Summary, Notes And Comments -- Monday, October 9, 2017

Crude Oil, Natural Gas and The Bakken

WTI closed below $50 again today; not much change from Friday. The fundamentals and the tea leaves suggest that $50 is about where we will be for the foreseeable future. The only "fly in the ointment" or "great unknown" is what Saudi Arabia will do with that possibility. Saudi Arabia simply cannot survive on $50-oil and they will have to resort to extreme measures, one would think, if they want oil to trend toward $60. But I'm not convinced that even $60-oil at this time would be of much help.

Richard Zeits has an article over at Seeking Alpha regarding the government's release of crude oil from the Strategic Petroleum Reserve. Most of the release was previously mandated and scheduled by Congress; a smaller amount has been/will be released following Hurricane Harvey, but that crude oil is expected to be replaced bbl-for-bbl by the refineries who "borrowed" that crude oil. It may or may not an interesting story, but for me the whole issue is immaterial.  Even Zeits said so:

From a long-term supply perspective, it would be correct to allocate these volumes over the entire year. When allocated, the impact of the net ~9 million barrels of extra supply on average global market, or ~25,000 b/d, is immaterial.

At best, the release of crude oil from the SPR might have a short-term impact on the price of WTI. As for me, I think the whole thing is a non-issue.

Somehow I can't get too excited about this Statoil discovery and announcement:

Norwegian oil giant Statoil has made the first fresh oil discovery in the UK North Sea this year, in a glimmer of hope for the declining basin. The discovery, made in the Moray Firth basin, could hold as much as 130 million barrels of oil, which would be worth around £5bn at current market prices.

A discovery here and a discovery there, and over time, it all adds up to a lot more crude oil, but in this case, 130 million bbls is about was North Dakota produces in less than six months, Statoil's 130 million bbls and £5 billion will be spread out over many years, I suppose. Maybe I'm just getting too cynical.

Tesla, EVs, and California

Over the past week there have been more and more stories regarding Tesla after it reported a huge miss in Model 3 deliveries. Those stories have been previously reported. Today, in which the Dow 30 and the NASDAQ were both essentially unchanged from Friday, TSLA was down almost $14 dollars (about 4%). Previously linked, the truth is catching up with Tesla -- The Wall Street Journal. Elon Musk says it delayed the "release" of its new truck because he (or the company) is now involved with "saving" Puerto Rico.

We've talked about this to some extent before but this is probably the best "analysis" of what it will "cost" if California bans conventional internal combustion engines as is presently being considered. Archived.

The Road to California

A reader writes that based on 76 cents / gallon  for federal and California state tax, then an additional $350 "highway use tax/fee" should be added to the annual registration of an EV. The reader's math: typical 10,000 mile at 20 mpg = 500 gal/yr = $350 gas tax per year. The owners of EVs will argue that "saving the world from global warming" is more important than paying for highway maintenance.

Global Warming

I don't know if folks remember that there were some reports a few months ago that President Trump was "reconsidering" his decision to have the US exit the Paris climate accords. From multiple sources including ABC News:

Speaking Monday in the coal-mining state of Kentucky, Environmental Protection Agency Administrator Scott Pruitt said he would be issuing a new set of rules overriding the Clean Power Plan, the centerpiece of President Barack Obama's drive to curb global climate change.

"The war on coal is over," Pruitt declared, adding that no federal agency should ever use its authority to "declare war on any sector of our economy."

It was not immediately clear if Pruitt would seek to issue a new rule without congressional approval, which Republicans had criticized the Obama administration for doing. Pruitt's rule wouldn't become final for months, and is then highly likely to face a raft of legal challenges.

And this is the biggest problem with executive orders and rule-making by various government agencies: policies that go back and forth, making it very difficult for companies to plan.

Politics

The tea leaves suggest President Trump's tax "reform" bill is dead. The tea leaves also suggest it won't be long before Congress will come under strong pressure to start hearings on "suitability" of Trump to remain as commander-in-chief.

The Market

Futures mean squat but all four major indices (Dow 30, NASDAQ, Russell 2000, and the S&P 500 are all positive .