If you think oil prices will drop where would you invest?

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misterno
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If you think oil prices will drop where would you invest?

Post by misterno »

Wherever i look or read i see articles talking about sales explosion in electric cars all over the world.

Sooner or later in the long run, this will depress oil prices. This is inevitable.

If you believe 10% that oil prices will decrease big time say in 10 years, where would you invest to get the most out of this bet?
livesoft
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Re: If you think oil prices will drop where would you invest?

Post by livesoft »

Dare I say, Total Stock Market (US and International) ?
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hicabob
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Re: If you think oil prices will drop where would you invest?

Post by hicabob »

I agree with livesoft but if your crystal ball has better performance than mine perhaps something like DTO.
ThriftyPhD
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Re: If you think oil prices will drop where would you invest?

Post by ThriftyPhD »

If you're looking to gamble, you could sell oil futures to short the price. https://www.theoptionsguide.com/crude-o ... lling.aspx
Alaric
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Re: If you think oil prices will drop where would you invest?

Post by Alaric »

Coal. And some lithium.
Grt2bOutdoors
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Re: If you think oil prices will drop where would you invest?

Post by Grt2bOutdoors »

misterno wrote: Sat Aug 10, 2019 1:50 pm Wherever i look or read i see articles talking about sales explosion in electric cars all over the world.

Sooner or later in the long run, this will depress oil prices. This is inevitable.

If you believe 10% that oil prices will decrease big time say in 10 years, where would you invest to get the most out of this bet?
Is that so? How will the electricity that powers those cars get generated? How will the goods in your possession, home get from the manufacturers to you? How do you currently heat your living space? Wood? Do you fly on airplanes? Suggest you take a look very closely at the annual review on world energy distributed by BP. You can find it on their website. Then go over to Royal Dutch Shell and read their report, then Exxon and Chevron. It’s quite clear that while electricity is and will be in demand, the natural resources that will be used to generate it continue to be fossil fuels (coal, oil and natural gas) in your lifetime.
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Wakefield1
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Re: If you think oil prices will drop where would you invest?

Post by Wakefield1 »

Oil is also feedstock for much of the chemical industry I think. Insulating coating for the wire used in the electric car motor windings?
Didn't Mr. Rockefeller say that no one can predict future oil prices,so if you want to build a great oil company you have to figure out how to make a profit when prices are high and when prices are low?
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Re: If you think oil prices will drop where would you invest?

Post by Grt2bOutdoors »

Wakefield1 wrote: Sat Aug 10, 2019 2:29 pm Oil is also feedstock for much of the chemical industry I think. Insulating coating for the wire used in the electric car motor windings?
Didn't Mr. Rockefeller say that no one can predict future oil prices,so if you want to build a great oil company you have to figure out how to make a profit when prices are high and when prices are low?
Can’t attest to what he said, but the firms with the greatest staying power invest for the very long haul.
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WildBill
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Re: If you think oil prices will drop where would you invest?

Post by WildBill »

Howdy

Predicting the price of oil and the consequences of it in markets has been a fool’s errand for the last 50 years. I know because I was one of the fools. My excuse is that attempting it was part of my professional responsibilities.

Just as background, ExxonMobil had a unit charged with doing exactly this for many years. They had the smartest guys you have ever seen, and they gave up on predicting prices in the mid 90s because their record of predictions was so bad. What they were very good at was predicting demand. That was enough to run the business effectively.

Anyone can make up a narrative based on future demand and the effect on price. Knock yourself out. Have fun and speculate all you want. You might get lucky.

I would recommend VTSAX as a a more suitable speculation.

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid
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arcticpineapplecorp.
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Re: If you think oil prices will drop where would you invest?

Post by arcticpineapplecorp. »

misterno wrote: Sat Aug 10, 2019 1:50 pm Wherever i look or read i see articles talking about sales explosion in electric cars all over the world.
I'm not sure I would use the words "explosion" and "electric cars" in the same sentence, but that's just me:
https://www.google.com/search?client=fi ... +explosion
misterno wrote: Sat Aug 10, 2019 1:50 pm Sooner or later in the long run, this will depress oil prices. This is inevitable.
Have you learned about cause and effect? You're saying that purchasing electric cars will cause depressed oil prices, but I'm not sure it works that way. Usually, people buy electric cars because the cost of gas becomes too high and they're looking for alternatives. Usually, when the price of oil drops, electric car sales decline. But there are still many other factors influencing car sales like government incentives or disincentives, feel good do gooding of not using fossil fuels, cost of electric batteries declining, scaling up, cost of imports due to currency fluctuations, and a host of other things I can't think of at the moment.

