Shorting Oil, Hedging Tesla

[jhm]

I didn't look deep into this specific announcement, but generally speaking, potential reasons are:

1. When drilling activity was low in 2015/16/17, producers/drillers focused on lowest cost/highest productivity wells (i.e. high-grading), which many erroneously interpreted as shale costs had dropped permanently. This is now reversing and happens every cycle;
2. The unemployment rate is now lowest in decades, so to ramp production/drilling back up, producers/drillers will have to pay people more than in 2014/15/16; and
3. Investors now know better regarding shale's inherent lack of profitability, and interest rates are going higher, so capital availability will be lower in 2018/19.

Hope this helps.

Thanks. These make sense. Item 1 and 2 seem sensitive to how much drilling activity is going on. As market heats up, more field services are needed and more of the less productive drilling locations are tapped. Diminishing returns as you go out the supply curve.

 

[jhm]

Anybody know if the Saudis may be reversing their strategy to clear out US inventory?

The EIA weekly is reporting a substantial build of 3.4 mmb in crude and 4.1 mmb in total petroleum stocks. I'm including the SPR inventory here because it is also building 0.4 mmb, which is odd since the government has be trying to reduce that reserve.

Exports of both crude and refined product are down substantially, whence net import are up 1251 kb/d this week.

So it is not necessary for the Saudis to actually increase imports to the US. Just competition in the export markets are now enough to inflate US inventory. The game gets more complex as the US becomes a bigger oil exporter. The US is just a few years away from becoming a net oil exporter. And higher oil prices will only accelerate this by encouraging more domestic production while discourage domestic consumption and boosting EVs.

 

[TheTalkingMule]

Anybody know if the Saudis may be reversing their strategy to clear out US inventory?

Shipments to the US remain very low each week, usually about half or less than what's been shipped in the past. But at this point the original goal of draining one of the only transparent oil metrics seems to be out of reach. The global market and domestic fracking just filled the gap with ease and now we're building again. That being said, I'm sure it'll continue.

The EIA weekly is reporting a substantial build of 3.4 mmb in crude and 4.1 mmb in total petroleum stocks. I'm including the SPR inventory here because it is also building 0.4 mmb, which is odd since the government has be trying to reduce that reserve.

This is a very interesting tidbit form a political standpoint, perhaps more appropriate for that OT political thread we had going. IIRC strategic reserve sales were a major component of the WH budget proposal. Are we fabricating billions in "revenue" by simultaneously building and selling the strategic reserve?

 

[renim]

>JHM

re LNG Australia
its about Asian customers demand for supply resilience. The Chinese (and Japanese) customers required the LNG bought via Australia, to be originated from Australian ground, the east coast terminals were financed having that contractual requirement. the southern states have simultaneously been reducing supply (coal seam gas bans) and increasing demand (coal power station closures). So something gotta break. We have for decades been simultaneously exporting oil and importing oil, this is nothing new.

So the asian LNG price of gas went from being a ceiling to being a floor for Australian gas prices, how to fix that? import terminals for those no longer willing to extract their own gas.

 

[renim]

Are we fabricating billions in "revenue" by simultaneously building and selling the strategic reserve?

The Chinese have a trailing nationalized price for oil, presumably that includes a decent amount of buy low, sell high (and some buy high, sell low) It must be very profitable.

Australia reserve has a intentional currency range. That is literally money for jam, as it is buy low, sell high. It provided billions of bonus revenue during the Howard years.

sometimes prudent government is naturally profitable. I would be shocked if the USA was handling their strategic oil reserve in a sensible, profitable manner.

 

[ggr]

>JHM

re LNG Australia
its about Asian customers demand for supply resilience. The Chinese (and Japanese) customers required the LNG bought via Australia, to be originated from Australian ground, the east coast terminals were financed having that contractual requirement. the southern states have simultaneously been reducing supply (coal seam gas bans) and increasing demand (coal power station closures). So something gotta break. We have for decades been simultaneously exporting oil and importing oil, this is nothing new.

So the asian LNG price of gas went from being a ceiling to being a floor for Australian gas prices, how to fix that? import terminals for those no longer willing to extract their own gas.

It's not even the first such example, there was steel, and then aluminium, and I'm sure there are others.

