Shorting Oil, Hedging Tesla

[TheTalkingMule]

NRG could also easily be competing with SCTY right now, but they're not. They bowed out of solar because the competing interests of renewables and the legacy fossil business pulled way to hard in opposite directions.

I can't see the Saudis going solar, it's just not politically possible until they significantly change their "business model". They're 99% reliant on oil, why would they ever hasten the change that threatens to destroy their only asset?

 

[jhm]

NRG could also easily be competing with SCTY right now, but they're not. They bowed out of solar because the competing interests of renewables and the legacy fossil business pulled way to hard in opposite directions.

I can't see the Saudis going solar, it's just not politically possible until they significantly change their "business model". They're 99% reliant on oil, why would they ever hasten the change that threatens to destroy their only asset?

Simple, selling oil at $4/b diminishes the value of all their oil assets, except perhaps untapped reserves. They could be exporting those barrels at $24/b or more instead of squandering them at $4/b. That destroys at least $20/b. That's cash that could be much better spent domestically, at a time when the government is running a deficit and raising taxes. They definitely need to raise more revenue from oil exports to run the country. Going solar does this in a way that will boost the whole economy.

Saudi Arabia is actually doing a lot to advance the solar industry. They recognize that they have huge solar potential, even to export electricity.

 

[dc_h]

There does seem to be conflicting public information about whether they are moving ahead or delaying solar projects. Some sources say they have pushed projects back by several years, and others show them proceeding full speed ahead.

 

[Papafox]

Warren Buffet's MidAmerica Energy just announced a $3.6 Billion investment in windpower. The plan is to power its Iowa customers with 85% wind power. Oil, the countdown is on.
http://www.desmoinesregister.com/st...can-energy-pours-36b-more-into-wind/83021574/

 

[TheTalkingMule]

Simple, selling oil at $4/b diminishes the value of all their oil assets, except perhaps untapped reserves. They could be exporting those barrels at $24/b or more instead of squandering them at $4/b. That destroys at least $20/b. That's cash that could be much better spent domestically, at a time when the government is running a deficit and raising taxes. They definitely need to raise more revenue from oil exports to run the country. Going solar does this in a way that will boost the whole economy.

Saudi Arabia is actually doing a lot to advance the solar industry. They recognize that they have huge solar potential, even to export electricity.

This would all be true in anything resembling a democracy, but all I've seen is talk thus far. Huge plans announced over the last 2-3 years have all been pushed off a decade or more.

The priority is to remain in power, not boost the wider economy.

 

[jhm]

Are We On The Right Track To An Oil Price Recovery? | OilPrice.com

This is a good one to mull over. Lots of good information.

OECD crude inventory continues to build at 1.45 mbpd according to EIA.

The production freeze that OPEC plus Russia will discuss this weekend has already arrived. Supply increased only 20,000 barrels per day in March. Consumption, however, decreased by 250,000 barrels per day.

Consumption is falling faster than production. I think it is too early to call it a trend, but this is definitely not a trend the industry wants to have.

 

[doggusfluffy]

http://www.nytimes.com/2016/04/18/b...rters-fail-to-agree-on-production-freeze.html

“The meeting concluded that we all need time for further consultation,” Mr. Sada said. He said “that participating countries will consult among themselves and with others” until the next OPEC meeting, which is scheduled for June.

 

[dc_h]

Predictions for oil tomorrow?

 

[Darren12]

Predictions for oil tomorrow?

Already down over 5% at open. Crude Oil chart - live oil prices Might drop more as more markets open

 

[dc_h]

Thank you SCO. Wish I had more.

From the Saudi's it seems like they are willing to force capitulation from higher cost producers. Implies sub 30 oil long enough to push out at least 3-5% of production, which will be made up for by Iran in 12-18 months. Who blinks, or goes bankrupt first, or is there conflict to interfere with shipping or production? Slow bleed implies 12-18 more months of low prices, or am I missing something?

 

[VanE]

Sold some TSLA stock for WTI shorts before the weekend. Turned out to be a great idea! WTI is 4-5% down today, but I'm wondering when I should sell the shorts. I have a hunch that oil will plummet down more this week, hopefully to $35, but I haven't a lot of experience with oil shorts so isn't bases on anything more than a hunch. Do any of you have a better understanding what will happen in the next few days/weeks?

 

[jhm]

Saudi Arabia Kills Doha Deal, Talks Fall Apart | OilPrice.com

The surprise to me is that any analysts were surprised by this outcome.

The Crowned Prince of Saudi Arabia claims they could ramp up another 1 mbpd quickly and bring production to 11.5 mbpd. I think they could do the industry a favor any promise to increase production as quickly as possible. Saudi Arabia sits on about 250 billion barrels of oil reserves. At 11.5 mbpd, it would take the country 60 years to deplete their reserves. Given the pace of technology, this is surely a stranded asset. So every dollar that the oil industry spends on exploration is a dollar that dilutes the value of the Saudi reserves. So the price of oil needs to remain low enough that exploration comes to a complete halt.

Total reserves only need to suffice until the electrification of transportation is complete. Adding to reserves beyond that creates practically no economic value for the global economy. In 2014, global reserves stood at 1656 billion barrels, but that is at least 50% more than will ever be needed. Until recently, the oil industry would invest about $350B per year to replenish reserves with about 35 billion barrels. This nominally values the global reserve at $16.5 trillion. This is a massive overvaluation, a colossal asset bubble that may take decades to play out.

