Shorting Oil, Hedging Tesla

[EinSV]

Some of you want to be convinced that oil is going to zero tomorrow.

For everyone else, this is where you can start.

This is my last post on this thread.

So you badger and attack virtually every poster on this thread, offer no meaningful content and then link to your Seeking Alpha article to get clicks. I see.

 

[jhm]

Forget OPEC. If there was no OPEC, what would be the equilibrium price today? I estimate above $100, but this is hard to predict. Easier to observe how global demand/supply changes as prices move. Right now, at $60, demand is surging, supply isn’t. So equilibrium is above $60. The rest is conspiracy theories.

@ValueAnalyst, look, you literally wrote, "Ignore OPEC." You are clearly asserting that the equilibrium price would be $100 if there was no OPEC. What exactly do you mean by "if there was no OPEC"? Are you contemplating a world in which the members of OPEC produce no oil at all? In which case taking some 33mb/d out of global supply would imply higher prices I suppose.

But you are claiming that I am putting words in your mouth, when I am simply trying to address the plain meaning of what you have written. Honestly, you seem off balance psychologically. I mean no disrespect. Please check in with your therapist. Your cognitive function is not right. I wish you wellness.

 

[Off Shore]

This thread has, until the past few days, been a great source of information on a subject about which I knew very little until I started reading it. But now all I see are a bunch of you arguing with a ghost, responding to frivolous nonsense with reasoned logic and researched information. If I had been hit in the head with a stick and had amnesia, I might find it useful but as it is it just lowers the SNR. They are here to disrupt the conversation and nothing more, and by responding to their posts you are aiding and abetting their project. Please stop.

 

[kenliles]

Consider that OPEC, the organization attempting market coordination of a dozen of the worlds major exporting countries, does not export a single drop of oil. It only attempts to coordinate those that do. VA, nor anyone, could or would purposely and pointedly propose to this group, that ‘ignore OPEC’ would imply a shutdown or deletion of most of the oil production of the world and carry forward with any meaningful proposition of pricing. This should be assumed by this discussion group.

Instead, to foster exchange of ideas, the more reasonable assumption would be VA meant by “Forget OPEC. If there was no OPEC” that the coordinating body OPEC has little or no ability to actually control price/production or if they do it’s perceived and short term only. And in the end those controls are more broad based than that organization (as opposed to past abilities).

Bigger forces than OPEC (the organization, NOT the producing countries) apply for this discussion. VA may be saying, remove that non-effective organization from your pictured view, as is clouds the focal point being made. I think that (or similar) is the context VA is attempting to portray.

I have no insight into oil markets and so don’t have an opinion to offer here that should be respected. But I do think VA is communicating something here that resonates, has merit, and should respected. I see a group think that is taking shape that ignores and discredites a substantially valuable input; I suggest taking a less literal view of words to formulate an argument that goes nowhere. Look at the most reasonable contextual meaning and what those implications might mean... my opinion..

 

[jhm]

Consider that OPEC, the organization attempting market coordination of a dozen of the worlds major exporting countries, does not export a single drop of oil. It only attempts to coordinate those that do. VA, nor anyone, could or would purposely and pointedly propose to this group, that ‘ignore OPEC’ would imply a shutdown or deletion of most of the oil production of the world and carry forward with any meaningful proposition of pricing. This should be assumed by this discussion group.

Instead, to foster exchange of ideas, the more reasonable assumption would be VA meant by “Forget OPEC. If there was no OPEC” that the coordinating body OPEC has little or no ability to actually control price/production or if they do it’s perceived and short term only. And in the end those controls are more broad based than that organization (as opposed to past abilities).

Bigger forces than OPEC (the organization, NOT the producing countries) apply for this discussion. VA may be saying, remove that non-effective organization from your pictured view, as is clouds the focal point being made. I think that (or similar) is the context VA is attempting to portray.

I have no insight into oil markets and so don’t have an opinion to offer here that should be respected. But I do think VA is communicating something here that resonates, has merit, and should respected. I see a group think that is taking shape that ignores and discredites a substantially valuable input; I suggest taking a less literal view of words to formulate an argument that goes nowhere. Look at the most reasonable contextual meaning and what those implications might mean... my opinion..

That would be a charitable interpretation. I believe VA has had ample opportunity to clarify what s/he means. If the point is simply that OPEC is ineffective, fine. That's an easy clarification to make. But VA has argued that the Saudi reduction of exports to the US has made an impact. So it is not consistent to say that both OPEC is ineffective and yet compliance rates are a driver of a tight market. Of course, one can change opinion over time. So maybe VA sees things differently now. Regardless what VA intends, one still has the basic fact that OPEC still sees a need to extend the production cuts. We can debate how effective OPEC is, but the fact remains that OPEC believes it is important to act this way. So a substantial segment of oil producers believes that cuts are still needed. Why? Is this just a rouse? Clearly there are still some lingering doubts among producers.

