Shorting Oil, Hedging Tesla

[adiggs]

Mission accomplished (for SA):
Oil Prices Leap Higher After Draw In Crude Inventories | OilPrice.com

Mission accomplished is too strong - the narrative desired is being articulated here, so the mission objective is looking good. Look - US inventories are going down! (see @jhm's post right above) SA needs this narrative to be repeated (or even be actually true) by a lot of people, in a lot of different mediums, over an extended period.

You have to read the article pretty closely - it's exclusively about US inventory, but it's sort of implied that US inventory and world inventory are kind of the same thing. The 4th paragraph is particularly noteworthy:

At 490.6 million barrels, commercial inventories in the world’s largest oil consumer are within seasonal limits, which wasn’t the case six months ago. This can most easily be attributed to higher refinery runs during summer driving season, which suggest that later this year, we could see a rebound in inventories—but for now at least, the news is good.

(my emphasis)

That sorta kinda sounds like the world's commercial inventories are within seasonal limits, doesn't it? Note that the article makes the same point @jhm makes above (about possible oversupply when the season changes), but does it more subtly and in an easy-to-miss fashion.


But hey (sarcasm) - good news - Venezuela is melting down, turning into a humanitarian nightmare, and doing their best to withdraw their 2M b/d from the market. That'll be great for world oill prices - maybe Venezuela can help the rest of the world avoid an oil war to prop up the price.

 

[adiggs]

http://ir.eia.gov/wpsr/overview.pdf

More draws.

Crude Stock: - 4.7 mmb
Total Stock: -10.2 mmb

Net Import Change: +634 kb/d w/w, +4.4 mmb w/w

Product Supplied Change
Total: +1221 kb/d w/w, +8.5 mmb w/w
Other Oil: +1340 kb/d w/w, + 9.4 mmb w/w

We are at a point in the year when crude stock should be declining near 1%/w, so we are on par with seasonal variation in crude stock. The large draw of total stock is largely explainable with channel stuffing again. Specifically, Other Oil Products Supplied took an extra 9.4 mmb out of stock this week.

So it appears that the market is roughly balanced. The crude draw is seasonal and so not nearly enough to make a secular decline in excess inventory. The market is usually pretty happy with seasonal draws, but come September we may see Seasonal Affective Disorder set in again. So it looks like we may see the price stay in range of $45 to $50 through the peak draw season, which could set the market up to test prices below $40 in the winter, peak build season. Between now and then, production needs to slow considerably to avoid this fall off.

I'm trying to put your info together with the Saudi import numbers from @TheTalkingMule 's post. The problem being that drawing numeric results from a graph is .. problematic. Anyway, it looks to me like 1000 kb/d is a more typical Saudi rate of imports into the US, and the recent week fell to 524 kb/d. I would describe the typical pattern over the period of the graph as mostly in the 1000-1500 kb/d, occasional spikes down to 500 kb/d and up to 2000 kb/d. But it's also a big enough time period that import patterns may have changed in recent years from previous years (not enough information to say) - if they have, that would support the 1000 kb/d over 1500 kb/d as the typical US import rate from SA.

Anyway, if we've got a roughly 500 kb/d drop in imports from SA, and SA is able to sustain that level (or even lower it further), and no other actors changed their behavior in the last week (which actually sounds kind of reasonable), then it looks to me like SA has removed 500 kb/d from the US market in the last week. That's about 3.5 mmb over the week, and is most of the 4.7 mmb crude stock reduction.

It'll be interesting to see how quickly other market actors start reacting to fill in that 3.5 mmb weekly shortfall.

And it'll be REALLY interesting to see if that's another 500 kb/d removed from the worldwide market, or if it's just been shifted elsewhere.


I wonder how accurate a picture of SA exports to the world we can get for last week - did SA voluntarily reduce exports, or did they shift those 500 kb/d to somewhere else (I'd bet on the latter, but I don't know).

 

[jhm]

India Rolls Out Solar Trains to Cut Diesel Costs | OilPrice.com

This one warms my heart. Put solar panels on rail cars saves about 0.36 b/d diesel per 6-car train. Eventually, this will just be built into new rail cars likely at a fraction of the cost of adding panels to an existing car.

It may not seem like much, but I love the spirit. India consumes about 3 times as much diesel as gasoline. So finding clever ways to replace diesel with solar will make a big difference on the country's energy import needs.

Confirming my bias that global diesel demand will peak soon, if it has not already.

 

[jhm]

I'm trying to put your info together with the Saudi import numbers from @TheTalkingMule 's post. The problem being that drawing numeric results from a graph is .. problematic. Anyway, it looks to me like 1000 kb/d is a more typical Saudi rate of imports into the US, and the recent week fell to 524 kb/d. I would describe the typical pattern over the period of the graph as mostly in the 1000-1500 kb/d, occasional spikes down to 500 kb/d and up to 2000 kb/d. But it's also a big enough time period that import patterns may have changed in recent years from previous years (not enough information to say) - if they have, that would support the 1000 kb/d over 1500 kb/d as the typical US import rate from SA.