Nothing is "inevitable". That's nothing more than hyperbole and saying something doesn't make it so. I don't yet own an electric car and I'm not sure I would when the time comes unless the price is comparable or lower than a gas guzzler (even now I don't own a gas guzzler, I have a compact car which uses little gas and we drive very little so it's a 16 year old car with just 103k miles. Do the math to see how little we drive.)

by the way, if it's inevitable then everyone already knows it. in which case, your theory is already priced into the stocks/companies of electric cars and/or oil (in case you want to short oil).

Do you think you know more than the market does? If you do, why did you share this news with all of us? Now you can't arbitrage your knowledge that is not already known by the market, because it will now be known by the market (that is us).

misterno wrote: Sat Aug 10, 2019 1:50 pm If you believe 10% that oil prices will decrease big time say in 10 years, where would you invest to get the most out of this bet?
what do you mean "believe 10%"?

I don't usually believe something 10%, 20% or some other percent. I don't even know how I'd do something like that. I'm 10% certain? Even when it comes to the weather I'm not 20% sure it's going to rain tomorrow. I'm 100% sure there's a 20% chance it will rain tomorrow because that's what the weatherperson said. There's a difference.

I'm not saying everything I believe I do so 100%, but I don't even know how I'd quantify "I believe something 10%."
Last edited by arcticpineapplecorp. on Sat Aug 10, 2019 6:39 pm, edited 3 times in total.
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Re: If you think oil prices will drop where would you invest?

Post by HawkeyePierce »

I once thought I could predict where the oil market would go. Boy did I lose money on that one.

The oil market is as untimeable as equities and bonds and everything else. Stay the course.

:sharebeer
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Re: If you think oil prices will drop where would you invest?

Post by snackdog »

You could have asked the same question about coal 100 years ago when oil and gas came along as energy sources. But today coal production around the world is at an all time high. Real coal prices are about the same as they were 60 years ago. The reason is energy demand continues to rise faster than all sources can supply it. It is forecast to continue to do so. For electricity from renewables to kill fossil fuels in our lifetimes would take a spectacular change in the energy industry, particularly in China and India where most of the energy consumption rise is forecast.
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Re: If you think oil prices will drop where would you invest?

Post by gch »

OP, it's my job to predict hydrocarbon commodity prices so I read people's opinions from both sides of the aisle. The latest one I read was more bullish on hydrocarbons in the future, and this one quote may factor into your opinion:

"Optimists forecast that the number of EVs in the world will rise from today’s nearly 4 million to 400 million in two decades. A world with 400 million EVs by 2040 would decrease global oil demand by barely 6%. This sounds counter intuitive, but the numbers are straightforward. There are about 1 billion automobiles today, and they use about 30% of the world’s oil. (Heavy trucks, aviation, petrochemicals, heat, etc. use the rest.) By 2040, there would be an estimated 2 billion cars in the world. Four hundred million EVs would amount to 20% of all the cars on the road—which would thus replace about 6% of petroleum demand.

If you're truly interested in reading about the move to electric vehicles and renewable resources and want a counter argument to "O&G prices are going to decrease" I would read this paper where I got this quote is from.
https://media4.manhattan-institute.org/ ... 319-MM.pdf
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Re: If you think oil prices will drop where would you invest?

Post by esteen »

VTSAX :beer
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Re: If you think oil prices will drop where would you invest?

Post by ivk5 »

livesoft wrote: Sat Aug 10, 2019 1:51 pm Dare I say, Total Stock Market (US and International) ?
+1

As the photogs say, F/8 and be there.
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Re: If you think oil prices will drop where would you invest?

Post by robertmcd »

From a petroleum engineer: you still need to look at how much oil demand is still expected to grow. The yearly growth is significant, and the recent “massive shale discovery” and discoveries like it are peanuts when you look at legacy decline rates vs new discoveries. The new discoveries we will need to find in 30 years are where it doesn’t appear there is any way we will have enough. Oil price will need to be very high to support exploration and production of the lower quality horizontal unconventionals around the world. Tight sands and shales are in pretty much every producing basin in the world, and there are a lot that open up at $100 oil. We will be very dependent on Saudi, Iran, Africa, Venezuela large reserves to have enough
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misterno
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Re: If you think oil prices will drop where would you invest?

Post by misterno »

ThriftyPhD wrote: Sat Aug 10, 2019 2:13 pm If you're looking to gamble, you could sell oil futures to short the price. https://www.theoptionsguide.com/crude-o ... lling.aspx
Unfortunately this does not work for me.