So these are basic facts that VA wants this forum to ignore or radically reinterpret to fit his/her inflated bullishness. I think most people participating in this thread are quite willing to take in facts and entertain both bullish and bearish interpretation of those facts.

What several of us take exception to are ad hominem attacks and claims to superior knowledge. VA has been extraordinarily uncharitable to neroden and others. This is not a moderated forum, so it is up to participant to push back against such bad behavior. That is why this thread has been littered with this for awhile. We have had these problems with VA before. S/he has acknowledged that s/he has problems moderating such behavior. This is why I am recommending that s/he check in with his/her therapist. This not meant as any sort of put down, rather as genuine concern for this person. I would very much like VA regain a stable mind and return to have engaging discussions with us.

VA, I want you to know that, while you sometimes irritate the crap out of me, I do care about you as a person and value your contributions here. I want you to get well and stay well.

 

[jhm]

Goldman: Oil Markets Are Nervous For No Reason | OilPrice.com
So Goldman is reassuring the oil market.

The extension of the OPEC/non-OPEC production cut pact through to the end of 2018, and especially the fact that the cartel and allies included an option to review progress in June, reduces the risk of both sudden supply surges and excessive drawdowns, Goldman Sachs says, noting that investor anxiety is higher than it should be.

 

[Intl Professor]

I really don't think, in my entire lifetime, I've ever met anyone so clueless, yet so arrogant about the little they know. Congratulations.

Alright, stop this.

 

[ValueAnalyst]

What @kenliles said, and this:

 

[kenliles]

^^^good pic - thx for clarifying ^^^

So really the basic competing thoughts- Is demand growth over the next year or so outstripping any counter effects from increase shale/etc and EV displacement; Outside of temporary attempt at manipulation, it comes down to that in my simple head--

@jhm I hear ya- just not into the virtual irritation and attack thingy - I've never understood how that's even possible honestly, but clearly that does play a role for many.
So your position (and several others) is that production will outstrip demand over the next year- driving prices lower, or at least won't induce prices much beyond current, and this won't be counterable by the various cartel attempts to control.
I probably don't have the nuances right there- just wanting to get a summary position - because the next year (M3 ramp to TSLA GAAP+) is what I think the trepidation is about- I would assume all agree very long term- oil is toast

If so, I guess we have a market!!!

I don't have a clue as to how that will play out- I continue to believe though that shorting oil, no longer hedges Tesla effectively (the thread title and baseline). And the decoupling, now presents a separate risk in shorting oil. My built in bias has always been fear of shorting or investing in controlled commodities (oil, gold, diamond etc.). So that is no doubt coloring my thoughts.

thanks for great discussion- I continue to agree analysis of oil is valuable to the Tesla investor-

 

[mspohr]

The world's addiction to fossil fuels hasn't changed in 40 years

A little perspective.

 

[Off Shore]

This thread has, until the past few days, been a great source of information on a subject about which I knew very little until I started reading it. But now all I see are a bunch of you arguing with a ghost, responding to frivolous nonsense with reasoned logic and researched information. If I had been hit in the head with a stick and had amnesia, I might find it useful but as it is it just lowers the SNR. They are here to disrupt the conversation and nothing more, and by responding to their posts you are aiding and abetting their project. Please stop.

In re: ratings. The shoe apparently fits.

 

[Oil4AsphaultOnly]

What @kenliles said, and this:

View attachment 264096

This helps, but that chart is dependent on the idea that oil demand is inelastic. Which seems to be a widely held view in 2012. But thanks to China's proliferation of solar manufacturing, and a _global_ transition to renewables and renewable transport (the leaf and zoe are doing VERY well in europe), demand is becoming more elastic. So any supply inelasticity (because it could take years to bring up new oil production - what you're claiming) will be a temporary issue. Do I have it summed up correctly?

 

[ValueAnalyst]

This helps, but that chart is dependent on the idea that oil demand is inelastic. Which seems to be a widely held view in 2012. But thanks to China's proliferation of solar manufacturing, and a _global_ transition to renewables and renewable transport (the leaf and zoe are doing VERY well in europe), demand is becoming more elastic. So any supply inelasticity (because it could take years to bring up new oil production - what you're claiming) will be a temporary issue. Do I have it summed up correctly?

EV/Solar won’t significantly affect demand until 2025+ and shorts won’t survive until 2020.

 

[Oil4AsphaultOnly]

EV/Solar won’t significantly affect demand until 2025+ and shorts won’t survive until 2020.

When you make that statement, I hope you're not relying on the IEA's projections? They have been underestimating solar's growth for nearly a decade. Their rate of underestimation even been charted: IEA Gets Hilariously Slammed For Obsessively Inaccurate Renewable Energy Forecasts. 2020 will be an amazing year.

Also, are you accounting for how solar's displacement of nat gas pushes nat gas to displace oil in areas like plastics, winter heating, and long-haul trucking (there are CNG trucks and buses already available)? And solar's role in displacing nat gas isn't limited to just PV panels, but includes solar thermal too: California’s largest solar power plant to extract oil

As for EV sales, it's on pace to exceed 1 million globally this year. Although the topic of this thread is about hedging TSLA, shorting oil is driven by far more than just Tesla. I'm watching for that last oil spike to load up.

