Shorting Oil, Hedging Tesla

[GBleck]

I don't see how ripping up the Iranian nuclear arms deal would embargo Iranian oil. Secretary Clinton had to negotiate for a multilateral agreement to put the sanctions in place. Unilaterally withdrawing would not magically place the multination embargo in place would it? Also didn't the Iranian decrease in production do to sanction amount to like .6 million b/d of it's max 4 mill b/d levels? Less then the OPEC increase over the same time.

 

[Erleichda]

What happens to oil if Trump tears up Iran nuclear deal

 

[Lessmog]

What happens to oil if Trump tears up Iran nuclear deal

rt.com is formerly known as russiatoday, right? Is that a reliable source generally?

 

[neroden]

rt.com is formerly known as russiatoday, right? Is that a reliable source generally?

It's reliable on anything where the Russian government doesn't have an ax to grind. Just like Al Jazeera is reliable on anything where the Qatar government doesn't have an ax to grind. Just like the NYT is reliable on anything where the Sulzbergers don't have an ax to grind. Same as any fairly-respectable media source.

NOT like a Murdoch rag (which are dishonest about everything as a matter of course). If that's what you're asking.

 

[Lessmog]

It's reliable on anything where the Russian government doesn't have an ax to grind. Just like Al Jazeera is reliable on anything where the Qatar government doesn't have an ax to grind. Just like the NYT is reliable on anything where the Sulzbergers don't have an ax to grind. Same as any fairly-respectable media source.

NOT like a Murdoch rag (which are dishonest about everything as a matter of course). If that's what you're asking.

Yes, kind of -- I was under the impression that Russia actually has some axes to grind in the oil market? Just want to be cautious.

 

[neroden]

Yes, kind of -- I was under the impression that Russia actually has some axes to grind in the oil market? Just want to be cautious.

Yes, Russia does have some axes to grind in the oil market. I haven't quite figured out what they ARE, though. Russia is a major non-OPEC oil exporter, dependent on oil exports for a large portion of income but unwilling to join OPEC. So what do you think their agenda is here?

Oh. Russia is also trying to bring Iran into their "orbit", in great-power-geopolitics terms.

I don't see any Russian bias in this article, but then it is a reprint from oilprice.com...


...written by Nick Cunningham, a writer from Vermont.

(Lesson for me: These days, always check whether it's a reprint first!)

 

[Erleichda]

1. Russia sanctions by the EU and USA have really hurt the oligarchy
2. Oil crash has really hurt the oligarchy.
3. OPEC has really hurt the oligarchy by causing the crash to hurt USA and others. Iran/Iraq/SA are members, Russia is not. Decisions made by SA, who has cheapest oil have driven the show. Russia needs influence, needs Iran/Iraq to get to OPEC to agree to cut production and lift prices. USA oil producers need exactly the same thing.
4. Regime change in Turkey, UK, USA all talk of softening relations/sanctions. All have purported meddling by Russia.

 

[dc_h]

Frackers hedge bump in price from OPEC deal. Good for US producers, limited harm to consumers and no path to $60 a barrel for OPEC. Seems more likely oil will be back to $40-45 sometime in 2017, as Libya and Nigeria increase production and the cheating becomes obvious.

American Shale Companies' Rush to Hedge Is Turning the Oil Market Upside Down

 

[neroden]

Fascinating. So the frackers are loading up on puts to lock in the current price. Who's *selling* them the puts, I wonder? (Someone who thinks the price *won't* drop?) And they're selling futures at this price since they fear the price will drop. Who's *buying* the futures (someone who fears the price will rise?)

 

[adiggs]

This is always the dynamic that's fascinating to me - it's blindingly obvious to me why an oil producer would like to lock in the ability to deliver oil at a 'high' price. What's not really clear to me, is who is the big oil consumer that wants to lock in this 'low' price, to avoid the damage they would experience if the price went even higher?

Not odds and sods - big quantities of contracts that will move the needle for producers. I know the commodity markets get their liquidity from speculators, so the big volume could readily come from speculators that will settle the contracts in cash. And the producers will cheerfully take cash earnings on their contracts, instead of forcing somebody to take oil they aren't equipped to take (the producers make the money on the contracts, and leave the oil in the ground to extract later - all win on their part to settle in cash the way I see it).

 

[dc_h]

Fascinating. So the frackers are loading up on puts to lock in the current price. Who's *selling* them the puts, I wonder? (Someone who thinks the price *won't* drop?) And they're selling futures at this price since they fear the price will drop. Who's *buying* the futures (someone who fears the price will rise?)

