Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.

[rkbabang]

The only thing I know is that the secular trend over the long-term will be for fossil fuels to go away because EVs/batteries are improving and solar is improving year after year after year. At some points the trends cross and it just doesn't make sense to have ICEs or operate coal plants and eventually gas plants. I don't know when that'll be, but it's coming, and it won't be a linear change. There will also be at some point a price put on carbon, or at least a removal of fossil fuel subsidies, that will accelerate their demise.

 

An interesting chart contrasting PV installations yearly with the International Energy Agency's World Energy Outlook yearly predictions.

 

 

 

[Cardboard]

I was wrong with 11 rigs added for oil however, where did they go?

 

Only 2 in the Permian, 0 in the Eagle Ford and 1 in the Williston basin. They say 5 total in Texas but, it is bizarre that Permian and Eagle Ford got so little.

 

I still think that my theory is starting to work. The Permian was the key place to add rigs since it had the highest profitability. Seems like it is tapped at current prices.

 

Cardboard

[Liberty]

An interesting chart contrasting PV installations yearly with the International Energy Agency's World Energy Outlook yearly predictions.

 

 

 

That's exactly the kind of stuff that happens in non-linear systems when tipping points are reached. Almost nothing happens for a while and people extrapolate that in the future, and then you reach a point where, for example, solar makes sense in certain parts of the world with subsidies, so it accelerates. Then it makes sense in a wider range of locations with subsidies as prices keep falling, so it accelerates further. Then at some point it starts making sense almost everywhere without subsidies, and in parallel storage is getting cheaper and cheaper, and adoption goes through the roof because there's simply no reason to build more expensive and dirtier things. We're still in the early days of that curve, so people better get ready for even more action on that second derivative.

 

F.ex.

[clutch]

The only thing I know is that the secular trend over the long-term will be for fossil fuels to go away because EVs/batteries are improving and solar is improving year after year after year. At some points the trends cross and it just doesn't make sense to have ICEs or operate coal plants and eventually gas plants. I don't know when that'll be, but it's coming, and it won't be a linear change. There will also be at some point a price put on carbon, or at least a removal of fossil fuel subsidies, that will accelerate their demise.

 

An interesting chart contrasting PV installations yearly with the International Energy Agency's World Energy Outlook yearly predictions.

 

 

 

Looks like a Toronto / Vancouver house price chart.  ;D

[Joe689]

The last two months, EIA reports have showed demand is going up, and supply is going to down.    When will this market take notice?    Why chase tech, grab a commodity that is in a cyclical upswing.    Don't understand this market.    Some blame US Production growth, but the latest rig counts and production numbers although increasing,  are not going to be enough to satisfy increase in demand paired with declines around the world. 

 

Maybe this week's reports will make the market take notice...

 

 

[Cardboard]

Wow! I did not see that one coming following API last night or a 1.6 million barrels oil build from EIA vs a 4.6 million barrels draw from API.

 

This seems to have resulted from a massive drop in U.S. exports, imports near record high and less consumed by refineries. Then we have big build in products... Almost like we have entered into a major recession...

 

The only positive, if you believe in some supply crunch down the road, is the reduction of 20,000 bls/d from Lower 48 States production. The last time we have seen a weekly decline was many months ago. As I mentioned previously, we have seen a plateauing in the rig count. This tells me that at current oil prices, decline rate, availability of rigs/completion teams/pricing that the U.S. is maxed out in terms of production.

 

I find amazing that EIA came out with a very bold prediction yesterday, indicating that the U.S. would produce over 10 million barrels/day on average in 2018. And it is worth repeating: on average for the year. While right now, it appears to be peaking at 9.3 million barrels/day.

 

Cardboard

 

 

[Uccmal]

Maybe we should entertain the notion that this time is different. 

 

This whole scenario reminds me of the milkshake sequence in "There will be Blood". 

 

Rig counts are no longer a reliable measure of production.  Its only a matter of time before OPECs agreement breaks down.  The IEA estimates of demand are overly optimistic. 

 

Electrification is now relentlessly eating away at crude oil demand at an ever increasing rate.  I read today that China now has 2 million operating electrical vehicles, up from none a few years ago. 

 

Fire away guys. 

[Cardboard]

In late 1999, I had the same feeling. I was sitting around 80% in cash and thought for a while that I was missing out: should I buy some Intel or Cisco?

 

Every newcomer to the stock market was making a killing. Even one of my buddy at a party told me that the UPS IPO was a sure thing: solid company and all IPO's were at minimum doubling on 1st day...

 

It was highly frustrating for a while to hunt for value. Another of my buddies had subscribed to a newsletter and the author kept on comparing the chart of RCA in the late 20's and AOL and it was near identical. He also highlighted the craziness of the market using various valuation metrics and also had good comparisons to the stock market bubble in Japan. I also recall vividly an older analyst on CNBC saying that the buys were not in the U.S., but in Canada in left for dead companies producing commodities... Who needed commodities to create a website?

 

There was the Y2K bug, the Greenspan Put, the predicted demise of "Bricks and Mortar", fewer and fewer stocks were making new highs then, everything started to change on March 10, 2000 with a large initial drop in the Nasdaq.

 

This time is no different. You have people forgetting about valuations and going with what has worked. You hear and read about the demise of oil. Elon Musk and a few others are revered. There is zero love other than for the FANG's and a few others.

 

If any is so convinced about the future ending up exactly as currently predicted (timing and all that) then please take a look at the stock chart of Best Buy which should have been dead a while ago.

 

Cardboard

 

 

[goldfinger]

Maybe we should entertain the notion that this time is different. 

 

This whole scenario reminds me of the milkshake sequence in "There will be Blood". 

 

Rig counts are no longer a reliable measure of production.  Its only a matter of time before OPECs agreement breaks down.  The IEA estimates of demand are overly optimistic. 

 

Electrification is now relentlessly eating away at crude oil demand at an ever increasing rate.  I read today that China now has 2 million operating electrical vehicles, up from none a few years ago. 

 

Fire away guys.

 

https://electrek.co/2017/05/08/byd-electric-vehicle-sales-drop-china/

Maybe there is a connection to subsidies in China...  ::)

 

There are more than 1.2 B cars today in the world and we are probably going to cross the 2B mark in the 2030's... I do not see the grids taking that much load in such a short period of time neither do I see > 1.2 B cars suddenly all becoming electrical.

 

Subsidies to solar make the "classic" grid more expensive also. Hybrid might actually win lots of ground instead...

[goldfinger]

Maybe we should entertain the notion that this time is different. 

 

This whole scenario reminds me of the milkshake sequence in "There will be Blood". 

 

Rig counts are no longer a reliable measure of production.  Its only a matter of time before OPECs agreement breaks down.  The IEA estimates of demand are overly optimistic. 

 

Electrification is now relentlessly eating away at crude oil demand at an ever increasing rate.  I read today that China now has 2 million operating electrical vehicles, up from none a few years ago. 

 

Fire away guys.

 

https://electrek.co/2017/05/08/byd-electric-vehicle-sales-drop-china/

Maybe there is a connection to subsidies in China...  ::)

 

There are more than 1.2 B cars today in the world and we are probably going to cross the 2B mark in the 2030's... I do not see the grids taking that much load in such a short period of time neither do I see > 1.2 B cars suddenly all becoming electrical.

 

Subsidies to solar make the "classic" grid more expensive also. Hybrid might actually win lots of ground instead...

 

Also consuming that much electricity from the grid is not environmentally friendly at all!

[sculpin]

In late 1999, I had the same feeling. I was sitting around 80% in cash and thought for a while that I was missing out: should I buy some Intel or Cisco?

 

Every newcomer to the stock market was making a killing. Even one of my buddy at a party told me that the UPS IPO was a sure thing: solid company and all IPO's were at minimum doubling on 1st day...

 

It was highly frustrating for a while to hunt for value. Another of my buddies had subscribed to a newsletter and the author kept on comparing the chart of RCA in the late 20's and AOL and it was near identical. He also highlighted the craziness of the market using various valuation metrics and also had good comparisons to the stock market bubble in Japan. I also recall vividly an older analyst on CNBC saying that the buys were not in the U.S., but in Canada in left for dead companies producing commodities... Who needed commodities to create a website?

