Shorting Oil, Hedging Tesla

[AndreP]

CBC Newsnet did an extended interview with a recent graduate who lost his job in the Energy sector just 2 yrs after graduating. Now he's going back to school for Wind Turbine Tech I think...

Grads just can't find work. Nobody wants a buttload of student debt and no job prospects. Staff reductions seem permanent.

Cheers!

I've known many people who have worked in the Canadian oil industry and not one of them has had an Oil & Gas Engineering degree, I'm gonna go out on a limb and guess enrolment in the program was low to begin with. People can get any number of other Engineering (or other) degrees and get a job in the industry just the same, as is mentioned in all the articles about this.

The people I know in the industry are still very much employed and making $200-300k+

 

[Artful Dodger]

I've known many people who have worked in the Canadian oil industry and not one of them has had an Oil & Gas Engineering degree, I'm gonna go out on a limb and guess enrolment in the program was low to begin with. People can get any number of other Engineering (or other) degrees and get a job in the industry just the same, as is mentioned in all the articles about this.

The people I know in the industry are still very much employed and making $200-300k+

Interesting anecdote. Your friends seem to be the exceptions to the trend.

https://www.cbc.ca/news/business/alberta-oil-workers-transition-1.5954029

(Mar. 22, 2021)

https://www.cbc.ca/news/canada/calgary/oil-gas-petroleum-displaced-td-report-jobs-lost-net-zero-1.5976515

(Apr. 06, 2021)

Have Alberta's Skilled Workers had Enough? - Todayville ...​

https://www.todayville.com › calgary › have-albertas-sk...

2 days ago — Headquartered in Calgary, Alberta, Husky is projected to lose up to 25% of its ... The loss of another 2,150 oil and gas jobs as a result of the Cenovus merger ...​

 

[navguy12]

BREAKING: Two-Thirds of Canadian Oil and Gas Workers Want Net-Zero Jobs:​

Two-Thirds of Canadian Oil and Gas Workers Want Net-Zero Jobs | The Energy Mix

More than two-thirds of Canadian oil and gas workers want net-zero jobs according to a survey by Edmonton-based Iron & Earth.

www.theenergymix.com

I do consider these workers will get a better deal than the tens of thousands of Ontario manufacturing workers who lost their livelihoods in the early 1990s when the effects of the Canada-US Free Trade Agreement took hold…

 

[AndreP]

Interesting anecdote. Your friends seem to be the exceptions to the trend.

https://www.cbc.ca/news/business/alberta-oil-workers-transition-1.5954029

(Mar. 22, 2021)

https://www.cbc.ca/news/canada/calgary/oil-gas-petroleum-displaced-td-report-jobs-lost-net-zero-1.5976515

(Apr. 06, 2021)

Have Alberta's Skilled Workers had Enough? - Todayville ...​

https://www.todayville.com › calgary › have-albertas-sk...

2 days ago — Headquartered in Calgary, Alberta, Husky is projected to lose up to 25% of its ... The loss of another 2,150 oil and gas jobs as a result of the Cenovus merger ...​

It isn't the first time oil has been through something like this, such is the nature of cyclical commodities.

The Canadian oil industry was having trouble finding skilled workers for the 2021 Spring Shutdown season. Pay and perks have been cut since the price crash in 2014, and now I will expect to see producers bringing a lot of that back with the current oil price outlook and their improved efficiencies + cost savings efforts over the last 7 years.

I'll also expect to see these people working on upcoming carbon capture projects and expansions/improvements on existing trains in the near future.

 

[Off Shore]

{sigh}

 

[TheTalkingMule]

Lumber is down another 6% today to 577.
Pre-pandemic we left off at 460.
First spike in summer 2020 went to 948.
Most recent spike(gouge) went to 1686.

Might not be a terrible thing to buy if it drifts back down to 460. Gotta think there's another spike in the mail.

Anywho....everyone said when the lumber bubble popped, the entire inflation trade would pop. Yet oil persists as if there's a scarcity....
Down a couple percent today, but still acting like we're humming on all cylinders and hitting the bottom of the barrel.