Anyway, if we've got a roughly 500 kb/d drop in imports from SA, and SA is able to sustain that level (or even lower it further), and no other actors changed their behavior in the last week (which actually sounds kind of reasonable), then it looks to me like SA has removed 500 kb/d from the US market in the last week. That's about 3.5 mmb over the week, and is most of the 4.7 mmb crude stock reduction.

It'll be interesting to see how quickly other market actors start reacting to fill in that 3.5 mmb weekly shortfall.

And it'll be REALLY interesting to see if that's another 500 kb/d removed from the worldwide market, or if it's just been shifted elsewhere.


I wonder how accurate a picture of SA exports to the world we can get for last week - did SA voluntarily reduce exports, or did they shift those 500 kb/d to somewhere else (I'd bet on the latter, but I don't know).

Whatever may be going on with SA, crude imports from all countries were up 386 kb/d. All that SA can accomplish here is too lose market share of US imports and maybe drive up import price a little.

By the way "within seasonal bounds" just means it is a little lower than last year at this time. Hardly a triumph.

 

[jhm]

Saudi Crude Inventories Continue To Decline | OilPrice.com

Saudi Arabia tried cutting exports to the United States last month in order to force Gulf coast refiners to use up existing crude inventories, but soon after the announcement, Iraq reached a deal with American buyers to sell its own crude as a substitute for lower Saudi supplies.

Yay, free market.

 

[TheTalkingMule]

We'll that strategy was neutered awfully quickly. If I'm following correctly, any jump in interest rates should squeeze a large portion of this global oversupply back into the marketplace and screw over more than a handful of petrostates that rely exclusively on oil.

Venezuela would implode.
The Aramco IPO would shrivel.
Russia would start feeling real pain.

What dark organization runs the world reserve banks again? I lost my tinfoil hat. Would they be interested in bumping rates a couple times to start the dominoes tumbling?

 

[adiggs]

Saudi Crude Inventories Continue To Decline | OilPrice.com



Yay, free market.

Its like we had a crystal ball, and could foretell the future!

 

[jhm]

“Dirty, Difficult, And Dangerous”: Why Millennials Won’t Work In Oil | OilPrice.com

Well, this is interesting. The talent well may be running dry for the oil & gas industry. I've got to admit if I were a freshman in college, I'd be hard pressed to major in petroleum engineering. I wonder if this is also playing out for the ICE auto industry. Good on millenials for thinking beyond these sunset technologies.

 

[neroden]

Well, the handwriting has been on the wall since the year 2000, or at least 2008. It's no wonder that "millennials" can see it. I mean, it took vision to see it in the 1990s. But by 2010, it was obvious to anyone who didn't have their mind totally closed.

 

[jhm]

Well, the handwriting has been on the wall since the year 2000, or at least 2008. It's no wonder that "millennials" can see it. I mean, it took vision to see it in the 1990s. But by 2010, it was obvious to anyone who didn't have their mind totally closed.

If you had started your career in the 1990s, you'd be retiring in the 2030s. So that is okay timing. But starting your career in 2010s means retiring in the 2050s, so there is a very good chance you'd need to leave the industry before retirement.

Grandpa, tell us again how everyone used to burn gas in their cars when you became an oilman. Did you actually use film in cameras back then?

 

[Intl Professor]

Grandpa, tell us again how everyone used to burn gas in their cars when you became an oilman. Did you actually use film in cameras back then?

My grandmother was born in 1890, died 98 years later. I always lamented never having a conversation with her about what it was like when nobody had a car. I do remember the "rag picker" (grandma's term) who drove his horse-drawn cart which stopped at her home to get what we would consider recyclables today--scrap metal, rags, paper, etc. Maybe left over grease, too, I don't remember. (Circa 1940.)

How modern. Picked up weekly at your home for the war effort! Never noticed manure on the streets so the horse may have had a "depends" equivalent for fertilizer.

The driver was the only black man I remember seeing in childhood. He had white hair and beard, and halloed in addition to ringing a bell as he drove down the street. He looked like a black Santa Claus and seemed the happiest man in the world as he laughed and halloed.

 

[kenliles]

Well this ought to prove interesting. What a web
Exxon Mobil will challenge $2M Treasury fine for violating Russia sanctions

meantime,
The Juice is Loose
(I hope I used that word correctly)

 

[jhm]

New Solar Tech Produces 50% More Energy Than Silicon Cells | OilPrice.com

This is really nice. Micro cells that track the sun. Achieves 30% efficiency. This could work very well on vehicles.

