Shorting Oil, Hedging Tesla

[neroden]

Okay, i understood your post as 50% EV market share. If you include Plug ins, the goal becomes a lot more realistic, but i still believe it will be a success if it reaches half of that. But thats something only time will tell.

In the context of *oil usage*, serious plugin hybrids (as opposed to jokes like the Prius Plugin with its 10 mile electric range) have the same effect as EVs. It's documented that some ridiculously high percentage of miles driven in the Volt are electric, with people just using gas for occasional road trips.

Even the ones with 10 mile range are going to eat massively into gasoline usage since people do make a lot of short trips. But the market is already driving them out in favor of ones which can do most of their driving on electricity.

I dont see supply growing at all. Therefore it wont need much demand growth to create a serious deficit, sending oil prices even higher than they are now.

That's a possibility. I don't pretend to be good at the supply modeling. The demand crash in 2023 or thereabouts will almost certainly exceed supply shrinkage, however, since demand will be dropping faster than the natural decline rate of most oil fields. Unless the shale bubble collapses even faster than I'm currently expecting it to; this could have a constricting effect on supply because shale has a super-high decline rate.

Great times if you have invested in Oil!

You might be able to make money by going long on oil futures for the period prior to 2023. I am no short-term trader. For some time, my modeling has said that there may be One Last Oil Price Spike before the final decline... or there may not be and we may be in the final price decline already. I wouldn't bet one way or the other, though it's looking like One Last Price Spike right now.

However, investing in oil *companies* is now a guaranteed way to lose your shirt. The stock market is often forward-looking, and will devalue oil companies well before they actually start going bankrupt. There's a reason there are no new projects: they can't be done profitably. With peak demand coming up, the lowest-cost producers will survive; those are all National Oil Companies, and the stock-market-listed oil companies will all be unable to compete. Even the National Oil Companies are going to face a dire situation where they cannot really compete on price with electricity, and are only serving the dying market of people who haven't gotten an EV yet because they're too far back on the waiting list.

 

[TheTalkingMule]

I'm starting to think the final supply crunch will never come. NOCs will be too busy scrambling to pump like mad as the end nears, they simply have no other means of survival. What is Russia or Saudi Arabia going to do other than pump at 105% of today's rate? Any efforts to expand the Saudi economy beyond oil are done and Russia is a corrupt trainwreck.

Shale will stay leveraged another couple years, that's more than enough to let exponential renewables/EV growth start to take meaningfully increasing bite each year. Then it all collapses.

This current runup in price has little to do with fundamentals, producers can easily meet demand over the next 12-18 months. All this Aramco pre-IPO manipulation is doing is make the math look better to buy a Tesla.

 

[neroden]

I will note that I am not bothering to learn how to do oil supply modeling because it will be a useless skill in 5 years.

 

[TheTalkingMule]

PEVs hit 5% Chinese market share in June, with registrations up 127% for the month y-o-y. 2018 EV share will be 3-5%, up from 2.1% in 2017.

At this pace China is at 50% EV by 2022/23.

Beijing Auto Goes Into Warp Speed (#CleanTechnica Electric Car Sales Report) | CleanTechnica

 

[tivoboy]

I will note that I am not bothering to learn how to do oil supply modeling because it will be a useless skill in 5 years.

probably more like 25 years. Global economy couldn't handle a shift like that for at least a quarter century

 

[neroden]

probably more like 25 years. Global economy couldn't handle a shift like that for at least a quarter century

I stand by 5 years. The oil market will still exist for quite a long time, but nobody will care about oil supply capacity modeling once the oil market becomes demand-dominated, and it's going to become demand-dominated within 5 years. Oil *demand* modeling will be the big thing.

 

[Unpilot]

I agree so the question becomes what will big oil/petrol nation's do to keep demand high?
When a large wounded animal is cornered watch out!