 

[mspohr]

The Democrat blocking progressive change is beholden to big oil. Surprised? | Alex Kotch

Joe Manchin owns millions of dollars in coal stock, founded an energy firm and Exxon lobbyists brag about their access to him. Republicans fundraise on his behalf

 

[Oil4AsphaultOnly]

The Democrat blocking progressive change is beholden to big oil. Surprised? | Alex Kotch

Joe Manchin owns millions of dollars in coal stock, founded an energy firm and Exxon lobbyists brag about their access to him. Republicans fundraise on his behalf

"We've met the enemy and it is us". Human nature is so hard to fight against. It's not surprising about Joe Manchin, since West Virginia is coal capital of the US, so he's representing his state. Only when the coal industry dies from being uneconomic will things finally change.

 

[mspohr]

"We've met the enemy and it is us". Human nature is so hard to fight against. It's not surprising about Joe Manchin, since West Virginia is coal capital of the US, so he's representing his state. Only when the coal industry dies from being uneconomic will things finally change.

He is not representing his State. He is representing his financial interests. He has millions in fossil fuel investments that he is trying to protect.
His state would be better off accepting financial aid to wind down fossil fuel and establish renewable energy industry.

 

[Oil4AsphaultOnly]

He is not representing his State. He is representing his financial interests. He has millions in fossil fuel investments that he is trying to protect.
His state would be better off accepting financial aid to wind down fossil fuel and establish renewable energy industry.

Considering how many people are employed by the mining companies and power plants in his state, I'd say that the two are inextricably tied.

I remember a report about how few coal miners took advantage of the Obama-era federal retraining programs. And I personally have relatives who work in dealerships yet admire my model 3. Cognitive dissonance is a human trait, not a corporate one.

 

[mspohr]

Considering how many people are employed by the mining companies and power plants in his state, I'd say that the two are inextricably tied.

I remember a report about how few coal miners took advantage of the Obama-era federal retraining programs. And I personally have relatives who work in dealerships yet admire my model 3. Cognitive dissonance is a human trait, not a corporate one.

Report: 30 Million Solar Homes Would Create 1.77 Million Jobs, $69 Billion in Energy Savings - CleanTechnica

Our new report finds that installing rooftop solar panels and community solar systems to serve the equivalent of 30 million American homes would create significant economic benefits — including 1.77 million jobs and $69 billion electricity bill savings over the next five years — while addressing...

cleantechnica.com

 

[Oil4AsphaultOnly]

Report: 30 Million Solar Homes Would Create 1.77 Million Jobs, $69 Billion in Energy Savings - CleanTechnica

Our new report finds that installing rooftop solar panels and community solar systems to serve the equivalent of 30 million American homes would create significant economic benefits — including 1.77 million jobs and $69 billion electricity bill savings over the next five years — while addressing...

cleantechnica.com

Yes, I'm well aware of the fossil fuel fallacy. Not my point. Did you notice that the cleantechnica article didn't say anything about West Virginia?

It's like this Jalopnik article that I just read: Woman Crashes Into Multiple Cars And A House At 120 MPH After Letting 'God Take The Wheel'
The fact that the crazy-autonomous-incubation-vessel (because she's not capable of rational though) didn't crash and die would only serve to reinforce her life decisions.

You can't fix stupid, and there are enough of them to vote in Joe Manchin without blaming it on his personal financial interests. Rather it was the personal financial interests of his voters, and they've failed to look past their next paycheck.

 

[TheTalkingMule]

Pretty surprised to see WTI ticking back above $70 after a massive 8% drop on Monday. Chevron stock recovering to $100 too.

This week's supply report was a hot mess of oversupply....no market reaction.

I really think half the reason this run is going so much further than logic would dictate is the lack of vehicles to properly short these crude markets. Sure you can sell oil futures, but I don't think retail is up for that.

 

[traxila]

WSJ News Exclusive | Startup Claims Breakthrough in Long-Duration Batteries

Form Energy says it has built a low-cost iron-air battery that can discharge electricity for days, which could have big ramifications for storing electricity on the power grid.

www.wsj.com

FYI, sort of stuff that we need to knock fossils on their back quickly and permanently.

Imagine that actually investing time, resources and energy into researching for desired technologies would yield results. Who could have?