 

There was the Y2K bug, the Greenspan Put, the predicted demise of "Bricks and Mortar", fewer and fewer stocks were making new highs then, everything started to change on March 10, 2000 with a large initial drop in the Nasdaq.

 

This time is no different. You have people forgetting about valuations and going with what has worked. You hear and read about the demise of oil. Elon Musk and a few others are revered. There is zero love other than for the FANG's and a few others.

 

If any is so convinced about the future ending up exactly as currently predicted (timing and all that) then please take a look at the stock chart of Best Buy which should have been dead a while ago.

 

Cardboard

 

+1

 

"To quote Warren Buffett, orgies tend to be "wildest toward the end,""

 

https://seekingalpha.com/article/4078834-fang-stock-mania-new-nifty-fifty

 

 

[Uccmal]

All I get are platitudes and comparisons to the past and a couple of Buffett quotes.  I also stated that there was likely to be a continuing oversupply for oil, NOT that oil was going to disappear. 

 

No comments on the supply side? 

 

It does us no good whatsoever, if the technology has improved so dramatically that the world is in constant oversupply.  Here is my working theory:

 

During the years of high oil prices there was no need to improve practices.  When push came to shove 2.5 years ago large technological advances were implemented, and are continuing to be implememted.  It was a result of pent up developments, not the sudden invention of whole new ways to drill.  This could be why rig counts are not rising, and why supply is not dropping. 

 

Then I read the other day that there have been huge cost cuts, due to technological advance, in deep sea drilling as well. 

 

All this adds up to oil being cheaper for far longer than anyone anticipated.  It also caps the upside on oil.  As soon as the price goes up production simply ramps up quickly to meet it causing a perpetual seesaw. 

 

This means is that the cheapest operators with the biggest balance sheets will be the only ones who make money.  The huge price dependent profit margins of the past may well be gone. 

 

On the demand side.  I see nothing compelling to show me that demand is going to keep going up. 

Leaving aside electrification, we have constant improvements in how ICEs are being built such as hybrids, improved fuel efficiency, lighter weight materials in vehicles. 

 

We have jurisdictions slowly mothballing oil powered power plants because they are old, hugely polluting, and politically unpopular.  At the same time solar, wind, and gas are filling the gap, subsidies , or not.  On the note of subsidies: Governments have always subsidized power development, and manufacturing as a way of securing jobs in their districts.  This notion that oil is not subsidized, but renewables are, is totally erroneous.  Ever watch provinces, states, or countries fight over new car plants.  The states routinely try to lure military plants using tax breaks (a subsidy by any other name). 

 

Then there is the localized pollution isssues, mostly in Asia.  The major cities there are going to push non polluting vehicles.  The assumption they will keep adding to the ICE fleet is dangerous. 

 

Its a combination of factors and relying in pithy quotes from Buffett, or the past as a guide is not the way to approach this. 

[jeffmori7]

All I get are platitudes and comparisons to the past and a couple of Buffett quotes.  I also stated that there was likely to be a continuing oversupply for oil, NOT that oil was going to disappear. 

 

No comments on the supply side? 

 

It does us no good whatsoever, if the technology has improved so dramatically that the world is in constant oversupply.  Here is my working theory:

 

During the years of high oil prices there was no need to improve practices.  When push came to shove 2.5 years ago large technological advances were implemented, and are continuing to be implememted.  It was a result of pent up developments, not the sudden invention of whole new ways to drill.  This could be why rig counts are not rising, and why supply is not dropping. 

 

Then I read the other day that there have been huge cost cuts, due to technological advance, in deep sea drilling as well. 

 

All this adds up to oil being cheaper for far longer than anyone anticipated.  It also caps the upside on oil.  As soon as the price goes up production simply ramps up quickly to meet it causing a perpetual seesaw. 

 

This means is that the cheapest operators with the biggest balance sheets will be the only ones who make money.  The huge price dependent profit margins of the past may well be gone. 

 

On the demand side.  I see nothing compelling to show me that demand is going to keep going up. 

Leaving aside electrification, we have constant improvements in how ICEs are being built such as hybrids, improved fuel efficiency, lighter weight materials in vehicles. 

 

We have jurisdictions slowly mothballing oil powered power plants because they are old, hugely polluting, and politically unpopular.  At the same time solar, wind, and gas are filling the gap, subsidies , or not.  On the note of subsidies: Governments have always subsidized power development, and manufacturing as a way of securing jobs in their districts.  This notion that oil is not subsidized, but renewables are, is totally erroneous.  Ever watch provinces, states, or countries fight over new car plants.  The states routinely try to lure military plants using tax breaks (a subsidy by any other name). 

 

Then there is the localized pollution isssues, mostly in Asia.  The major cities there are going to push non polluting vehicles.  The assumption they will keep adding to the ICE fleet is dangerous. 

 

Its a combination of factors and relying in pithy quotes from Buffett, or the past as a guide is not the way to approach this.

 

Great post. Of course oil will be there for a long time, but people here who don't even want to acknowledge that there are factors that will contribute to a supply diminution in the long term are blinded by ideology.

 

Apart from that, an honest question on those trying to play oil, aren't you way much too focused on some really short-term moves? Isn't that more gambling, or trading, than investing? Predictions in the energy world are so complicated, I will let you play this game, but from the outside, I am thinking that counting the number of new rigs during a week is not a good investment strategy.

[clutch]

All I get are platitudes and comparisons to the past and a couple of Buffett quotes.  I also stated that there was likely to be a continuing oversupply for oil, NOT that oil was going to disappear. 

 

No comments on the supply side? 

 

It does us no good whatsoever, if the technology has improved so dramatically that the world is in constant oversupply.  Here is my working theory:

 

During the years of high oil prices there was no need to improve practices.  When push came to shove 2.5 years ago large technological advances were implemented, and are continuing to be implememted.  It was a result of pent up developments, not the sudden invention of whole new ways to drill.  This could be why rig counts are not rising, and why supply is not dropping. 

 

Then I read the other day that there have been huge cost cuts, due to technological advance, in deep sea drilling as well. 

 

All this adds up to oil being cheaper for far longer than anyone anticipated.  It also caps the upside on oil.  As soon as the price goes up production simply ramps up quickly to meet it causing a perpetual seesaw. 

 

This means is that the cheapest operators with the biggest balance sheets will be the only ones who make money.  The huge price dependent profit margins of the past may well be gone. 

 

On the demand side.  I see nothing compelling to show me that demand is going to keep going up. 

Leaving aside electrification, we have constant improvements in how ICEs are being built such as hybrids, improved fuel efficiency, lighter weight materials in vehicles. 

 

We have jurisdictions slowly mothballing oil powered power plants because they are old, hugely polluting, and politically unpopular.  At the same time solar, wind, and gas are filling the gap, subsidies , or not.  On the note of subsidies: Governments have always subsidized power development, and manufacturing as a way of securing jobs in their districts.  This notion that oil is not subsidized, but renewables are, is totally erroneous.  Ever watch provinces, states, or countries fight over new car plants.  The states routinely try to lure military plants using tax breaks (a subsidy by any other name). 

 

Then there is the localized pollution isssues, mostly in Asia.  The major cities there are going to push non polluting vehicles.  The assumption they will keep adding to the ICE fleet is dangerous. 

 

Its a combination of factors and relying in pithy quotes from Buffett, or the past as a guide is not the way to approach this.

 

Great post. Of course oil will be there for a long time, but people here who don't even want to acknowledge that there are factors that will contribute to a supply diminution in the long term are blinded by ideology.

 

Apart from that, an honest question on those trying to play oil, aren't you way much too focused on some really short-term moves? Isn't that more gambling, or trading, than investing? Predictions in the energy world are so complicated, I will let you play this game, but from the outside, I am thinking that counting the number of new rigs during a week is not a good investment strategy.

 

I agree with many of the points made by Uccmal and agree that long-term perspective of oil is not great. And this story is well understood by most people and the sentiment has been reflected in the oil price.

 

Regards to trading / value investing - IMO there is a fine line between the two, but if you follow Ben Graham's definitions, I'm assuming that the former depends on some short-term predictions.

 

But you could remove the time aspect from your investment hypothesis and make certain trading opportunities profitable.

 

In the case of investing in oil companies, my hypothesis would be:

"Will the oil price reach $60 / barrel again at some point in the future?"