A 40 ft bus has about 24 m^2 roof area. At 30% efficiency, this is 7.2 kW. So the yeild could be about 36 kWh/d. In an ICE bus, this power could provide cabin energy for air conditioning, lights, wifi, video, etc, and thus offset fuel consumption. On a hybrid or BEV bus, this 36 kWh adds to range. More importantly it could offset the need for an extra 36kWh of batteries for the vehicle. So assuming $100/kWh in manufacturing cost, the 7.2 kW of solar is at parity with $0.50/W for the cells. This ignores the value of the energy itself, just the cost of manufacturing the vehicle. Over 12 years of operation this 7.2kW roof could generate about 158 MWh, worth about $15,800 compared with electricity at 10c/kWh. So the total value of the 7.2kW system is about $23k to the customer assuming a retail price of $200/kWh for a larger battery. If the useful life of the bus is extended to 24 years (with battery replacement), then the value is double, $46k.

So I think there may be a real economic case for putting solar on buses, rail cars, and other vehicles, even non-EVs where cabin energy is needed. Just running onboard computers for say autonomous driving needs electricity.

I think embedding the solar cells into the manufacture of the roof could be key to getting the cost to a minimum. This is the wisdom of the solar roof. A manufacturing cost or $0.5 to $1 per Watt brings it to cost parity with batteries and the rest is gravy.

 

[kenliles]

This is really nice. Micro cells that track the sun. Achieves 30% efficiency. This could work very well on vehicles.

Just the beginning on this tech. In the lab, micro cells that not only track but convert multiple photonic wavelengths. Mearly double this efficiency..
Gonna take a while, but it's already Channeled .
10-15 years, all electrical energy is (near)free.
Not only in the roof, it's in the Paint..

 

[jhm]

2017 Investor Roundtable:General Discussion

Here's a starting point for discussing the impact of hyperloop on jet fuel demand.

Jet fuel, I believe, will be the last fuel needed in quantity. Hyperloop could be the most important alternative to flight for fast transport.

 

[GoTslaGo]

Well this ought to prove interesting. What a web
Exxon Mobil will challenge $2M Treasury fine for violating Russia sanctions

meantime,
The Juice is Loose
(I hope I used that word correctly)

Are you referring to this? (Sorry to get off topic...just a short one...)

OJ Simpson gets parole, eligible for release October 1

 

[GoTslaGo]

Interesting article about Saudi family "coup":

https://www.reuters.com/article/us-saudi-palace-coup-idUSKBN1A41IS

Ultimately. Oil=corruption, IMHO. Only a few examples of judicious wealth distribution from oil (Norway being number 1).

 

[jhm]

OPEC is dead | World Finance

This is about 10 months old, but still helpful. Particularly note the concluding paragraphs.

All of this suggests that competition in energy markets may shift from crude oil to refined products. That would create new opportunities for cooperation: producers with large refining and storage capacity could purchase surplus oil from producers lacking such capacities.

A shift from competition in crude to competition in petroleum products would have a profound effect on global oil markets and related industries, like shipping. Ultimately, it would most likely boost the overall efficiency of the oil market and strengthen producers’ capacity to weather market volatility. The producers and refiners with the most sophisticated technologies would dominate – beginning with Saudi Arabia.

Alhajji is not particularly worried about a diesel glut. This is because he views competition shifting from crude to products. So it is about how well the refiners focus on the right products that matters. It will take capital and technology for refiners to keep up with changes in the market place.

 

[ValueAnalyst]

India Rolls Out Solar Trains to Cut Diesel Costs | OilPrice.com

This one warms my heart. Put solar panels on rail cars saves about 0.36 b/d diesel per 6-car train. Eventually, this will just be built into new rail cars likely at a fraction of the cost of adding panels to an existing car.

It may not seem like much, but I love the spirit. India consumes about 3 times as much diesel as gasoline. So finding clever ways to replace diesel with solar will make a big difference on the country's energy import needs.

Confirming my bias that global diesel demand will peak soon, if it has not already.

No sure if diesel can possibly peak before Tesla Semi ramps up to 500k annual units, which is a decade away.

 

[jhm]

U.S. gasoline surplus eliminated by trade flows: Kemp

Surplus in US gasoline gets traded out. This has been going on with distillate. Now gasoline is coming into play as a net export product. Notice that prices have to fall to a level at which exporting make sense. So there are clever trades around this. But longer term the US may need to export so frequently that the domestic price gets fixed to the export price.

China is also a net exporter of both gasoline and diesel. This can make it a bit misleading to track stats on crude demand in the US or China. The demand for crude is becoming dependent on the global demand for gasoline, diesel and other products. I suspect this is part of what Alhajji is speaks of around competition shifting from crude to products. Crude demand loses meaning when a country is a net exporter of products. China and the US are providing refining services to a global product market.