The Million Dollar Way (The Bakken Oil Blog): Predicting The Price Of Oil Is A Fool's Errand -- So, Let's Go Brandon -- October 24, 2021

Sunday, October 24, 2021

Predicting The Price Of Oil Is A Fool's Errand -- So, Let's Go Brandon -- October 24, 2021

WTI: we'll see overnight trading begin in about an hour or so. Will open just under $84. Cushing is almost empty (FWTW). From last week, last trade: up 1.53%, up $1.26, closed at $83.76. Later: 5:36 p.m. CT -- WTI opens right at $84.04. Later: 8:26 p.m. CT -- it looks like WTI will struggle to move much higher, quickly, now $84.39. Later: 9:17 p.m. CT, $48.57. Later: 9:26 p.m. CT, $84.68.

And now this, from Irina Slav. "Peak oil demand forecasts turn sour as demand keeps growing." I think this is fascinating. The #1 story: will Saudi Arabia respond? Readers know my position on that. What's Irina got to say?

The short-term price outlook is quite fascinating. Crude oil inventories are being drawn down across the world, and OPEC+ is sticking to its original decision to add just 400,000 bpd to combined monthly output. It is, however, not doing even that because some of its members are struggling to fill their production quotas due to underinvestment that has been plaguing them for years.

Demand, meanwhile, is rising, with the energy crunch seen adding anywhere between 500,000 bpd and 750,000 bpd to the global daily average. This, combined with reports that U.S. crude oil inventories are some 6 percent below the five-year average for this time of the year, and that OECD inventories are 162 million barrels below the pre-COVID five-year average, has been very effective in keeping prices above $80 per barrel and spurring forecasts for three-digit prices. My hunch: the Saudis probably like Biden as much as the rest of us, and are already trying to translate "let's go Brandon" into Farsi.

The second story I'm following: "the Bakken's" response to increasing demand. "The Bakken," of course, is a metonym for the US shale revolution. Is it still a revolution now that the revolution began in 2000, over two decades ago?

Odds and ends:

California gasoline prices: spiking. Link to Julianne Geiger.

And here. Link.

Nigeria is still producing under OPEC oil quota; the country has technical problems with oil output, OPEC+ needs to wait before raising production faster, OPEC+ needs to be very cautious -- oil minister. Source.
EIA: the source of American electricity, 2020. Source.
Fools: link to The WSJ.
Cushing is empty. Didn't I just say that? Cushing is empty sweet crude and North Sea is next. Refining margins are good and crude stocks will resume draws in November, 2021. Covid can increase but deaths will not, limiting impact. Only shale/OPEC+ can add oil and neither is inclined to add enough. Source.

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Tesla

Tesla: see this post, following Tesla's 3Q21 earnings. Is Tesla on to something bigger and better. Oilprice has a number of great contributors; Alex Kimani is one of them. And now today: "Why Tesla's latest battery decision is a gamechanger." From the linked article:

There is more to come from the trailblazing electric vehicle company, however, with its move to cheap, cobalt-free batteries.
Tesla now boasts one of the highest operating margins in the vehicle manufacturing business at nearly 15%.

But the EV company might be able to expand its already impressive margins by pulling off another nifty trick: Deploying cheap, cobalt-free batteries in its cars.

In its latest investor presentation, Tesla revealed that it's switching battery chemistry for all standard-range Models 3 and Y from nickel cobalt aluminum (NCA) chemistry to an alternative, older technology that uses a lithium iron phosphate (LFP) chemistry.

LFP cells not only have much longer useful lifetimes but are also cheaper than NCA or nickel manganese cobalt (NMC) cells. The biggest trade-off is that LFP batteries have a lower energy density. However, LFP batteries are still able to compensate for this shortcoming by dramatically cutting on thermal runaway in the event of a crash, meaning an LFP battery pack requires much less volume on cooling and structural protection to keep the cells separated.

Many electric buses in China already use LFP batteries. Last year, Tesla introduced LFP batteries in its standard range Model 3s in China and dropped the starting price from 309,900 yuan ($48,080) to 249,900 yuan ($38,773). CEO Elon Musk has revealed that the improving energy density of LFP batteries now makes it possible to use the cheaper, cobalt-free batteries in its lower-end vehicles so as to free up more battery supply of lithium-ion chemistry cells for Tesla's other models.

Up to now, intellectual property restrictions have kept LFP cells mostly within China. But Tesla will now be able to deploy them in its pivotal U.S. market after it won approval from the Chinese government to start using LFP batteries in Chinese-made BEVs in 2020. Indeed, Tesla is making the switch to LFP mandatory in all its markets after a positive reception in the U.S.

Last December, Bloomberg NEF, a clean energy researcher that has been, among other things, tracking battery costs, announced that battery costs had dipped below the $100 per kWh threshold for the first time ever. The crucial milestone was achieved for battery packs designed for electric buses in China.

In the EV industry, the $100 per kWh battery cost price point is generally regarded as the Holy Grail critical for the wider adoption of electric vehicles by making them cost-competitive at the sticker price, which remains an important psychological barrier for many buyers. The powertrain typically accounts for more than 70% of the cost of an EV. Tesla's LFP switch not only means fatter margins but can fast track the company in the race to $100 per kWh leading to longer growth runways.