Electric cars?

[Smurf1976]

Drillers. They have a minimum at what they need to sell it at. And that price is a select few. So if refiners no longer needed the quantity that they needed it at now, price would go up for refiners?

It's all very variable.

Economics of exploring for oil in the first place come down to multiple factors. Cost of that exploration which is location dependent. Quantity of oil realistically likely to be found and what it would cost to extract it and get it to a customer. Price of oil (revenue from selling it). Government fees, taxes etc.

Economics of developing a well where the oil is known to exist also highly variable. Cost to get a contractor to drill it (or for major companies, cost of continuing to employ your own crews, maintain your own equipment etc). Cost of roads, pipelines, power and anything else you'll need to build to facilitate it. Government charges and tax. And a really big one - return on capital.

What happens with interest rates has a huge influence over the economics of an oil field. Something that's hugely profitably in world of 1% rates could be too expensive for anyone to be even remotely interested in if interest rates were 10%.

That's the bit proponents of "Peak Oil" missed. They correctly identified geology, they're geologists after all so that's not surprising, and they correctly identified that the best oil is used first (pick the lowest hanging fruit) and so on. They also correctly identified that many individual fields and entire countries, including Australia, have indeed seen a peak and decline of their oil production.

What they missed was interest rates. They simply didn't consider that anyone would ever invest in something with the expectation of a 5%, or heaven forbid 1%, return on capital. They were thinking of rates very much higher than that, since that's what was normal at the time, and hence did their calculations on that basis.

Apply 1980's or even 1990's rates of return and lending standards and the US shale oil industry's completely unviable. Not a bit of a loss maker but rather something that's not even remotely close to being a viable business and which no bank would go anywhere near. Drop the rates low enough though and that changes everything.

So the answer to what price oil needs to be in order to be profitable depends on other things basically. That is, is a 1% return per annum considered profitable? Or are we talking about 20% being required? That makes a massive difference.

 

[Value Collector]

Drillers. They have a minimum at what they need to sell it at. And that price is a select few. So if refiners no longer needed the quantity that they needed it at now, price would go up for refiners?

Yes of course. But oil doesn’t have to be at a certain minimum price per barrel to make it worthwhile for refiners to crack it into different products.

If new technology suddenly made it possible to drill oil for $1 per barrel and the price per barrel dropped to $10, refiners would love it, they don’t need oil to be at $40 like you said.

refiners just want to make a profit margin between what the buy the barrel for and what they sell the products at.

whether that’s paying $1 for the barrel and selling the products for $21 or paying $100 for the barrel and selling the products at $120 they don’t care, they make $20 on each barrel they process.

 

[Value Collector]

So the answer to what price oil needs to be in order to be profitable depends on other things basically. That is, is a 1% return per annum considered profitable? Or are we talking about 20% being required? That makes a massive difference.

Yes, but the claim moxjo was making was that it wouldn’t be worth while for refiners to crack and reform the oil into heavy or lighter fuels unless the oil price of over $40.

what I am saying is that the price of oil doesn’t decide a refiners actions, the refining margin does.

Eg, as long as the price they can sell their end products at is higher than the cost of purchasing the oil and processing it, they are happy, in in general that means lower oil price is better, not worse.

 

[sptrawler]

Jolt to install free EV charging stations, hopefully advertising will cover the cost. Interesting concept.

Jolt to build free electric car charging network, covered by ads, in Adelaide trial

Jolt Charge announces ARENA-backed free roadside EV charging network to trial covering costs with advertising revenue.

thedriven.io

 

[Value Collector]

Jolt to install free EV charging stations, hopefully advertising will cover the cost. Interesting concept.

Jolt to build free electric car charging network, covered by ads, in Adelaide trial

Jolt Charge announces ARENA-backed free roadside EV charging network to trial covering costs with advertising revenue.

thedriven.io

Interesting concept,... although I wonder why they don't just do the advertising without the car charging? maybe the council or shopping centre gives them free use of the location if they provide a charging service.

 

[Smurf1976]

I wonder why they don't just do the advertising without the car charging?

Someone charging an EV is a captive audience especially if the charger is standalone and not part of a shop etc. Also the presence of the charger ought to attract more attention even to those not using it given that EV chargers are still a fairly uncommon sight.

From an advertising perspective that’s perfect whereas the same advertising would have less value (to advertisers) by itself as just a normal sign etc.

 

[Smurf1976]

what I am saying is that the price of oil doesn’t decide a refiners actions, the refining margin does.