 

[jhm]

Global EV growth to pass 25 million a year in 2025, says study

Finally somebody puts out an EV forecast that is comparable to mine.

Note that there are nice datasets in this article.

 

[renim]

The Germans went through with allowing Diesel bans - I predict a rather quick succession of (first Diesel) then other ICE bans in Europe following this news today.

I see many articles how any electric vehicle is essentially having a long waiting/delivery time in Germany at this time. I predict we will enter times of industry-wide production constraints for the coming years...

I think this will at least shift the perception around fuel consumption drastically in Germany/Europe. Let's see how quickly we will see that in the demand numbers.

Rome is banning diesel cars

Despite the serious fuel economy advantages, Japanese (and Chinese) cities have for a long time (decades) banned diesel from private domestic ownership because of diesels' pollution problems. Old European cities will need to ban diesel for the same reasons

 

[jhm]

American Drivers Guzzled a Tiny Bit Less Gasoline Last Year

Has US demand for gasoline hit its peak. For the last two years it has held at 9.32mb/d. It is worth noting that this just a recovery from the pre-recession peak in 2007. That peak stood till 2016. The recession induced a multiyear decline. So much of the growth since 2010 has simply been recovery. The growth in 2015 and 2016 were arguably driving by the collapse in fuel prices.

But in 2017, the average price of gasoline was $2.39/gal, up $0.27/gal from the prior year. It appears that this increase was high enough to flatline growth. If the federal gas tax does add another $0.25/gal, that could very well put demand in decline or at least hold it flat for longer.

The EIA is predicting a slight rise to 9.33mb/d in 2018 and a beefy 9.4mb/d in 2019. I think this is very dependent on where the price if oil goes. If the price crashes, the 9.4mb/d level may be possible. But aside from price response, we are getting within range of EV demand displacement becoming a critical factor.

Last year the US registered 200k new plug-in EVs. At 25 vehicles per 1 b/d displacement, these new EVs are set to displace some 0.008 mb/d of gasoline demand. PEV registrations are likely to be in range of 300k to 400k this year and about 525k in 2019. Thus, we are looking at 0.012 to 0.016 mb/d displacement in 2018 and 0.021 mb/d displacement in 2019. So the 0.080 mb/d increase the EIA projects from 2017 to 2019 may well be diluted by 0.033 to 0.037 from PEVs. I do actually doubt the competence of EIA analysts to be modeling PEV displacement at this point. So their forecast may be completely missing this headwind from electrics. But clearly, EVs are reaching a scale where they have a meaningful impact. By 2022 the PEV impact could reach about 0.046 mb/d. That is just a little higher than the average growth over the last 19 years.

The US gasoline peak looks to fall some year between 2016 and 2022. We are in the plateau.

 

[jhm]

BTW, US diesel peek in 2007 at 4.20mb/d. In 2017 it rose a little y/y to 3.94mb/b, but this is still below 4.04mb/d seen in 2014. It seems doubtful to me that we'll ever see a new peak above 4.20mb/d, especially if the price of oil remains high until Tesla Semi can crank out more than 10k trucks per year. Keep in mind that 10k semis is enough to displace about 0.01mb/d of diesel demand. This is enough to have a material impact on demand growth.

 

[mspohr]

A good post mortem on Clean Coal
How America's clean coal dream unravelled
How America's clean coal dream unravelled

Looks like the project entered zombie phase years ago but was kept alive by ratepayer and tax subsidies.

 

[ggies07]

A good post mortem on Clean Coal
How America's clean coal dream unravelled
How America's clean coal dream unravelled

Looks like the project entered zombie phase years ago but was kept alive by ratepayer and tax subsidies.

nice info...I would love to see someday the internal emails from within Tesla on the f'up with the battery module line for the Model 3.

 

[ggies07]

As we've discussed on here what other industries will still hold up the oil/gas companies (ie. plastics) after the transportation industry as fallen, here is one less company that will be in the mix:

Lego goes green with sugarcane-based plastic

Lego pieces are made of acrylonitrile butadiene styrene, which is based on crude oil.

But now:

The toys will be made with a polyethylene produced with ethanol made from sugarcane.

The move is part of the Danish company's pledge to use sustainable materials in its products and packaging by 2030.