 

If you ask this question to even the oil bears, I believe the answer would be "Yes".

 

And if the above proposition turns out to be true, I believe most of my oil investments will have positive returns. Most of valuations on oil companies are along the line of "if oil trades at $60, this company is worth X".

 

Now the question is obviously when. Will it be 1 month? 3 month? 1 year? 3 years? I don't know and that seems like an impossible prediction to make. Depending on when, my annualized return would vary.

 

The risks that I'm taking are: 1) oil never reaching $60 hence all my investments don't work out, or 2) it takes too long to reach $60 so the annualized return is less than a benchmark return. The latter scenario is especially plausible.

 

But based on estimating the probabilities of each of these scenarios playing out (discretized scenarios of oil reaching $60 in X months + plus the risk scenarios), I like my odds.

[jeffmori7]

Thanks for the precise and clear answer clutch!

[Uccmal]

All I get are platitudes and comparisons to the past and a couple of Buffett quotes.  I also stated that there was likely to be a continuing oversupply for oil, NOT that oil was going to disappear. 

 

No comments on the supply side? 

 

It does us no good whatsoever, if the technology has improved so dramatically that the world is in constant oversupply.  Here is my working theory:

 

During the years of high oil prices there was no need to improve practices.  When push came to shove 2.5 years ago large technological advances were implemented, and are continuing to be implememted.  It was a result of pent up developments, not the sudden invention of whole new ways to drill.  This could be why rig counts are not rising, and why supply is not dropping. 

 

Then I read the other day that there have been huge cost cuts, due to technological advance, in deep sea drilling as well. 

 

All this adds up to oil being cheaper for far longer than anyone anticipated.  It also caps the upside on oil.  As soon as the price goes up production simply ramps up quickly to meet it causing a perpetual seesaw. 

 

This means is that the cheapest operators with the biggest balance sheets will be the only ones who make money.  The huge price dependent profit margins of the past may well be gone. 

 

On the demand side.  I see nothing compelling to show me that demand is going to keep going up. 

Leaving aside electrification, we have constant improvements in how ICEs are being built such as hybrids, improved fuel efficiency, lighter weight materials in vehicles. 

 

We have jurisdictions slowly mothballing oil powered power plants because they are old, hugely polluting, and politically unpopular.  At the same time solar, wind, and gas are filling the gap, subsidies , or not.  On the note of subsidies: Governments have always subsidized power development, and manufacturing as a way of securing jobs in their districts.  This notion that oil is not subsidized, but renewables are, is totally erroneous.  Ever watch provinces, states, or countries fight over new car plants.  The states routinely try to lure military plants using tax breaks (a subsidy by any other name). 

 

Then there is the localized pollution isssues, mostly in Asia.  The major cities there are going to push non polluting vehicles.  The assumption they will keep adding to the ICE fleet is dangerous. 

 

Its a combination of factors and relying in pithy quotes from Buffett, or the past as a guide is not the way to approach this.

 

Great post. Of course oil will be there for a long time, but people here who don't even want to acknowledge that there are factors that will contribute to a supply diminution in the long term are blinded by ideology.

 

Apart from that, an honest question on those trying to play oil, aren't you way much too focused on some really short-term moves? Isn't that more gambling, or trading, than investing? Predictions in the energy world are so complicated, I will let you play this game, but from the outside, I am thinking that counting the number of new rigs during a week is not a good investment strategy.

 

I will follow on this with something that occurred to me at the gym this morning.

 

With the increasing reliability of oil E&P (basically 100%), oil has become like natural gas.  The price will move around but never too high or too low.  The shale operators in the US are showing us that it is pretty easy to turn the taps on and off.  They have become like the Opec of the west. 

 

Trying to invest in this based on the price of oil is turning into a mugs game.  One day, when the price goes up we will all make a killing.  Until then we have opportunity cost, which in 2.5 years has been considerable when compared to infrastructure companies like BAM, Enbridge, Algonquin, Brookfield Renewable. 

 

It is also telling to me that Fairfax, Bam, and Buffett have not invested in oil.  I dont know the status of Berks smallish investment in Suncor.  But Buffett and Bam have been pouring billions into energy infrastructure. 

 

Then there is the looming possibility of recession, which will set us back a couple of more years. 

[Uccmal]

All I get are platitudes and comparisons to the past and a couple of Buffett quotes.  I also stated that there was likely to be a continuing oversupply for oil, NOT that oil was going to disappear. 

 

No comments on the supply side? 

 

It does us no good whatsoever, if the technology has improved so dramatically that the world is in constant oversupply.  Here is my working theory:

 

During the years of high oil prices there was no need to improve practices.  When push came to shove 2.5 years ago large technological advances were implemented, and are continuing to be implememted.  It was a result of pent up developments, not the sudden invention of whole new ways to drill.  This could be why rig counts are not rising, and why supply is not dropping. 

 

Then I read the other day that there have been huge cost cuts, due to technological advance, in deep sea drilling as well. 

 

All this adds up to oil being cheaper for far longer than anyone anticipated.  It also caps the upside on oil.  As soon as the price goes up production simply ramps up quickly to meet it causing a perpetual seesaw. 

 

This means is that the cheapest operators with the biggest balance sheets will be the only ones who make money.  The huge price dependent profit margins of the past may well be gone. 

 

On the demand side.  I see nothing compelling to show me that demand is going to keep going up. 

Leaving aside electrification, we have constant improvements in how ICEs are being built such as hybrids, improved fuel efficiency, lighter weight materials in vehicles. 

 

We have jurisdictions slowly mothballing oil powered power plants because they are old, hugely polluting, and politically unpopular.  At the same time solar, wind, and gas are filling the gap, subsidies , or not.  On the note of subsidies: Governments have always subsidized power development, and manufacturing as a way of securing jobs in their districts.  This notion that oil is not subsidized, but renewables are, is totally erroneous.  Ever watch provinces, states, or countries fight over new car plants.  The states routinely try to lure military plants using tax breaks (a subsidy by any other name). 

 

Then there is the localized pollution isssues, mostly in Asia.  The major cities there are going to push non polluting vehicles.  The assumption they will keep adding to the ICE fleet is dangerous. 

 

Its a combination of factors and relying in pithy quotes from Buffett, or the past as a guide is not the way to approach this.

 

Great post. Of course oil will be there for a long time, but people here who don't even want to acknowledge that there are factors that will contribute to a supply diminution in the long term are blinded by ideology.

 

Apart from that, an honest question on those trying to play oil, aren't you way much too focused on some really short-term moves? Isn't that more gambling, or trading, than investing? Predictions in the energy world are so complicated, I will let you play this game, but from the outside, I am thinking that counting the number of new rigs during a week is not a good investment strategy.

 

I agree with many of the points made by Uccmal and agree that long-term perspective of oil is not great. And this story is well understood by most people and the sentiment has been reflected in the oil price.

 

Regards to trading / value investing - IMO there is a fine line between the two, but if you follow Ben Graham's definitions, I'm assuming that the former depends on some short-term predictions.

 

But you could remove the time aspect from your investment hypothesis and make certain trading opportunities profitable.

 

In the case of investing in oil companies, my hypothesis would be:

"Will the oil price reach $60 / barrel again at some point in the future?"

 

If you ask this question to even the oil bears, I believe the answer would be "Yes".

 

And if the above proposition turns out to be true, I believe most of my oil investments will have positive returns. Most of valuations on oil companies are along the line of "if oil trades at $60, this company is worth X".

 

Now the question is obviously when. Will it be 1 month? 3 month? 1 year? 3 years? I don't know and that seems like an impossible prediction to make. Depending on when, my annualized return would vary.

 

The risks that I'm taking are: 1) oil never reaching $60 hence all my investments don't work out, or 2) it takes too long to reach $60 so the annualized return is less than a benchmark return. The latter scenario is especially plausible.

 

But based on estimating the probabilities of each of these scenarios playing out (discretized scenarios of oil reaching $60 in X months + plus the risk scenarios), I like my odds.

 

To that end I have reduced my direct oil holdings to 7-8% of my portfolio, which consists mostly of Whitecap.  Peripherally I hold Mullen Trucking which should do well regardless of the gyrations in the oil price, amd Russell Metals which has 30% exposure to oil via pipe.  The demand for pipe will likely remain stable or increase with the lengths needed in horizontal drilling.  Both are diverisified enough to be profitable in any scenario. 