 

[jhm]

It seems that the oil price could fill in the gap, taking oil back up to pre-Doha prices before settling into a bearish decline. So right now could be a good opportunity for buying SCO and other shorting plays.

 

[jhm]

This would all be true in anything resembling a democracy, but all I've seen is talk thus far. Huge plans announced over the last 2-3 years have all been pushed off a decade or more.

The priority is to remain in power, not boost the wider economy.

I believe that the Saudi royalty will hold solar as a strategic option. They will play this option when it makes strategic sense to them. My point has been that the size of this option is on order of 0.5 mbpd in incremental oil exports. They also have the option to bring another 1 mbpd of oil production on line. Holding back on exercising options is a strategic choice. This is why you cannot look at recent developments in Saudi solar and say they the have no economic interest in it. They do, but they are holding such options for optimal timing. We cannot also say that this has been pushed off for a decade or more. The element of surprise enhances the strategic value of such options. 55 GW of solar could be deployed in under 24 months, if the Saudis wanted to strike fast and hard.

But now we know that Doha has failed. The option to bring 1 mbpd crude into production is probably their stronger play if the price of oil creeps back up to investment levels. The solar option is more interesting as an end run around a freeze commitment, but without a freeze, the crude option may be stronger.

 

[jhm]

Half Of Kuwaiti Oil Production Offline After Massive Strike | OilPrice.com

This is likely boosting the price today.

 

[doggusfluffy]

Saudi Prince Says Kingdom Working to Soften Subsidy Cut Blow

"Let’s say the international price for electricity is 1,000 riyals and you only pay 50, we will give you the 1,000 riyals and increase the price of electricity," he said. "You will have two options: You either spend the 1,000 on electricity bills like you used to, or you can lower your electricity consumption and use it on something else."

 

[jhm]

Saudi Prince Says Kingdom Working to Soften Subsidy Cut Blow

Interesting, 1000 riyals is about US$266. So maybe "1000 riyals" refers to the monthly power bill of an average family. This kind of subsidy scheme could easily persuade Saudi homes to install rooftop solar. Think of leasing a solar system, a al SolarCity, for say 600 riyals and reduce the power bill to less than 100 riyals. You pocket 300 riyals per month. Meanwhile, this is no problem for the utility to handle because most grid power is oil fired. The kingdom can build out solar rapidly while minimizing grid infrastructure.

Prince Mohammed, the king’s son and second-in-line to the throne, is leading the biggest shake-up of the economy since Saudi Arabia’s founding. The kingdom will announce its vision for the future in the post-oil era on April 25, the prince said.

We need to watch this date.

Edit...
I forgot to mention the most obvious point about this subsidy scheme. It will immediately motivate consumers to reduce power consumption. So the impact on oil export could be really quick, maybe an extra 100k bpd crude exports in the first full month. Longer term, families can invest in all sorts of energy efficiency that never made sense before when a typical family spent just $13/month. But now at $266/month, things like double pane windows and LED lights suddenly a big difference. So within a year, this should free up a lot of oil for export while stimulating all sorts of energy efficiency investments. After that first round adding solar at home makes sense too.

 

[Erleichda]

NRG could also easily be competing with SCTY right now, but they're not. They bowed out of solar because the competing interests of renewables and the legacy fossil business pulled way to hard in opposite directions.

I can't see the Saudis going solar, it's just not politically possible until they significantly change their "business model". They're 99% reliant on oil, why would they ever hasten the change that threatens to destroy their only asset?

Well, they sure are ready to ditch Oil entirely (and wisely diversify.) I don't think you are seeing the bigger picture.

In Saudi Aramco IPO Talk, Some See Age of Oil Coming to End

 

[dc_h]

If we are looking at 30-35 dollar oil, who can't afford to maintain infrastructure or keep production going? The US and Canadian producers are price sensitive and our government does not directly prop them up. How fast will marginal producers start declining. The US swing producers have fallen more slowly than expected. I assume some Canadian production is high and can only be run cash flow negative for so long. Venezuela has used so much oil money for social justice, that they must be having issues maintaining volume at some point.
It seems general production resilience has been due, in part, to the perception that prices are going to rebound. In mid-2015 prices were estimated to get back to $60 a barrel by many US experts. The big $60 rebound prediction, which is still being clung to by some experts, has to start being met with greater skepticism by the finance people that have been keeping some of these sunken assets flowing. My question is are we there yet and where is production going to start falling?

 

[TheTalkingMule]

Well, they sure are ready to ditch Oil entirely (and wisely diversify.) I don't think you are seeing the bigger picture.

In Saudi Aramco IPO Talk, Some See Age of Oil Coming to End

They've been saying this for at least 10 years, it's all talk. They're married to oil and there's no way out. Keep in mind that these guys don't have to count on third party guesses as to the future supply of oil or the current and future costs of global production. Thy have all the inside info and have still done nothing to adapt. The politics, culture and tensions within Saudi Arabia are not going to allow for them to divest from oil production in time to maintain power. Then you have a couple decades of chaos after Arab Spring Part IV.

Now that I think about it, we may want to temporarily stop shorting oil around March 2018.