 

[mspohr]

As we've discussed on here what other industries will still hold up the oil/gas companies (ie. plastics) after the transportation industry as fallen, here is one less company that will be in the mix:

Lego goes green with sugarcane-based plastic



But now:

I think this might be more hype than reality.
The are using polyethylene made from ethanol. Polyethylene is non-biodegradable (it will live forever) and most polyethylene is made from petroleum or natural gas.
It would have been much better to use something like PLA
Polylactic acid - Wikipedia
Poly(lactic acid) or polylactic acid or polylactide (PLA) is a biodegradable and bioactive thermoplasticaliphatic polyester derived from renewable resources, such as corn starch (in the United States and Canada), cassava roots, chips or starch (mostly in Asia), or sugarcane (in the rest of the world). In 2010, PLA had the second highest consumption volume of any bioplastic of the world.[3]

 

[ggies07]

I think this might be more hype than reality.
The are using polyethylene made from ethanol. Polyethylene is non-biodegradable (it will live forever) and most polyethylene is made from petroleum or natural gas.
It would have been much better to use something like PLA
Polylactic acid - Wikipedia
Poly(lactic acid) or polylactic acid or polylactide (PLA) is a biodegradable and bioactive thermoplasticaliphatic polyester derived from renewable resources, such as corn starch (in the United States and Canada), cassava roots, chips or starch (mostly in Asia), or sugarcane (in the rest of the world). In 2010, PLA had the second highest consumption volume of any bioplastic of the world.[3]

uh. shucks. ok.....

 

[SebastianR]

American Drivers Guzzled a Tiny Bit Less Gasoline Last Year

The US gasoline peak looks to fall some year between 2016 and 2022. We are in the plateau.

Very much agree. And if we hit just a minor recession/economic slowdown (trade war anybody?) we may hit peak gasoline earlier rather than later.

Of course one of the challenges we are facing is, that the oil industry is so vast and huge that many long-term trends will just look like statistical flukes for the first few years until they turn into a tsunami of change.

 

[durkie]

I think this might be more hype than reality.
The are using polyethylene made from ethanol. Polyethylene is non-biodegradable (it will live forever) and most polyethylene is made from petroleum or natural gas.
It would have been much better to use something like PLA
Polylactic acid - Wikipedia
Poly(lactic acid) or polylactic acid or polylactide (PLA) is a biodegradable and bioactive thermoplasticaliphatic polyester derived from renewable resources, such as corn starch (in the United States and Canada), cassava roots, chips or starch (mostly in Asia), or sugarcane (in the rest of the world). In 2010, PLA had the second highest consumption volume of any bioplastic of the world.[3]

These just seem like different issues to me: one is dealing with where the plastic is coming from (sourcing polyethylene from sugarcane instead of petroleum), and the other deals with where the plastic is going to (ie biodegradable and returning to the Earth). Sure Lego could have chosen a biodegradable plastic but it's still commendable to move off petroleum and people keep Legos for a long time, so degradation is not ideal...

 

[mspohr]

The death of diesel: can struggling industry woo back consumers?
The death of diesel: can struggling industry woo back consumers?

Looks like diesel is starting a terminal decline

 

[jhm]

The death of diesel: can struggling industry woo back consumers?
The death of diesel: can struggling industry woo back consumers?

Looks like diesel is starting a terminal decline

Here's an interesting bit:

Resale values have fallen: according to comparison website motorway.co.uk, the average price of a used diesel car fell 5% between the first and final quarter of 2017, while petrol models grew 10% more expensive.

This does not look good for diesel. I wonder if we'll see this sort of thing happen when gasmobiles lose substantial share to EVs. When resale values plunge, it is really hard to have confidence buying a new car.

 

[GoTslaGo]

Trump Tariffs Are a Gift for OPEC and Russia. But Not For Shale

Last paragraph:

The biggest winners of this would be Russia, currently the world's largest producer, and OPEC. They have watched in despair as their efforts to restrict their own supply to bolster oil prices have been rewarded with a renewed surge in American production. To now see a president elected to "Make America Great Again" potentially undermining that growth will bring a cheer to hearts in Moscow, Tehran and Caracas. And that is surely not what the president intends.