Airlines, US military, UPS, any shipping, big agriculture, supply chain logistics company may want to hedge at least a fraction of their fuel costs. Planning a 2017 budget with certainty may be ok, if you know that locks you in with a goof profit margin.

 

[neroden]

So futures are doing the job they're supposed to: stabilizing the price.

 

[adiggs]

Airlines, US military, UPS, any shipping, big agriculture, supply chain logistics company may want to hedge at least a fraction of their fuel costs. Planning a 2017 budget with certainty may be ok, if you know that locks you in with a goof profit margin.

The idea makes sense in a general way. Presumably, if these big consumers are selling the puts for oil in the $50's, then they really tried to sell the puts for oil in the $40's. Each one of these examples looks to me like very well educated / informed / skilled / practice participants in the market (way, way more than say me ), from which I conclude that they not only have a historical view into how the market has moved (which includes institutional memory of the pain of >$100 oil), it's also a market they follow closely at a tactical and strategic level. So I gotta figure they were way more interested in hedging in the $40's than the $50's (whether that translates into the other half of the trade being interested in hedging at that level is a different question).

This is the dynamic I'm having a harder time squaring in my mind. But your comment does help - these are big consumers and if I think of them hedging a fraction of 2017 fuel costs, with less desire on their part at higher oil prices than previously they had at lower oil prices, then that makes sense. It also makes sense they might find more takers at the slightly higher prices.

I don't follow the market well enough to have a meaningful sense of where the market participants are seeing the stable / reasonable price for oil.

 

[TheTalkingMule]

This is the dynamic I'm having a harder time squaring in my mind. But your comment does help - these are big consumers and if I think of them hedging a fraction of 2017 fuel costs, with less desire on their part at higher oil prices than previously they had at lower oil prices, then that makes sense. It also makes sense they might find more takers at the slightly higher prices.

With the amount of uncertainty that's been added to the general global marketplace over the last 6-9 months, it's no surprise that huge purchasers of crude would want to lock in at $50 for a much longer term than they would normally. Delta Airlines is making billions of dollars a year in profit, owning a refinery allows them to hedge more heavily and be fine regardless of price movements. Locking at $50 in the face of whatever lunacy we have in store for the next 4 years must seem like the only logical move, hence they "buy" a lot more than they normally might. Even moderate upward movements in oil can destroy all airline profit if you're not hedged correctly.

Now what happens when there's still a glut in the spring of 2018? Lord only knows. End of days perhaps?

 

[neroden]

Now what happens when there's still a glut in the spring of 2018? Lord only knows. End of days perhaps?

Sequential bankruptcies among oil companies, much like what has already happened with coal mining companies.

 

[TNEVol]

OPEC Cheating Will Cap Oil At $52 | OilPrice.com Oil Reacts Stoically As API Reports Biggest Cushing Inventory Build Since 2008 | OilPrice.com A couple of interesting articles which seem to cap the OPEC deal exhuberance.

 

[adiggs]

OPEC Cheating Will Cap Oil At $52 | OilPrice.com Oil Reacts Stoically As API Reports Biggest Cushing Inventory Build Since 2008 | OilPrice.com A couple of interesting articles which seem to cap the OPEC deal exhuberance.

From the article:
"But what if there is much less to the deal than meets the eye? What if OPEC does not actually follow through on the promised production cuts?"

And

"That suggests that OPEC won’t actually bring output down to the stated level of 32.5 mb/d, which essentially means that OPEC oversold its deal to the oil markets."

I'm shocked, shocked to hear the suggestion that an OPEC proclamation of lower oil supply might have been overstated and/or oversold.

But heck, if my income were tied directly to the price of oil, and I could raise the price by $5-10/bbl just by saying something, my only question is could I get $10-20 by saying it twice?

 

[neroden]

But heck, if my income were tied directly to the price of oil, and I could raise the price by $5-10/bbl just by saying something, my only question is could I get $10-20 by saying it twice?

Heh. Yeah. Maybe they will say it again!

 

[ggies07]

Finally starting to see something come of this:

Saudi Arabia Tries To Kick Oil Addiction, Non-Oil Business Spikes

News has broken that Saudi Arabia’s non-oil private sector spiked in November. The uptick comes after back-to-back slowdowns in September and October.

Output, new orders, purchasing activity and input stocks all rose sharply and at faster rates than in the prior month.

 

[dc_h]

Interesting news. Could this be a down payment to Russia to cut oil production?

Qatar, Glencore to buy 19.5 percent stake in Russia state oil major Rosneft Qatar, Glencore to buy 19.5 percent stake in Russia state oil major Rosneft