consumption: "Inland demand plus international aviation and marine bunkers and refinery fuel and loss. Consumption of biogasoline (such as ethanol), biodiesel and derivatives of coal and natural gas are also included."

"Notes: Differences between these world consumption figures and world production statistics are accounted for by stock changes, consumption of non-petroleum additives and substitute fuels, and unavoidable disparities in the definition, measurement or conversion of oil supply and demand data."

So oil consumption is the most inclusive category, including biofuels, and derivates for natural gas and coal. Oil production seems to be the sum of C&C and NGL production. Let's look at 2018 figures in kboe/d units.

Oil Prod: 94,718
C&C Prod: 83,161
NGL Prod: 11,557
Biofuels: 1,788
Oil Cons: 99,843
Oil Cons net of Oil Prod and Biofuels: 3,337

So a substantial portion of what counts as consumption is derived from natural gas and coal and net changes in stock. Additionally NGLs from oil production are a really large share of to total oil production as well. This fraction of NGLs has been increasing over the last 18 years. The derivates from NG and coal are mostly NGLs as well (if I understand this correctly).

Gases are great for petrochem and process heat, but when we are thinking about EVs disrupting oil, we are not really aiming at gases and petrochem. Rather our concern is about motor fuels. So perhaps we should be looking at C&C plus maybe biofuels as the universe of products that batteries and EVs most directly displaces.

In terms of revenue for oil producers C&C is the most relevant figure. And perhaps Brent is the more relevant price for C&C rather than NGLs. So my closest estimate for revenue available to oil producers is C&C times Brent. It sure looks like peak revenue years are well in the past for crude.

 

[TheTalkingMule]

Yes, you're right. We should have more recent actual data on US. Let us know what you find.

Strangely the EIA only has monthly production figures through Aug. I'll dig around and see if I can piece together weekly estimates to confirm this trend. I'm interested now because it has "felt like" production accelerated after Labor Day. Or at least all other import/export/stockpile weekly figures seemed to be impacted as if the chart projections you linked to were accurate.

Anywho, the 12.365Mb/d projected figure for Aug from your chart is confirmed at least. If the remaining projections are on point........that's a lotta go-juice!

Actual monthly US production rate:

 

[TheTalkingMule]

USO tracks WTI
DNO used to track the inverse of WTI

All my googling pulls up plenty of leveraged short ETFs, but apparently DNO is no longer active?

Anyone know the inverse of USO that's widely used to short WTI?

 

[jhm]

Strangely the EIA only has monthly production figures through Aug. I'll dig around and see if I can piece together weekly estimates to confirm this trend. I'm interested now because it has "felt like" production accelerated after Labor Day. Or at least all other import/export/stockpile weekly figures seemed to be impacted as if the chart projections you linked to were accurate.

Anywho, the 12.365Mb/d projected figure for Aug from your chart is confirmed at least. If the remaining projections are on point........that's a lotta go-juice!

Actual monthly US production rate:

View attachment 476579

So far 2019 looks much flatter than 2018 was. But 2019 could pick up a bit in second half of the year. Thanks for looking.

 

[jhm]

USO tracks WTI
DNO used to track the inverse of WTI

All my googling pulls up plenty of leveraged short ETFs, but apparently DNO is no longer active?

Anyone know the inverse of USO that's widely used to short WTI?

I used to use SCO.

 

[ZachF]

Seriously, in what world is Aramco worth $2 trillion?

 

[jhm]

Seriously, in what world is Aramco worth $2 trillion?

The $75 Billion Indicator That Might Reveal Aramco’s True Value | OilPrice.com

This puts it into some perspective. Aramco could promise a $75B annual dividend through 2024. But shareholders have squat for recourse if anything goes wrong.

At 12mb/d, $75B a year is around $17 per barrel. So with oil at $60/b a dividend of $17/b may be doable for Aramco. But what happens if oil drops to $50/b? Or conversely, what happens if Aramco needs to cut production by 2mb/d? That takes the dividend up to $20.5/b. A lot can happen by 2024.

So what yield do y'all think this $75B dividend is worth?
​

 

[renim]

That is the message, I suppose but what really interests me is the insight (came to me yesterday in the dentist's chair) that most of our energy comes from the sun and that we, and most other living things (green plants, at least), that capture it do so by moving electrons from oxygen to carbon and/or hydrogen and that when we want to use it allow the electrons to flow back to oxygen. The real insight is that we do the same when we want to store energy in out BEV batteries. Electrons are transferred to carbon (the graphene in the anode) and thence to Li+ so the stable storage medium in this case is lithium carbide whereas with plants it's some hydrocarbon. At discharge the electrons flow back to the oxygen in the cathode (lithium, transition metal oxide).

thats true for the surface (and above), but on a mass scale, the earth is just a giant hot ball due to radioactive decay and primordial heat.
in event of a nuclear winter, Canadian mining demonstrates that survival is possible
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point is, geothermal resource is a massive potential source of electricity, centralized, yes, but has a winner takes ALL aspect 24hours a day, 365 days a year. the skill set to access that energy is deep drilling and controlled fraccing. Just as google swallowed up the internet search rivals, one geothermal player will swallow up the rest of the shale gas drillers.

 

[jhm]

IEA Sees $90 Crude Ahead Of Oil’s Downfall | OilPrice.com

Ok, first, I don't believe any of the analysis coming from the the IEA. I think they are an agency captured by fossil interests to function more like a fossil think tank.

But that said, I find it curious that while they see demand coming to a slow peak after 2030, they see the price of oil jumping to $90/b before that peak. This happens because in their view the advance of EVs will be too slow. So the twin issues of peak demand and peak supply are coming into play. But basically their outlook comes down like an oil investment thesis.

Meanwhile they dismiss climate policy as too weak to cause CO2 emissions to peak any earlier than 2040. So the fossil industries are granted two more decades of growth while enept politicians take the blame for blowing through carbon budgets.

I'm pretty disgusted with this posturing. It's all about defending the status quo of over investing in fossil fuels while blaming everyone else for climate change. This is total BS. If we were to actually underinvest in fossils, EVs and RE would become enormously economical in response to tight energy markets. $90 a barrel approaching 2030 is actually a darn good motivator for investing in EV supply chains today. But the IEA seems more interested in rallying investors to keep pouring capital fossil than suggesting that capital might better be invested in renewables and EVs.

 

[Oil4AsphaultOnly]

The $75 Billion Indicator That Might Reveal Aramco’s True Value | OilPrice.com

This puts it into some perspective. Aramco could promise a $75B annual dividend through 2024. But shareholders have squat for recourse if anything goes wrong.

At 12mb/d, $75B a year is around $17 per barrel. So with oil at $60/b a dividend of $17/b may be doable for Aramco. But what happens if oil drops to $50/b? Or conversely, what happens if Aramco needs to cut production by 2mb/d? That takes the dividend up to $20.5/b. A lot can happen by 2024.

So what yield do y'all think this $75B dividend is worth?
​

Doesn't a $17/b dividend pre-supposes that only the IPO stock gets the dividend?

 

[jhm]

Doesn't a $17/b dividend pre-supposes that only the IPO stock gets the dividend?

I believe the Saudi government holds most of the shares. In any case, you've got $75B to be paid out over all shares. So this has to be more than just the 0.5% portion that will be publicly offered. Even at the hypothetical $2T market cap, the public offering is only with $10B. So there is no way the full $75B will be distributed just to the public shares.