[John Hjorth]

... I dont know the status of Berks smallish investment in Suncor. ...

 

Uccmal,

 

It has been sold before end of March this year, ref. the 13/F for Berkshire end of March 2017. I don't know when.

[sculpin]

All I get are platitudes and comparisons to the past and a couple of Buffett quotes.  I also stated that there was likely to be a continuing oversupply for oil, NOT that oil was going to disappear. 

 

No comments on the supply side? 

 

It does us no good whatsoever, if the technology has improved so dramatically that the world is in constant oversupply.  Here is my working theory:

 

During the years of high oil prices there was no need to improve practices.  When push came to shove 2.5 years ago large technological advances were implemented, and are continuing to be implememted.  It was a result of pent up developments, not the sudden invention of whole new ways to drill.  This could be why rig counts are not rising, and why supply is not dropping. 

 

Then I read the other day that there have been huge cost cuts, due to technological advance, in deep sea drilling as well. 

 

All this adds up to oil being cheaper for far longer than anyone anticipated.  It also caps the upside on oil.  As soon as the price goes up production simply ramps up quickly to meet it causing a perpetual seesaw. 

 

This means is that the cheapest operators with the biggest balance sheets will be the only ones who make money.  The huge price dependent profit margins of the past may well be gone. 

 

On the demand side.  I see nothing compelling to show me that demand is going to keep going up. 

Leaving aside electrification, we have constant improvements in how ICEs are being built such as hybrids, improved fuel efficiency, lighter weight materials in vehicles. 

 

We have jurisdictions slowly mothballing oil powered power plants because they are old, hugely polluting, and politically unpopular.  At the same time solar, wind, and gas are filling the gap, subsidies , or not.  On the note of subsidies: Governments have always subsidized power development, and manufacturing as a way of securing jobs in their districts.  This notion that oil is not subsidized, but renewables are, is totally erroneous.  Ever watch provinces, states, or countries fight over new car plants.  The states routinely try to lure military plants using tax breaks (a subsidy by any other name). 

 

Then there is the localized pollution isssues, mostly in Asia.  The major cities there are going to push non polluting vehicles.  The assumption they will keep adding to the ICE fleet is dangerous. 

 

Its a combination of factors and relying in pithy quotes from Buffett, or the past as a guide is not the way to approach this.

 

If you back in the thread there has been numerous studies and articles refuting your "just turn on the taps" mentality.  Something to think about on the impact of EV on oil usage. Believe best way to reduce oil usage is conservation, improvements to ICE mpg but unfortunately these improvements are being overwhelmed by great demand in larger vehicles.

 

http://oilprice.com/Energy/Energy-General/The-EV-Myth-Electric-Car-Threat-To-Oil-Is-Wildly-Overstated.html

 

 

Even with subsidies and force feeding on the public EV sales in California are not doing well in a state which really should be the panacea for electric vehicles...

 

Conking out: Low-emissions vehicles sales slump – San Diego Tribune

 

There are still eight years and four months to go, but an aggressive goal set by state policymakers to dramatically increase the number of electric, plug-in and hybrid vehicles in California is in danger of failing.

 

Gov. Jerry Brown wants 1.5 million zero-emission vehicles on California's highways by 2025, the same year the California Air Resources Board (CARB) has mandated that zero-emission vehicles (called ZEVs) make up at least 15.4 percent of all vehicles sold in the state.

But the latest figures show about 3 percent of the new vehicles sold in the state qualify under the Air Resource Board's ZEV program. There are currently just under 224,000 plug-in or electric vehicles in the state.

In the most recent quarterly report by the California New Car Dealers Association, the sales of hybrids and plug-ins have been trending down for the last two years and the registrations for new electric vehicles are flat.

"It's kind of a mixed bag at this point," said CARB spokesman Dave Clegern.

But Brian Maas, president of the new car dealers association, is much more blunt about hitting the 15.4 percent mandate.

"Without some dramatic changes in consumers' willingness to consider these alternative-powered vehicles, it's just not going to happen," Maas said.

Sputtering EV sales come at a time when auto sales are otherwise booming. The car dealers association has reported 23 straight quarters of increasing registrations for new vehicles.

But instead of buying electric cars and hybrids, drivers are snapping up conventionally-powered cars, trucks and sport utility vehicles.

In the second quarter of this year, sales in California for light trucks — which include pickup trucks such as the Ford F Series and SUVs like the Toyota RAV4 — were up 12.8 percent year-to-date from 2015, a year in which light trucks already posted robust sales.

The low price of gasoline has helped fuel the rally.

On Aug. 29, the average for a gallon of regular in California was $2.70. In May 2014, when oil was trading around $100 a barrel, the average price was $4.22 per gallon.

But it's not the only reason.

In a twist, government rules directing automakers boost fuel efficiency standards have helped undercut one of the major selling points for zero-emission vehicles — that buyers can avoid spending a ton of money at the pump.

"Especially when gas prices aren't flirting with $5 a gallon, people are saying, 'I'm going to get a car that gets outstanding gas mileage,' especially compared to the vehicles they're trading in," said Jeremy Acedvedo, pricing and industry analyst for Edmunds.com.

For instance, the Honda Pilot is a three-row crossover utility vehicle that can fit up to eight people but gets 27 miles per gallon on the highway.

"That's such a huge improvement over even a generation or two ago on what the standard gas and diesels were able to achieve," said Patrick Min, senior manager at Santa Monica-based ALG, a division of TrueCar that projects resale values for vehicles.

With transportation accounting for an estimated 35 percent to 40 percent of California's greenhouse gas emissions, CARB administers the ZEV program and has authority through the Legislature to enforce its rules.

"Public health and the health of the environment and our economy are the primary reasons we're doing this," Clegern said.

Mary Nichols, CARB's hard-charging boss since 2007, wants 100 percent of new vehicles sold in the state to meet the zero-emission standards by 2030.

Many auto executives complain in private that state mandates are a losing proposition for them but in May 2014, the CEO of Fiat Chrysler made headlines.

Sergio Marchionne, at a conference in Washington D.C., said of his company's $32,500 battery-powered Fiat 500e: "I hope you don't buy it because every time I sell one it costs me $14,000."

Environmentalists supporting the ZEV mandate accuse car dealers of not trying hard enough to sell hybrids and electric vehicles.

In a report released earlier this month, 174 Sierra Club volunteers reviewed dealerships in 10 states and said 42 percent of the time EVs were either “not prominently displayed” or were only “somewhat prominently displayed.”

In discussions with dealerships that had at least one EV on the lot, the report said about one-third of the time the salesperson did not discuss the federal and state tax credits and rebates available to lower the cost of an EV.

The federal government offers tax credits for clean-air vehicles of up to $7,500.

California offers rebates of $2,500 for battery electric vehicles, $1,500 for plug-in hybrids and $5,000 for hydrogen fuel cell cars, such as the Toyota Mirai.

Even with incentives, hybrids and electric vehicles tend to be more expensive than gas-powered cars.

Maas said the California New Car Dealers Association "wholeheartedly" disputes the notion that sales people steer customers clear of EVs.

"If they want pink Corollas, we'll order and sell lots of pink Corollas," Maas said. "We respond to demand ... Imagine any business — a restaurant, a Target, a newspaper — if the demand for the product is 3 percent, are you going to spend a whole lot of resources promoting something that's 3 percent?"

Some tweaks to the mandate may be in the offing.

CARB has scheduled what it calls a "midterm review" of the latest iteration of the mandate, which has gone through a number of revisions since its inception in 1990.

"We always have the ability to amend these regulations," Clegern said.

California's rules are synchronized with federal regulations and nine other states plus the District of Columbia have followed California’s lead and created their own ZEV mandates.

Part of the California program includes a system in which manufacturers are given credits tied to the number and types of ZEVs sold. If a manufacturer falls short, it can buy credits from car makers that exceed their respective quota.

The plan has been criticized by some because Tesla — which makes electric cars exclusively — has racked up a large number of credits that other car makers have been purchasing.

In the first quarter of this year, Tesla made $57 million by selling ZEV credits to other manufacturers.

The credits are based on a 1-through-9 point system but next year it will be narrowed to 1-through-4.

While some details may change, Clegern said the overall ZEV program is not expected to get less stringent.