 

[RobStark]

https://www.realclearworld.com/arti...ls_renaissance_in_the_middle_east_112836.html

Egypt to build 6 GWh coal fired electricity plant to serve its chronically underserved 100M people.

 

[neroden]

Doubt it'll actually operate. There's no domestic coal in Egypt, if I remember correctly. The coal plant builders are so desparate for work that they're offering to build coal power plants at a loss, which must seem tempting, but for a country with ample sun and no coal, the costs mean it's not going to operate.

 

[Sean Wagner]

The Middle East angle on increased coal use is interesting. As per neroden above, I did a very brief search regarding solar, and immediately came up with this:

The largest solar PV manufacturer in the world GCL Group has had its plans for a major 5GW manufacturing hub in Egypt approved by the National Authority for Military Production. [June 2018]

GCL Group adds Egypt to expanding manufacturing footprint plans

 

[justvisiting]

In the context of *oil usage*, serious plugin hybrids (as opposed to jokes like the Prius Plugin with its 10 mile electric range) have the same effect as EVs. It's documented that some ridiculously high percentage of miles driven in the Volt are electric, with people just using gas for occasional road trips.

Even the ones with 10 mile range are going to eat massively into gasoline usage since people do make a lot of short trips. But the market is already driving them out in favor of ones which can do most of their driving on electricity.


That's a possibility. I don't pretend to be good at the supply modeling. The demand crash in 2023 or thereabouts will almost certainly exceed supply shrinkage, however, since demand will be dropping faster than the natural decline rate of most oil fields. Unless the shale bubble collapses even faster than I'm currently expecting it to; this could have a constricting effect on supply because shale has a super-high decline rate.


You might be able to make money by going long on oil futures for the period prior to 2023. I am no short-term trader. For some time, my modeling has said that there may be One Last Oil Price Spike before the final decline... or there may not be and we may be in the final price decline already. I wouldn't bet one way or the other, though it's looking like One Last Price Spike right now.

However, investing in oil *companies* is now a guaranteed way to lose your shirt. The stock market is often forward-looking, and will devalue oil companies well before they actually start going bankrupt. There's a reason there are no new projects: they can't be done profitably. With peak demand coming up, the lowest-cost producers will survive; those are all National Oil Companies, and the stock-market-listed oil companies will all be unable to compete. Even the National Oil Companies are going to face a dire situation where they cannot really compete on price with electricity, and are only serving the dying market of people who haven't gotten an EV yet because they're too far back on the waiting list.

I dont argue with your point that Plug Ins will eat into gasoline demand. I just misunderstood your initial statement as "50% pure EV in 2023". I believe Plug-Ins (even if they have only 50-100 miles of range) are the best solution right now. As you said, for most people it is enough, and even if only 80% is driven electric, you can make many Plug Ins with the same ressources you nee for a 100kwh battery. This all will lower gasoline demand in the future, no doubt about that. When and how much is hard to say.

Agree with shale maybe declining faster than most think, but that supports higher oil prices doesnt it?

As for investing: I dont invest in Oil futures, i invested (some months ago) into a small canadian oil producer. Little debt, P/E will be about 5-7 this year. I think those companies have many years to go before they maybe get into problems. Most of them are absurdly cheap, and you can get your initial investment back well before 2023, and maybe a lot more, which makes it more attractive than simply buying crude futures (just my opinion). And yes, it is hard end expensive to do new oil projects, but for the companies that are already producing now, it is a great situation because supply is too low and there is no new supply in sight.

 

[RubberToe]

Iran threatening other countries exports...

Iran's Rouhani hints at threat to neighbor's' exports if oil sales...

 

[neroden]

As for investing: I dont invest in Oil futures, i invested (some months ago) into a small canadian oil producer. Little debt, P/E will be about 5-7 this year.

Does it pay out 100% of earnings as dividends? If so, then, as you say,

you can get your initial investment back well before 2023,

which is great...