Edit: All this to support the idea that oil demand is becoming more elastic well before 2020. Every month that OPEC maintains their production cut, is another month that the existing supply of oil production can continue to operate. The inelasticity of oil supply is contingent on exhausting the existing pool of production wells. If those wells continue to have extractable reserves, then the lack of new production wells is a problem that's pushed to another day.

 

[Oil4AsphaultOnly]

EV/Solar won’t significantly affect demand until 2025+ and shorts won’t survive until 2020.

Try 9 million EV's by one car brand (nissan) in 2022: Nissan's Carlos Ghosn Won't Say It, But He's Thinking It

Isn't that ~9% of the entire market? Tesla's model 3 is making all other car brands accelerate their plans.

 

[renim]

the 9 million refers to cumulative sales. (or another way, on road PH/EVs)
the context is there is about 1 - 1.5 billion cars on road around 2022.

Elon Musk and Carlos Ghosn combined will have produced statistically insignificant amount of EVs by 2022 for the onroad fleet.

(their competitors however will fee the burn come 2022, the German 3 and the Japan 2 will really feel the competition from Elon Musk and Carlos Ghosn (respectively).

 

[jhm]

China Set To Become More Dependent On Oil Imports | OilPrice.com

This could be worth some discussion. China imports about 64.4% of the oil it consumes. Domestic production is declining due to low prices while consumption continues to climb. The net result is that dependency on imported oil keeps going up. Some predict it will reach 80% by about 2035 to 2040.

So now we get some insight into the value of building up reserves.

But the huge wildcard is how much China will load up on renewable energy and EVs, especially heavy duty EVs, to offset import oil dependence. Try to imagine how we'd feel in the US to see oil imports rise to 80%. That is really quite alot of risk for an economy the size of the US or China. Imagine the trade imbalance if oil swung back up to $100/b. I think if we were headed that direction to high import oil dependency, we would be highly motivated to build out EVs and renewable energy. Tesla would be a national hero if the US were importing 80% of its oil.

Add to this horrible and internationally embarrassingly bad air pollution, and it is hard to think of a country more motivated to kick fossil fuel dependency.

 

[neroden]

I think it is now clear that the Chinese central government, and certain provinces and cities, are truly all-in on renewable energy. Shenzhen might be first? This is being seriously underestimated by a lot of people. There is a domestic coal lobby but no significant domestic oil lobby. Since oil is mainly used for transportation, China is even more all-in on electric transportation -- even with, bizarrely, an electric rivergoing cargo ship hauling coal.

 

[jhm]

Dec 2020 WTI futures may be poised for a break out, but is still way below front end futures above $57.

So rising above $52 could be in the cards.

Dec 2021 is not so clear

Maybe 2021 keeps trending down.

But then how about Dec 2022?

So this looks more like it could just keep declining.

Dec 2024 looks even worse.

So while the front end of the futures curve may look bullish, the mid to back end keeps falling. Why is this? Why is the market not equally bullish about 2024 oil as it is about 2018 oil? Producers that are hedging are mostly selling 2018 and a few 2019 futures. They generally don't hedge out into 2020 and beyond. So the decline in back end future is not likely due to producer hedging. While future are not exactly predictions, anyone who strongly disaggreed with the price could take a position. If oil is to see prices well above $80, why not buy a 2020 below $52? This would have roughly 60% upside, right? Maybe, just maybe traders in back end futures just don't see it happening?

So I keep watching this. I keep wondering when the oil market is going to get bullish about oil past 2020. When is the market going to tell me that oil will be tight into 2025?

 

[dc_h]

China Set To Become More Dependent On Oil Imports | OilPrice.com

This could be worth some discussion. China imports about 64.4% of the oil it consumes. Domestic production is declining due to low prices while consumption continues to climb. The net result is that dependency on imported oil keeps going up. Some predict it will reach 80% by about 2035 to 2040.

So now we get some insight into the value of building up reserves.

But the huge wildcard is how much China will load up on renewable energy and EVs, especially heavy duty EVs, to offset import oil dependence. Try to imagine how we'd feel in the US to see oil imports rise to 80%. That is really quite alot of risk for an economy the size of the US or China. Imagine the trade imbalance if oil swung back up to $100/b. I think if we were headed that direction to high import oil dependency, we would be highly motivated to build out EVs and renewable energy. Tesla would be a national hero if the US were importing 80% of its oil.

Add to this horrible and internationally embarrassingly bad air pollution, and it is hard to think of a country more motivated to kick fossil fuel dependency.

It makes the stockpile make sense, and supporting prices when they are low, to help avoid future price shocks. We’ve done the opposite in the USA. Obama wanted to sell reserves when oil was $125, we should have sold $50 billion then and bought back when went under $40.