"We're inclined to think there's no reason to back off," Clegern said in light of the board looking at a technical assessment report released in August.

Despite flagging ZEV sales, CARB officials say they're still optimistic the mandate can be met.

The number of registrations for Teslas in the state ticked up 12 percent in the California car dealers' most recent quarterly report and Elon Musk plans to roll out the Model 3 in late 2017 that has a base price of $35,000. That’s better than half the price of stripped-down versions of the Tesla Model S and Model X.

This fall Toyota debuts a redesign of the popular hybrid, the Prius, and Chevrolet is about to unveil the Bolt, which boasts an expanded range of 200 miles per charge that has a base price of $37,500 before incentives.

"Will this 200-plus mile range be enough to spur a lot of people to say, OK, I can now live with an EV as my sole vehicle day to day, rather than some of the 80 to 100 mile (range) cars out there right now?" Min said.

CARB also hopes hydrogen fuel cell vehicles can grow into an emerging market. Of the more than 24 million automobiles registered in the state, fewer than 500 are fuel cell-powered. California is part of an alliance with the U.S. Department of Energy to promote hydrogen infrastructure and on Aug. 27 the state opened its 22nd hydrogen fuel-cell station in Truckee.

But what happens if 2025 comes and the 15.4 percent mandate is not met?

CARB has the power to fine car dealers, but Clegern said, "If they can't deliver enough vehicles we can penalize them for that, but so far, everyone's been over-complying."

Is there a scenario in which CARB institutes a quota system — compelling dealerships to sell a predetermined number of ZEVs or restricting the number of gas-powered vehicles they could sell to customers?

"I don't really see us going that way," Clegern said. "And honestly, I don't think we're going to have to go that way."

Free-market thinkers and libertarians have criticized the mandate from its inception and say they're not surprised that its challenges have led to calls from both car dealers and enironmentalists to make changes to the program.

"You can distort the market through policy but as we've learned in lots of other areas, that has huge negative consequences," said Adrian Moore, vice president of policy at the Los Angeles-based Reason Foundation.

"It'll get papered over, replaced, tweaked or expanded so there will be still be something but they'll keep moving the goal-line as long as the goal-line can't be reached."

While mileage figures keep improving for internal combustion vehicles, Clegern said CARB's goal is to eventually get all cars in California to go electric.

"The technology is coming along fast enough and the costs of these vehicles is coming down enough now that I think they'll become viable," Clegern said. "It may still take a few years to really catch fire but they will do it."

An analyst at the research group Bloomberg New Energy Finance has predicted the unsubsidized cost of owning a battery-powered car will fall below the cost of a conventionally-powered car by 2022.

But that premise is not universally held.

 

A study released earlier this year by researchers from MIT and the University of Chicago concluded that given the current cost of batteries at $325 per kilowatt-hour, the price of oil would need to exceed $350 a barrel before an EV would have a lower cost of ownership than a gas-powered equivalent.

Oil is currently trading at about $48 a barrel.

 

"While alternative sources of energy and energy storage technology have vastly improved, lowering costs, they still have a long way to go before they are cost-competitive with fossil fuels," said Chris Knittle of MIT, one of co-authors of the study.

Their solution? Have governments place a price on carbon emissions and spend more money on research and development of battery-powered cars.

 

On supply....

 

All the DOE reports tell us is that weekly imports determine the global price of oil and that record refinery utilization inputs of crude between 17-17.5 million bbls/d mean little if its swamped by imports. The huge variables in imports/exports is the main story regardless of demand. It would be fine if we could see real time data for global inventory declines when US imports surge but this data is not as visible taking months to publish.

 

Then their is the DOE weekly data itself which has always aided the bears with its bias. In 2015 the weekly DOE didn't reflect actual US prodn declines with the monthlies showing declines were greater and eventually revised. Now we see the opposite with the monthlies reporting half the prodn growth of the DOE weekly in March. So weekly DOE underestimated US prodn declines and now is over-estimating US prodn growth? The monthly reports are stated to be more accurate yet the market seems to only follow the weekly.

 

''US Production Growth:

Additionally, the growth in US crude oil production in March (although still growing) was far smaller than anticipated at just +62,000 bbl/d, well below February’s growth of +178,000 and less than half the m/m growth suggested by the EIA’s weekly production figures (which was implying m/m growth in March of +134,000 bbl/d).

 

·        OPEC-10 Exports: Going forward investors should expect material stockdraws this summer with OPEC-10 (those participating in the cuts) seeing exports fall by -200 mbbl/d m/m in May (now -800 mbbl/d below the Oct. 2016 baseline – albeit still weak compared to production cuts of -1.3 mmbbl/d). Of note, Saudi exports in May fell to the lowest point since Oct. 2015.''

 

Supply/Demand ultimately decides the direction of oil although currently that doesn't appear to be the case. We are stuck with a market focus on short cycle shale oil at the exclusion of long cycle offshore deepwater, oilsands and other play declines. The latter takes 3-4 yrs to show stress as GoM prodn is rising on the back of pre-2014 projects, however beyond 2018 a pending supply shortage looms as the long cycle offshore deepwater & oilsands hopper dries up. IOC's have shifted capital to short cycle US shale in the Permian over capitalizing this play. Last year the Permian players didn't increase the rig count when oil was under $50 because the return didn't justify drilling prime sweet spot inventory. Now with the IOC's buying out these players they are drilling more as within their portfolio short cycle shale probably has some of the best returns. IOCs Shifting capital towards short cycle oil plays will only accelerate the inevitable declines in the longer cycle oil production. Think listening to the Saudis comments that is their expectations beyond 2018 when shale can no longer mask these declines. Plus Permian growth will be accompanied by far higher decline profiles needing far more capital to maintain existing prodn...and is why eventually all plays plateau and then decline.

[Cigarbutt]

I thought the following link to be interesting and relevant.

 

https://www.bloomberg.com/gadfly/articles/2017-06-01/trump-threatens-new-world-disorder-for-oil

 

Leaving partisan politics aside, there are a lot of things that we take for granted in these markets reaching for the top.

One of these issues has to do with the expectation that international trade (including for oil) will continue to increase over time.

A potential global trend here is protectionism and increased geo-political risks.

That would mean oil price spike.

Unfortunately, longer term, that would constitute a great incentive for alternatives and substitutes. Also, (mostly opinion and bias on my part, looking for pins to blow bubbles that I see) a material oil price increase could be the trigger for the next recession. After all, it's happened before. And then, collapse for demand.

Not easy.

[Cardboard]

Platitudes hmmm???

 

"In late 1999, I had the same feeling. I was sitting around 80% in cash and thought for a while that I was missing out: should I buy some Intel or Cisco?

 

Every newcomer to the stock market was making a killing. Even one of my buddy at a party told me that the UPS IPO was a sure thing: solid company and all IPO's were at minimum doubling on 1st day...

 

It was highly frustrating for a while to hunt for value. Another of my buddies had subscribed to a newsletter and the author kept on comparing the chart of RCA in the late 20's and AOL and it was near identical. He also highlighted the craziness of the market using various valuation metrics and also had good comparisons to the stock market bubble in Japan. I also recall vividly an older analyst on CNBC saying that the buys were not in the U.S., but in Canada in left for dead companies producing commodities... Who needed commodities to create a website?

 

There was the Y2K bug, the Greenspan Put, the predicted demise of "Bricks and Mortar", fewer and fewer stocks were making new highs then, everything started to change on March 10, 2000 with a large initial drop in the Nasdaq.

 

This time is no different. You have people forgetting about valuations and going with what has worked. You hear and read about the demise of oil. Elon Musk and a few others are revered. There is zero love other than for the FANG's and a few others.

 

If any is so convinced about the future ending up exactly as currently predicted (timing and all that) then please take a look at the stock chart of Best Buy which should have been dead a while ago.

 

Cardboard"

 

Remains to be seen if today was the begining of the pop in Can't Go Wrong Stocks and rotation into other sectors.

 

Cardboard

[Uccmal]

All I get are platitudes and comparisons to the past and a couple of Buffett quotes.  I also stated that there was likely to be a continuing oversupply for oil, NOT that oil was going to disappear. 

 

No comments on the supply side? 