Agreed yes - refining's ultimately a separate business. It's related to crude oil obviously but as a business it's a separate thing - quite a few of the refining companies don't own a single drilling rig for example, the oil they refine is purchased from others.

 

[over9k]

Interest rates dictate the required P/E. Dump the rates and the P/E soars. Come on guys, this is finance 101 stuff.

 

[Smurf1976]

Interest rates dictate the required P/E. Dump the rates and the P/E soars. Come on guys, this is finance 101 stuff.

I don't see anyone here saying otherwise - it is however something that's overlooked in just about all discussion on the subject.

Read a dozen oil company reports stating their reserves or read some study into coal versus solar versus gas for power and you'll rarely see an acknowledgement that the results are only valid at a specific interest rate and that a change in rates changes the outcome. Whatever oil reserves a company has at 1% rates will be different at 5% indeed it may well be zero.

It's basic finance maybe, but widely overlooked in practice.

 

[over9k]

I've been making quite a point of, well, pointing it out in the economic implications thread.

Halve the interest rate and you double the p/e, drop it by two thirds and you triple it, so on and so forth. It's literally that simple.


But I agree that people all too often forget the fundamentals. It's kind of amazing how often they're overlooked really. Myself included.

 

[Value Collector]

Interest rates dictate the required P/E. Dump the rates and the P/E soars. Come on guys, this is finance 101 stuff.

You are right that is finance 101, interest rates are like gravity to asset values, most people should understand that.

But as smurf points out it has almost nothing to do with what we are talking about.

what we are talking about is more to do with profit margins at the product level, what you are talking about is valuing the entire business at the company level, which is a different thing.

 

[qldfrog]

I've been making quite a point of, well, pointing it out in the economic implications thread.

Halve the interest rate and you double the p/e, drop it by two thirds and you triple it, so on and so forth. It's literally that simple.


But I agree that people all too often forget the fundamentals. It's kind of amazing how often they're overlooked really. Myself included.

Which is the reason Master @ducati916 often look at spy/10y bond or similar.
I am often guilty as well comparing p/e wo this context but unable to forget the sheer raw so high numbers

 

[over9k]

I made this big post in the economic implications thread about oil/oil prices/consequence of the current oil price, it seems relevant:

Economic implications of a SARS/Coronavirus outbreak

Longer post, short version is at the bottom if you want the cliff notes version. Oil news: Brent crude just cracked $50 a barrel. Reason: China's just started buying up a shitload whilst it's still cheap/the american demand hasn't yet rebounded. In short, it's their last shot to get both...

www.aussiestockforums.com

"U.S. benchmark oil prices will need to trade in a range of $35 to $45 a barrel next year just to keep production flat, according to a new report by BloombergNEF.

The report highlighted different estimates needed to keep output steady from the major oil plays. For the Permian and Eagle Ford, companies need oil at $35 to $40 a barrel. Meanwhile, the Bakken needs prices in the region of $40 to $45 while Denver-Julesburg probably requires about $45 a barrel.

Up until last week, West Texas Intermediate hadn’t settled above $45 a barrel"

Read the full report here: https://www.bloomberg.com/news/terminal/QKRR80T0G1LF

Bottom line is that the current price makes a lot of previously offline rigs profitable to run again.

 

[sptrawler]

This thread is becoming interesting IMO, because it is starting to focus on the convergence, where E.V vehicles become viable and petrol/diesel doesn't.
That will be when Governments have to start and really subsidies ICE machinery and in that fuel refining, maybe the Governments eventually will have to buy them out.

 

[over9k]

Obviously particularly relevant for electric cars.

 

[over9k]

As Tesla joins the S&P 500, here are the key levels on the stock investors should watch

Ahead of Tesla joining the S&P 500, one technical strategist looked at the key stock levels to watch.

www.cnbc.com

"Tesla is joining the S&P 500, and with the stock currently trading at all-time highs, Miller Tabak’s chief market strategist Matt Maley broke down the key technical levels for investors to watch going forward.

Ultimately, Maley believes that while there might be some short-term selling around the stock’s addition to the S&P 500, there’s still upside ahead for Tesla. Caution is warranted, however, given the stock’s run to new highs.

Looking at the stock’s weekly RSI chart, Maley noted that the reading is now in the highs 70s which, while signaling overbought conditions, is still below prior readings. In August and February the reading rose to 85 and 93, respectively, each time before the stock experienced a significant decline. Maley added that each of these instances coincided with a broader market sell-off.