...but otherwise, if the management is "reinvesting" the earnings in the oil business (i.e. burning the money), you're screwed.

ExxonMobil is quite impressively burning all of its earnings on garbage; the stockholders will never see any of it. Rex Tillerson figured this out and sold all his Exxon stock.

 

[justvisiting]

Does it pay out 100% of earnings as dividends? If so, then, as you say,


which is great...

...but otherwise, if the management is "reinvesting" the earnings in the oil business (i.e. burning the money), you're screwed.

ExxonMobil is quite impressively burning all of its earnings on garbage; the stockholders will never see any of it. Rex Tillerson figured this out and sold all his Exxon stock.

true. you also have the option to sell some stock and let the rest run. Some of those oil names (especially the little ones, not necessarily Exxon) are really really cheap right now. But only time will tell what happens with oil, i for my part believe that a lack of investments and supply problems will more than make up for a MAYBE falling demand somewhere in the future.

 

[neroden]

If you show me an oil company where the management has specifically stated that they will not do (a) exploration, or (b) acquisitions of other oil companies, and that they will return their profits to their stockholders, I agree that it would be a good investment. I have not yet found one.

 

[justvisiting]

If you show me an oil company where the management has specifically stated that they will not do (a) exploration, or (b) acquisitions of other oil companies, and that they will return their profits to their stockholders, I agree that it would be a good investment. I have not yet found one.

Neither have I. Nonetheless I believe that an Investment in an Oil company right now will pay off big time, no matter if they return a lot of capital or through rising share prices. Just my opinion, no advice and Im not trying to convince anyone

 

[neroden]

All right. My opinion is that you're wrong over the 5-year timeframe, and I've explained why. As oil demand collapses, the oil price will drop. Only the lowest-cost producers will survive. Those oil producers who stockpile their cash or pay it out in dividends may do OK; those who "reinvest" it in oil aren't actually earning any money. Stockholders will notice. With the industry having no future, P/E multiples will collapse, particularly after the bankruptcies start happening. A low P/E can be a bull trap if it indicates that earnings are dropping; the P/E has to keep dropping to stay ahead of the earnings drop.

You might make money if you're trading on a shorter time frame than 5 years. That is something I don't generally do. If you think oil companies will do well long term, however, you're simply wrong.

 

[TheTalkingMule]

US commercial crude stockpiles were up 1M last week, though still trending slowly downward. We're at 418M barrels, more than any any point in history prior to 2015. Certainly there should be a draw the week before 4th of July?

Canadian imports are back up to their normal 3.7M/day after diving 500k/day the last two weeks as a result of some "mechanical failure" or as a response to tariff threats, take your pick.

We're pumping like mad with supply far outstripping demand.....WTI is for some reason at $74.

 

[ValueAnalyst]

Global Demand was ahead by 6 after top of third, and the game looked like a blowout. As the crowds were starting to pay less and less attention to the game while enjoying their hot dogs and beers, Saudi/Trump just hit a grand slam at the bottom of third, and now we have a ballgame. Fourth inning coming up!

What seemed like a grand slam by Trump/Saudi at the bottom of third was called foul by umpire, OPEC. Global Demand ended the third up by six.

Crowds are back to enjoying their hot dogs and beers. Happy July 4th, 'Murica!!!

Top of fourth.

Global Demand, aka The Great Bambino, The Sultan of Swat, The Colossus of Clout, The Titan of Terror, and The King Of Crash, was on deck and warming up, now walking up to the plate. Will it hit a home run?

After a commercial break.

 

[TheTalkingMule]

If you show me an oil company where the management has specifically stated that they will not do (a) exploration, or (b) acquisitions of other oil companies, and that they will return their profits to their stockholders, I agree that it would be a good investment. I have not yet found one.

Most of the industry itself seems to have a grasp of reality and has stopped the most expensive exploration efforts, but the media and Wall Street are pushing the opposite narrative.

There Are Fears About an Oil Spike Above $150