 

It does us no good whatsoever, if the technology has improved so dramatically that the world is in constant oversupply.  Here is my working theory:

 

During the years of high oil prices there was no need to improve practices.  When push came to shove 2.5 years ago large technological advances were implemented, and are continuing to be implememted.  It was a result of pent up developments, not the sudden invention of whole new ways to drill.  This could be why rig counts are not rising, and why supply is not dropping. 

 

Then I read the other day that there have been huge cost cuts, due to technological advance, in deep sea drilling as well. 

 

All this adds up to oil being cheaper for far longer than anyone anticipated.  It also caps the upside on oil.  As soon as the price goes up production simply ramps up quickly to meet it causing a perpetual seesaw. 

 

This means is that the cheapest operators with the biggest balance sheets will be the only ones who make money.  The huge price dependent profit margins of the past may well be gone. 

 

On the demand side.  I see nothing compelling to show me that demand is going to keep going up. 

Leaving aside electrification, we have constant improvements in how ICEs are being built such as hybrids, improved fuel efficiency, lighter weight materials in vehicles. 

 

We have jurisdictions slowly mothballing oil powered power plants because they are old, hugely polluting, and politically unpopular.  At the same time solar, wind, and gas are filling the gap, subsidies , or not.  On the note of subsidies: Governments have always subsidized power development, and manufacturing as a way of securing jobs in their districts.  This notion that oil is not subsidized, but renewables are, is totally erroneous.  Ever watch provinces, states, or countries fight over new car plants.  The states routinely try to lure military plants using tax breaks (a subsidy by any other name). 

 

Then there is the localized pollution isssues, mostly in Asia.  The major cities there are going to push non polluting vehicles.  The assumption they will keep adding to the ICE fleet is dangerous. 

 

Its a combination of factors and relying in pithy quotes from Buffett, or the past as a guide is not the way to approach this.

 

If you back in the thread there has been numerous studies and articles refuting your "just turn on the taps" mentality.  Something to think about on the impact of EV on oil usage. Believe best way to reduce oil usage is conservation, improvements to ICE mpg but unfortunately these improvements are being overwhelmed by great demand in larger vehicles.

 

http://oilprice.com/Energy/Energy-General/The-EV-Myth-Electric-Car-Threat-To-Oil-Is-Wildly-Overstated.html

 

 

Even with subsidies and force feeding on the public EV sales in California are not doing well in a state which really should be the panacea for electric vehicles...

 

Conking out: Low-emissions vehicles sales slump – San Diego Tribune

 

There are still eight years and four months to go, but an aggressive goal set by state policymakers to dramatically increase the number of electric, plug-in and hybrid vehicles in California is in danger of failing.

 

Gov. Jerry Brown wants 1.5 million zero-emission vehicles on California's highways by 2025, the same year the California Air Resources Board (CARB) has mandated that zero-emission vehicles (called ZEVs) make up at least 15.4 percent of all vehicles sold in the state.

But the latest figures show about 3 percent of the new vehicles sold in the state qualify under the Air Resource Board's ZEV program. There are currently just under 224,000 plug-in or electric vehicles in the state.

In the most recent quarterly report by the California New Car Dealers Association, the sales of hybrids and plug-ins have been trending down for the last two years and the registrations for new electric vehicles are flat.

"It's kind of a mixed bag at this point," said CARB spokesman Dave Clegern.

But Brian Maas, president of the new car dealers association, is much more blunt about hitting the 15.4 percent mandate.

"Without some dramatic changes in consumers' willingness to consider these alternative-powered vehicles, it's just not going to happen," Maas said.

Sputtering EV sales come at a time when auto sales are otherwise booming. The car dealers association has reported 23 straight quarters of increasing registrations for new vehicles.

But instead of buying electric cars and hybrids, drivers are snapping up conventionally-powered cars, trucks and sport utility vehicles.

In the second quarter of this year, sales in California for light trucks — which include pickup trucks such as the Ford F Series and SUVs like the Toyota RAV4 — were up 12.8 percent year-to-date from 2015, a year in which light trucks already posted robust sales.

The low price of gasoline has helped fuel the rally.

On Aug. 29, the average for a gallon of regular in California was $2.70. In May 2014, when oil was trading around $100 a barrel, the average price was $4.22 per gallon.

But it's not the only reason.

In a twist, government rules directing automakers boost fuel efficiency standards have helped undercut one of the major selling points for zero-emission vehicles — that buyers can avoid spending a ton of money at the pump.

"Especially when gas prices aren't flirting with $5 a gallon, people are saying, 'I'm going to get a car that gets outstanding gas mileage,' especially compared to the vehicles they're trading in," said Jeremy Acedvedo, pricing and industry analyst for Edmunds.com.

For instance, the Honda Pilot is a three-row crossover utility vehicle that can fit up to eight people but gets 27 miles per gallon on the highway.

"That's such a huge improvement over even a generation or two ago on what the standard gas and diesels were able to achieve," said Patrick Min, senior manager at Santa Monica-based ALG, a division of TrueCar that projects resale values for vehicles.

With transportation accounting for an estimated 35 percent to 40 percent of California's greenhouse gas emissions, CARB administers the ZEV program and has authority through the Legislature to enforce its rules.

"Public health and the health of the environment and our economy are the primary reasons we're doing this," Clegern said.

Mary Nichols, CARB's hard-charging boss since 2007, wants 100 percent of new vehicles sold in the state to meet the zero-emission standards by 2030.

Many auto executives complain in private that state mandates are a losing proposition for them but in May 2014, the CEO of Fiat Chrysler made headlines.

Sergio Marchionne, at a conference in Washington D.C., said of his company's $32,500 battery-powered Fiat 500e: "I hope you don't buy it because every time I sell one it costs me $14,000."

Environmentalists supporting the ZEV mandate accuse car dealers of not trying hard enough to sell hybrids and electric vehicles.

In a report released earlier this month, 174 Sierra Club volunteers reviewed dealerships in 10 states and said 42 percent of the time EVs were either “not prominently displayed” or were only “somewhat prominently displayed.”

In discussions with dealerships that had at least one EV on the lot, the report said about one-third of the time the salesperson did not discuss the federal and state tax credits and rebates available to lower the cost of an EV.

The federal government offers tax credits for clean-air vehicles of up to $7,500.

California offers rebates of $2,500 for battery electric vehicles, $1,500 for plug-in hybrids and $5,000 for hydrogen fuel cell cars, such as the Toyota Mirai.

Even with incentives, hybrids and electric vehicles tend to be more expensive than gas-powered cars.

Maas said the California New Car Dealers Association "wholeheartedly" disputes the notion that sales people steer customers clear of EVs.

"If they want pink Corollas, we'll order and sell lots of pink Corollas," Maas said. "We respond to demand ... Imagine any business — a restaurant, a Target, a newspaper — if the demand for the product is 3 percent, are you going to spend a whole lot of resources promoting something that's 3 percent?"

Some tweaks to the mandate may be in the offing.

CARB has scheduled what it calls a "midterm review" of the latest iteration of the mandate, which has gone through a number of revisions since its inception in 1990.

"We always have the ability to amend these regulations," Clegern said.

California's rules are synchronized with federal regulations and nine other states plus the District of Columbia have followed California’s lead and created their own ZEV mandates.

Part of the California program includes a system in which manufacturers are given credits tied to the number and types of ZEVs sold. If a manufacturer falls short, it can buy credits from car makers that exceed their respective quota.

The plan has been criticized by some because Tesla — which makes electric cars exclusively — has racked up a large number of credits that other car makers have been purchasing.

In the first quarter of this year, Tesla made $57 million by selling ZEV credits to other manufacturers.

The credits are based on a 1-through-9 point system but next year it will be narrowed to 1-through-4.

While some details may change, Clegern said the overall ZEV program is not expected to get less stringent.

"We're inclined to think there's no reason to back off," Clegern said in light of the board looking at a technical assessment report released in August.

Despite flagging ZEV sales, CARB officials say they're still optimistic the mandate can be met.

The number of registrations for Teslas in the state ticked up 12 percent in the California car dealers' most recent quarterly report and Elon Musk plans to roll out the Model 3 in late 2017 that has a base price of $35,000. That’s better than half the price of stripped-down versions of the Tesla Model S and Model X.

This fall Toyota debuts a redesign of the popular hybrid, the Prius, and Chevrolet is about to unveil the Bolt, which boasts an expanded range of 200 miles per charge that has a base price of $37,500 before incentives.