RSI, or relative strength index, measures price changes in stocks or an index, and is used as a momentum indicator to help determine an overall trend.

“There is no question that the stock could rally further from current levels,” he said in a morning note.

However, should the broader market experience a sell-off, which is becoming more likely after the S&P 500′s record rally from its March low, Maley said Tesla will be vulnerable to downward pressure.

The key support level that Maley is watching for Tesla is $600, which is the low from last week. “So if TSLA breaks below that level, it will turn a few heads...especially with individual investors,” he said.

Should Tesla hit $600 — around 11% below where the stock traded on Thursday — the next line in the sand is $568. That’s the stock’s lowest close this month, from Dec. 2. It’s also a 38.2% Fibonacci retracement of the rally from mid-November.

“A drop below $568 will raise a yellow warning flag in our minds,” Maley said.

These two key numbers aren’t support levels for Tesla, meaning if they’re breached it won’t necessarily signal a major top for the stock. But it will signal a meaningful pullback that could potentially stretch into a 10% correction, Maley said.

Longer term, the stock’s key support level is $500, which is also right around its 50-day moving average. Even if Tesla pulls back around its addition to the S&P 500, Maley doesn’t see the stock dipping to $500 absent broader-market selling.

But given Tesla’s more than 200% gain in the last six months, Maley said investors should “remain very, very nimble.”

“It has already reached our $650 target, and although we still believe it could reach $700, this is a good level for investors (and especially traders) to take some chips off the table given the massive run the stock has seen,” he said.

Shares of Tesla were roughly 2% higher as of 1 p.m. ET on Friday".


Tesla has run nearly 70% in five weeks.



And here's how it and the other electric car manufacturers' market caps have stacked up against the legacy internal combustion companies over the past year:



And here's how electric vehicle sales have grown compared to internal combustion vehicle sales lately:



I wonder how long it'll be before vanguard or whomever puts an electric vehicle ETF together.

 

[joeno]

You are right that is finance 101, interest rates are like gravity to asset values, most people should understand that.

But as smurf points out it has almost nothing to do with what we are talking about.

what we are talking about is more to do with profit margins at the product level, what you are talking about is valuing the entire business at the company level, which is a different thing.

What about Japan though? They had negative interests/0 interests before the rest of the world did. Did nothing to help their imploding housing market and stock market.

 

[Smurf1976]

What about Japan though? They had negative interests/0 interests before the rest of the world did. Did nothing to help their imploding housing market and stock market.

The issue was about the economics of natural resources and how that relates to alternatives both in terms of different sources of the same resource and different technologies (electric car versus petrol car).

If Japan had a lot of oil fields then low interest rates would have made many of the previously unviable fields viable.

That it didn’t happen being because Japan doesn’t have any substantial known oil so economics don’t really come into it there.

 

[Value Collector]

What about Japan though? They had negative interests/0 interests before the rest of the world did. Did nothing to help their imploding housing market and stock market.

if something is super overvalued to begin, no interest rate cut can stop the bubble bursting.

Also, Japanese companies have very low returns on equity, so even 0% interest rates are not going to make the asset value of something rise much if the asset was only earning 2% to begin with.

but, let’s say interest rates are10% and a shares in XYZ company are earning 10% return on equity, you probably wouldn’t want to pay face value for that companies equity because you can get a risk free return of 10% in guaranteed bank interest, so you would want to buy the companies equity only at a price which earned you more than 10%, however if bank interest rates were 5% you might happily purchase shares at the face value of their equity and earn 10%, if bank interest was 2% that company equity earning 10% is probably worth more than face value to you.

 

[over9k]

Here value collector is literally describing how risk is priced lol.

We're still in our finance 101 class


Oil's not going away any time soon. It's used for far more than fuelling cars, and shale tech is evolving at a ridiculous rate. I made this thread in the economic implications thread talking about how the next shock will be saudi's & iranians shooting at each other:

Economic implications of a SARS/Coronavirus outbreak

Longer post, short version is at the bottom if you want the cliff notes version. Oil news: Brent crude just cracked $50 a barrel. Reason: China's just started buying up a shitload whilst it's still cheap/the american demand hasn't yet rebounded. In short, it's their last shot to get both...

www.aussiestockforums.com

The next big thing effecting oil will be geopolitics, not economics. Shale wells in the united states all of a sudden look extremely attractive when the iranians have just bombed 3/4 of saudi arabia's production facilities. No competition to worry about then, is there?