 

[AndreP]

Pretty surprised to see WTI ticking back above $70 after a massive 8% drop on Monday. Chevron stock recovering to $100 too.

This week's supply report was a hot mess of oversupply....no market reaction.

I really think half the reason this run is going so much further than logic would dictate is the lack of vehicles to properly short these crude markets. Sure you can sell oil futures, but I don't think retail is up for that.

Problem is that OPEC+ right now will not allow the prices to drop too far regardless. OPEC+ members in general can produce barrels at low cost, but they require high prices to support their societies -- I believe Saudi Arabia's actual fiscal breakeven is around $80

MBS has publicly warned about trying to short oil to any great extent

 

[TheTalkingMule]

I love these headlines.

Oil Gains With Robust Global Demand Tightening Crude Market

Oil prices gyrated after a two-day gain that was powered by a drop in U.S. fuel and distillate stockpiles and a broader market rally.

They highlight gasoline and diesel whose supply decreased this week, by a meager 1M barrels mind you, to reflect a crude market whose oversupply actually increased by 4.4M barrels last week. I mean teeeeechnically that statement isn't false, but it's so misleading it shouldn't be on Bloomberg.

These guys just straight up sell their journalism space like it's advertising.

 

[AndreP]

I'm sure we all understand the dynamics here between crude oil inventories and distillates. Oil inventories will decrease if supply remains relatively constant while refiners pull barrels to process, and distillate inventories will increase as a result. How much distillate inventories increase will depend on demand and what the refiners are doing, maybe they're front-loading refining to build up inventory in anticipation of higher demand and to keep prices reasonable for consumers while minding the economics of their processes.

Lots of push and pull going on and tons of moving parts, which is to be expected when you consider that crude oil demand alone is a $1.85trillion/year market @ $50/bbl

 

[adiggs]

NOT-ADVICE. And besides, really premature musings.

I've begun thinking about actually doing something around the original title of the thread - shorting oil. I'm a long ways from doing anything substantial yet, and haven't even really begun doing specific evaluation.


My core hypothesis - there will be a valuation change (to the downside) coming for the oil miners. I think there will also be valuation changes coming for the oil services and refiners - even the pipelines and shipping, but for now I think these will be less dramatic. It's clear to me that the worldwide need for oil barrels isn't going to drop dramatically in the 2 year time horizon, but the example from the coal industry is that the valuation of the oil miners will get hurt badly well ahead of the significant drop in demand for their product.

For the others - their services will be needed whether the miner's value is high or not, so these low margin businesses will continue being low margin and will continue doing their thing.

I don't know whether a 2 year time horizon is long enough for the valuation drop, but I also suspect that I can hold long dated puts for pretty minimal time value and keep rolling them along until the valuation drop arrives.


To get this started, here are my initial thoughts:
- I don't want to be directly short the price of oil. My hypothesis is that the initial value crash won't be in the price of oil - it will be in the valuation of the miners of oil. This is largely driven by the increasing likelihood of easy financing drying up, that is a necessity to the oil miners.

- I don't want to research the smaller oil miners, even if they are purer players, though I welcome insights about any of them. Besides the research angle, I prefer being short via options. I like a bigger company that will presumably have a more liquid options chain.

- The two mechanisms I'm thinking of, again off the top of my head and without any detailed research, are:
-- longed dated, reasonably far OTM puts. Just sit back and watch.
-- Setting up sort of the inverse of a poor man's covered call (technically a diagonal spread). I'd buy long dated ITM puts and then start selling short dated OTM puts. The intention here is to create some income while I'm waiting for the share price crash that I consider inevitable. Best case the shares go down slowly enough that I can keep selling puts all the way down, earning income and capital gains. Worst case I close up shop earlier in the decline than I want.


My first thought, again with no actual research, is the company that I think of as the poster child - Chevron. I still remember the CEO declaring that the dividend was not on the table. With oil back up at $70 he's looking like a genius. Whether Chevron actually has the worst financials, I don't know yet.


For now I'm just looking for conversation about possibilities - company(s) to be looking, mechanisms to put this trade on, and anything else that people think germane.