"Will this 200-plus mile range be enough to spur a lot of people to say, OK, I can now live with an EV as my sole vehicle day to day, rather than some of the 80 to 100 mile (range) cars out there right now?" Min said.

CARB also hopes hydrogen fuel cell vehicles can grow into an emerging market. Of the more than 24 million automobiles registered in the state, fewer than 500 are fuel cell-powered. California is part of an alliance with the U.S. Department of Energy to promote hydrogen infrastructure and on Aug. 27 the state opened its 22nd hydrogen fuel-cell station in Truckee.

But what happens if 2025 comes and the 15.4 percent mandate is not met?

CARB has the power to fine car dealers, but Clegern said, "If they can't deliver enough vehicles we can penalize them for that, but so far, everyone's been over-complying."

Is there a scenario in which CARB institutes a quota system — compelling dealerships to sell a predetermined number of ZEVs or restricting the number of gas-powered vehicles they could sell to customers?

"I don't really see us going that way," Clegern said. "And honestly, I don't think we're going to have to go that way."

Free-market thinkers and libertarians have criticized the mandate from its inception and say they're not surprised that its challenges have led to calls from both car dealers and enironmentalists to make changes to the program.

"You can distort the market through policy but as we've learned in lots of other areas, that has huge negative consequences," said Adrian Moore, vice president of policy at the Los Angeles-based Reason Foundation.

"It'll get papered over, replaced, tweaked or expanded so there will be still be something but they'll keep moving the goal-line as long as the goal-line can't be reached."

While mileage figures keep improving for internal combustion vehicles, Clegern said CARB's goal is to eventually get all cars in California to go electric.

"The technology is coming along fast enough and the costs of these vehicles is coming down enough now that I think they'll become viable," Clegern said. "It may still take a few years to really catch fire but they will do it."

An analyst at the research group Bloomberg New Energy Finance has predicted the unsubsidized cost of owning a battery-powered car will fall below the cost of a conventionally-powered car by 2022.

But that premise is not universally held.

 

A study released earlier this year by researchers from MIT and the University of Chicago concluded that given the current cost of batteries at $325 per kilowatt-hour, the price of oil would need to exceed $350 a barrel before an EV would have a lower cost of ownership than a gas-powered equivalent.

Oil is currently trading at about $48 a barrel.

 

"While alternative sources of energy and energy storage technology have vastly improved, lowering costs, they still have a long way to go before they are cost-competitive with fossil fuels," said Chris Knittle of MIT, one of co-authors of the study.

Their solution? Have governments place a price on carbon emissions and spend more money on research and development of battery-powered cars.

 

On supply....

 

All the DOE reports tell us is that weekly imports determine the global price of oil and that record refinery utilization inputs of crude between 17-17.5 million bbls/d mean little if its swamped by imports. The huge variables in imports/exports is the main story regardless of demand. It would be fine if we could see real time data for global inventory declines when US imports surge but this data is not as visible taking months to publish.

 

Then their is the DOE weekly data itself which has always aided the bears with its bias. In 2015 the weekly DOE didn't reflect actual US prodn declines with the monthlies showing declines were greater and eventually revised. Now we see the opposite with the monthlies reporting half the prodn growth of the DOE weekly in March. So weekly DOE underestimated US prodn declines and now is over-estimating US prodn growth? The monthly reports are stated to be more accurate yet the market seems to only follow the weekly.

 

''US Production Growth:

Additionally, the growth in US crude oil production in March (although still growing) was far smaller than anticipated at just +62,000 bbl/d, well below February’s growth of +178,000 and less than half the m/m growth suggested by the EIA’s weekly production figures (which was implying m/m growth in March of +134,000 bbl/d).

 

·        OPEC-10 Exports: Going forward investors should expect material stockdraws this summer with OPEC-10 (those participating in the cuts) seeing exports fall by -200 mbbl/d m/m in May (now -800 mbbl/d below the Oct. 2016 baseline – albeit still weak compared to production cuts of -1.3 mmbbl/d). Of note, Saudi exports in May fell to the lowest point since Oct. 2015.''

 

Supply/Demand ultimately decides the direction of oil although currently that doesn't appear to be the case. We are stuck with a market focus on short cycle shale oil at the exclusion of long cycle offshore deepwater, oilsands and other play declines. The latter takes 3-4 yrs to show stress as GoM prodn is rising on the back of pre-2014 projects, however beyond 2018 a pending supply shortage looms as the long cycle offshore deepwater & oilsands hopper dries up. IOC's have shifted capital to short cycle US shale in the Permian over capitalizing this play. Last year the Permian players didn't increase the rig count when oil was under $50 because the return didn't justify drilling prime sweet spot inventory. Now with the IOC's buying out these players they are drilling more as within their portfolio short cycle shale probably has some of the best returns. IOCs Shifting capital towards short cycle oil plays will only accelerate the inevitable declines in the longer cycle oil production. Think listening to the Saudis comments that is their expectations beyond 2018 when shale can no longer mask these declines. Plus Permian growth will be accompanied by far higher decline profiles needing far more capital to maintain existing prodn...and is why eventually all plays plateau and then decline.

 

Alot of reading and your ideas, and the ones you have posted have merit.  But we dont really know. 

 

The day of reckoning keeps getting pushed off - end of 2016; end of 2017; now beyond 2018.  Add in a near certain recession (probabilities) and we are looking out beyond 2020. 

 

My job is to make money, legally, any way I can.  This trade has not been kind so far.  I am satisfied that I have protected the downside, and maintained the upside without taking unnecessary risks. 

 

As I have progressed as an investor I have shifted from trying to bat them out of the park to whats in my byline: "Garp at a reasonable price".  I have no need at this point to put alot of capital at risk on speculation.  Part of this whole argument is me working out whether having 20%-25% of my holdings in O&G up until a few months ago made any sense.  It didn't.  So, I cleared a couple of hundred thousand in oil stocks out, most at BE, or slightly profitable.  As mentioned I still hold WCP and a little Pennwest and the service companies. 

[Uccmal]

Platitudes hmmm???

 

"In late 1999, I had the same feeling. I was sitting around 80% in cash and thought for a while that I was missing out: should I buy some Intel or Cisco?

 

Every newcomer to the stock market was making a killing. Even one of my buddy at a party told me that the UPS IPO was a sure thing: solid company and all IPO's were at minimum doubling on 1st day...

 

It was highly frustrating for a while to hunt for value. Another of my buddies had subscribed to a newsletter and the author kept on comparing the chart of RCA in the late 20's and AOL and it was near identical. He also highlighted the craziness of the market using various valuation metrics and also had good comparisons to the stock market bubble in Japan. I also recall vividly an older analyst on CNBC saying that the buys were not in the U.S., but in Canada in left for dead companies producing commodities... Who needed commodities to create a website?

 

There was the Y2K bug, the Greenspan Put, the predicted demise of "Bricks and Mortar", fewer and fewer stocks were making new highs then, everything started to change on March 10, 2000 with a large initial drop in the Nasdaq.

 

This time is no different. You have people forgetting about valuations and going with what has worked. You hear and read about the demise of oil. Elon Musk and a few others are revered. There is zero love other than for the FANG's and a few others.

 

If any is so convinced about the future ending up exactly as currently predicted (timing and all that) then please take a look at the stock chart of Best Buy which should have been dead a while ago.

 

Cardboard"

 

Remains to be seen if today was the begining of the pop in Can't Go Wrong Stocks and rotation into other sectors.

 

Cardboard

 

Or a major market adjustment and recession in every sector...

 

[sculpin]

Capitulation in the energy sector looks to be at a fever pitch.  People only want to be in what is working now or they want some "yield". Latest commentary from Nuttall who has seen his fund drop an astounding 38% so far this year. No wonder no one wants to touch this sector.