 

[ammulder]

For now I'm just looking for conversation about possibilities - company(s) to be looking, mechanisms to put this trade on, and anything else that people think germane.

If you buy long dated puts and then sell short puts, do you still need cash or margin to cover those short puts?

If so, do the numbers work out such that you wouldn’t just be better off using that cash/margin on Tesla options instead?

My concern is that the Oil industry in the face of electrification doesn’t seem that different from Ford and GM… they look like they’ll have a tough job making it out of the decade in one piece. Yet, they toss out press releases for this and that climate goal, release a low-volume product here or there, and their stock price is way up because hey, they’re electrifying! And using tech! Even if you believe they won’t make it long-term, it could be 5 or 7 years before they really get slammed — or at any rate, longer than the 2-yr window for options.

I have to assume that unless Chevron are complete idiots, they’ll at least attempt some decent greenwashing before throwing in the towel altogether, and that may buy them some time in the markets. You know, pilot carbon capture schemes, planting trees for offsets to say a given oil field is carbon neutral, whatever.

It may be that big dividends die off, and that may be a profitable moment for puts, but I can’t predict the timing either.

I‘m not trying to say this is a bad idea, just that I have zero confidence in pulling it off myself. You may have more insight that leads you to a different conclusion.

 

[adiggs]

If you buy long dated puts and then sell short puts, do you still need cash or margin to cover those short puts?

If so, do the numbers work out such that you wouldn’t just be better off using that cash/margin on Tesla options instead?

My concern is that the Oil industry in the face of electrification doesn’t seem that different from Ford and GM… they look like they’ll have a tough job making it out of the decade in one piece. Yet, they toss out press releases for this and that climate goal, release a low-volume product here or there, and their stock price is way up because hey, they’re electrifying! And using tech! Even if you believe they won’t make it long-term, it could be 5 or 7 years before they really get slammed — or at any rate, longer than the 2-yr window for options.

I have to assume that unless Chevron are complete idiots, they’ll at least attempt some decent greenwashing before throwing in the towel altogether, and that may buy them some time in the markets. You know, pilot carbon capture schemes, planting trees for offsets to say a given oil field is carbon neutral, whatever.

It may be that big dividends die off, and that may be a profitable moment for puts, but I can’t predict the timing either.

I‘m not trying to say this is a bad idea, just that I have zero confidence in pulling it off myself. You may have more insight that leads you to a different conclusion.

Yes - the long dated puts are the backing for the short dated puts. It is technically a diagonal spread. I think I'll call it the lcp - leap covered put, aka the pmcp - poor man covered put.

And yes - it is almost certainly the case that I'd be better off using the money in this position on the Tesla options position I already have It might be that if I go OOM by a fair bit - say the 80 strike Jan '23s that I would find a pretty high leverage position that had the possibility of turning into noticeable money. As a practical matter I think that my reason for this investment isn't actually a good one.

I have a strong enough conviction in the general trade and about the direction of the industry, that I want to put something on as a measurement of how right I am (or wrong!). Get some skin in the game. Something like the Jan '23 120 strike put - costs $30 for $10 in time value and $20 intrinsic value. Then sell monthly puts against that - the Aug 95 is around $1.30. If I put on 10 of these positions then I'd have $30k in the position with a max profit of $90k (shares go to $0) not counting the short put premiums along the way. If it's $1 per month then another $24 there to go with the $90 on the long side. So if it all worked perfectly maybe $110k back in 2 years from $30k today.

It's pretty much not going to work that perfectly - that would require a Chevron bankruptcy the next 2 years.

Then again the financial look ugly to me.
Some cherry picked items that stood out from 2020:
-- -2.96 EPS (though previous years were positive)
-- Positive operating cash flow of (roughly) -$9B and +$19B depreciation
-- Financing cash flow of -$6B which comes from +$3B in net new debt (mostly rolling short term debt into long term debt) and -$9B in dividend payments.

Ending cash of $8B. The company has no choice but to keep rolling over debt each year to continue funding that $9B dividend.

I looked for R&D, capital, and similar spending and couldn't find it in the <5min I was looking.


If that were TSLA the analysts would be howling. Then again there is a reason Chevron has a roughly 30x PE vs Tesla's PE (two companies not at all comparable).