 

http://sprott.com/media/318873/sprott-energy-fund-monthly-commentary.pdf

 

The energy bloodbath continued in the month of May as we officially entered into unchartered territory: going back 25 years

the energy sector (see below chart of monthly performance of the S&P 500 Energy Index back to 1993) has never fallen for

5 sequential months. With June in negative territory so far we are into month 6. Energy is the worst performing sector in

the world and this persistent trend has led to a complete buyer’s strike as money remains in winning sectors (Amazon and

Google etc; OSX vs. SOX hit a 17 year low this week). At the same time the meaningfully increased impact of quant and

macro funds in the space has seen them press their negative bets on oil and oil stocks leading to exaggerated capitulation

on the part of many energy investors as they reached their individual puke points. As commented before this profound energy

weakness has also led to the shutdown of at least 7 material energy hedge fund pods in the United States in the past

2 months which by our estimates amounted to at least a further $10BN of forced selling. Many stocks are breaching their

52 week lows and some are trading lower than when oil reached its low in February 2016 at $26.05 and have fallen by

40%-50% year-to-date. The market is stuck in a negative feedback loop as largely ignorant headlines (legitimately “fake

news”) about persistent US supply growth, the impotence of the OPEC production cut, and weak demand bombard investors

day after day on CNBC, BNN, and other mainstream media. Sentiment today towards energy is literally the worst I’ve ever seen in my career as everyone “knows” that US shale growth will swamp the market, that OPEC always cheats, and that Tesla is going to entirely displace the need for gasoline perhaps

as early as 2025.

 

Not only is the oil situation eerily similar to what happened in 1999 & 2000 but we have the same type of stock market environment. Back then it was the dotcom, and large cap tech etc (Nortel, RIM, JDS uniphase in Canada) that was carrying the market. Now we have the FANG plus Tesla plus the ETF mania where countless billions are being funneled into the same over priced index stocks.

 

Perhaps we had our first taste of the 2017 version of the dot com bust on Friday with FANG hit hard and movement of cash into other neglected sectors.

 

https://www.theglobeandmail.com/globe-investor/inside-the-market/the-scarcity-of-high-performering-stocks-a-trend-in-canada/article35272081/

 

Analysis of the similarity between now and 1999 of the oil market by a good friend & investor....

 

This oil rout is nothing like 1986 due to spare capacity, but almost identical to 1998-1999 when sentiment was equally dismal on a self inflicted wound by OPEC (over producing into the glut) after NS hit a peak and Vz was touted to raise prodn to 6 million bbls! Extracted some text from two large reports issued during the 1999 oil rout before recovery occurred.(which was just around the corner contrary to popular belief at the time)

 

1999 oil commentary:

First OPEC agreement saw a big pop in the oil price which quickly evaporate.(sounds familiar)

 

'These gains were not maintained for very long, however. The outcome of the OPEC meeting held in Vienna on 30 March was not well received by the market. Traders claimed that the agreed production cuts were not sufficient and that the exporting countries'  intentions to restrict  output  were not credible. This is 'sentiment'. The interesting  question, however, is about  the forces which  determine the behavior of market bears. How much is due to the fundamentals (the relationships between demand, supplies and stocks), and how much to powerful  traders who talk the price down because they hold short positions in futures and other derivatives markets?'

 

Almost what we see today after OPEC cut agreement. Ignore fundamentals allowing the bears to talk down oil to increase the negative sentiment and short oil.

 

'For Venezuela, the  willingness  to implement planned increases in production to the stated objective of 6.0 mb/d in 2006 is not totally independent from the behavior of oil prices. After reading month after month throughout 1995 and 1996 in the IEA Month & Oil Market Report that non-OPEC production will increase in the year in question by 2.0 mb/d or more (although,  the  actual  increase turned out to be much lower than the stubborn prediction) is very disturbing. Sooner or later Saudi Arabia was bound to respond. The reaction involved two stages. The first was to increase production during 1997. The change in policy was not advertised. The second stage was to propose an increase in quotas at the November 1997 OPEC Conference of Oil  Ministers  held  in  Jakarta. One intention was to  legalize  the actual production policy followed in the preceding months. The Saudi  agenda may  have involved other considerations:  (a)  a  signal to Venezuela and more generally to other non-OPEC countries that the output restraint shown by Saudi Arabia in recent years could not be taken for granted for ever (b) to restore some credibility to the OPEC quota system which had lost much of its validity through repeated roll-overs © to secure  a higher production base line from which to move  downward should the easing of oil  sanctions on Iraq require OPEC to reduce its production.'

Isnt this the exact same playbook the Saudis used during this oil rout. They unexpectedly increased prodn 2014-2016, proposed an increase in quotas(Dec 2015 meeting) and stated they would no longer show restraint. Doing this as in 1999, 'restored some credibility to OPEC quota system' and secure a higher prodn base for the Saudis to cut from as occurred at Nov 2016 meeting. Concern over restored Iraq prodn could be substituted for Iran and Vz surging prodn to 6 million could be shale.  IEA reports constantly repeating to the market about 2.0 million bbls or more of Non OPEC prodn increases is almost deja vu.

 

'The supply side of  the  oil equation had radically changed  between 1996 and 1997 with the resumption of  Iraqi oil  exports at the  average rate of some 600,000 barrels per  day.  This factor reduced significantly the room for expansion that would have been otherwise  available to other producers. stronger incentives to overstate output levels in January - March  1998 than in  other periods.  Another  reason  that may  have motivated overstatements at least in February and March  1998 is that by this time the main oil-exporting countries had  come to accept the idea that  production cuts if  they were going to be agreed would have to apply to actual output levels and not quotas. This by itself provides a strong incentive for overstating the output position. by signalling, as OPEC did in Jakarta, and as non-OPEC governments and oil companies did whenever they were induced to make a  statement, that higher output is a  fundamental objective this adverse impact resulting from a disequilibrium in the supply/demand relationship is aggravated, and sometimes  very seriously, by the 'sentiment'  that producers intend to pursue aggressively an output  objective. Punters in futures and other derivatives markets then seek to sell. Whenever the willingness to sell exceeds the willingness to buy prices fall.'

 

This is what occurred in this oil rout with OPEC maximizing prodn before their quota system took place with non OPEC producers often exaggerating or aggressively pursing higher prodn policies during the oil rout creating add'l negative sentiment. ( non OPEC would now be Shale & Russia with Iran being 1999s Vz)

 

 

'Saudi Arabia and Venezuela  had to settle their differences first for any attempt to remedy market weakness to have any chance of success.'

 

Today this would be Iran so the Saudis just repeated their playbook. Like in 1999 they essentially ignored Non -OPEC supply increases the IEA was predicting:

''IEA Month & Oil Market Report that non-OPEC production will increase in the year in question by 2.0 mb/d or more'' to focus on their own house getting OPEC into compliance and re-balancing the market with OPEC cuts.

 

However the market didnt respond well to the OPEC cuts in 1999 with sentiment at an all time low and oil price plunging to low of $10 as the bears predicted $5 oil because of new productivity gains outside of OPEC!

 

Yet here is a thought: $10 might actually be too optimistic. We may be heading for $5. To see why, consider chart 1. Thanks to new technology and productivity gains, you might expect the price of oil, like that of most other commodities, to fall slowly over the years. Judging by the oil market in the pre-OPEC era, a “normal” market price might now be in the $5-10 range. Factor in the current slow growth of the world economy and the normal price drops to the bottom of that range. - 1999 The Economist

 

That was written at the bottom and oil subsequently rose to $20. The Economist continued:

'Even at $10 a barrel, it can be worth continuing with projects that already have huge sunk costs. Rapid technological advances have pushed the cost of finding, developing and producing crude oil outside the Middle East down from over $25 a barrel (in today's prices)

 

Seems the same line of thought prevails today, however the truth is almost none of the doom and gloom about sticky productivity increases, IEA stated surge in non-OPEC prodn to Vz doubling their prodn ever came to pass. Reality was the cuts eventually worked, reduced inventories and oil recovered.

[valcont]

Capitulation in the energy sector looks to be at a fever pitch.  People only want to be in what is working now or they want some "yield". Latest commentary from Nuttall who has seen his fund drop an astounding 38% so far this year. No wonder no one wants to touch this sector.

 

http://sprott.com/media/318873/sprott-energy-fund-monthly-commentary.pdf

 

 

 

Good post Sculpin. But this Eric Nuttal's thesis is ahem nuts!! Here is the gist. OPEC cuts will balance the market in 2018-19, US shale growth will continue but slow down later this year because of high sand and pumping cost. The combined effect will be higher oil prices in 2018-19. And how does he trade this? By buying frack sand and pressure pumping companies in 80% of the portfolio.