I am predicting oil price to drop in the long run but option price rises with time. It is a very expensive investment
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misterno
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Re: If you think oil prices will drop where would you invest?

Post by misterno »

Grt2bOutdoors wrote: Sat Aug 10, 2019 2:24 pm
misterno wrote: Sat Aug 10, 2019 1:50 pm Wherever i look or read i see articles talking about sales explosion in electric cars all over the world.

Sooner or later in the long run, this will depress oil prices. This is inevitable.

If you believe 10% that oil prices will decrease big time say in 10 years, where would you invest to get the most out of this bet?
Is that so? How will the electricity that powers those cars get generated? How will the goods in your possession, home get from the manufacturers to you? How do you currently heat your living space? Wood? Do you fly on airplanes? Suggest you take a look very closely at the annual review on world energy distributed by BP. You can find it on their website. Then go over to Royal Dutch Shell and read their report, then Exxon and Chevron. It’s quite clear that while electricity is and will be in demand, the natural resources that will be used to generate it continue to be fossil fuels (coal, oil and natural gas) in your lifetime.
Just because there is demand for oil that does not mean price will stay high

What determines oil price is the marginal demand. If that goes away, oil price will drop dramatically
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misterno
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Re: If you think oil prices will drop where would you invest?

Post by misterno »

Wakefield1 wrote: Sat Aug 10, 2019 2:29 pm Oil is also feedstock for much of the chemical industry I think. Insulating coating for the wire used in the electric car motor windings?
Didn't Mr. Rockefeller say that no one can predict future oil prices,so if you want to build a great oil company you have to figure out how to make a profit when prices are high and when prices are low?
when did Rockefeller say that? 50 years ago?
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misterno
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Re: If you think oil prices will drop where would you invest?

Post by misterno »

esteen wrote: Sat Aug 10, 2019 10:14 pm VTSAX :beer
And what is your reason?
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dogagility
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Re: If you think oil prices will drop where would you invest?

Post by dogagility »

misterno wrote: Sat Aug 10, 2019 1:50 pm Wherever i look or read i see articles talking about sales explosion in electric cars all over the world.

Sooner or later in the long run, this will depress oil prices. This is inevitable.

If you believe 10% that oil prices will decrease big time say in 10 years, where would you invest to get the most out of this bet
First, oil is used for many products besides gasoline for engines.
Second, I only invest in a total market index fund. The price of oil makes no difference.
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Re: If you think oil prices will drop where would you invest?

Post by HawkeyePierce »

misterno wrote: Sun Aug 11, 2019 1:58 am
Wakefield1 wrote: Sat Aug 10, 2019 2:29 pm Oil is also feedstock for much of the chemical industry I think. Insulating coating for the wire used in the electric car motor windings?
Didn't Mr. Rockefeller say that no one can predict future oil prices,so if you want to build a great oil company you have to figure out how to make a profit when prices are high and when prices are low?
when did Rockefeller say that? 50 years ago?
He died in 1937, so it was at least 82 years ago.

In any case, it's as true now as it was then.
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Re: If you think oil prices will drop where would you invest?

Post by thx1138 »

misterno wrote: Sun Aug 11, 2019 1:58 am What determines oil price is the marginal demand. If that goes away, oil price will drop dramatically
Huh, I would have thought marginal supply was somehow a factor too. And something about elastic and inelasitc supply having different effects on price - that’s a thing isn’t it? Oh and I’m pretty sure I’ve read something about those concepts and both fracking supply in the US and the Saudi oil as well.

Nah - I’m sure you must be right.
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Re: If you think oil prices will drop where would you invest?

Post by TomatoTomahto »

I have an EV and no longer heat with oil (or gas). I generate and store my own electricity. I hope oil demand goes down, but what do I know?

That said, I have no idea about oil prices. I invest in broad equity index funds, domestic and world.
Okay, I get it; I won't be political or controversial. The Earth is flat.
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Re: If you think oil prices will drop where would you invest?

Post by Valuethinker »

snackdog wrote: Sat Aug 10, 2019 6:52 pm You could have asked the same question about coal 100 years ago when oil and gas came along as energy sources. But today coal production around the world is at an all time high. Real coal prices are about the same as they were 60 years ago.
That may not tell you much - they oscillate a lot. Also the world steam coal price may not tell us as much as it does with oil, say, because transport is such a large percentage of final cost and most coal is consumed within the borders of the country in which it is produced via direct coal miner to power company contracts.
The reason is energy demand continues to rise faster than all sources can supply it. It is forecast to continue to do so. For electricity from renewables to kill fossil fuels in our lifetimes would take a spectacular change in the energy industry, particularly in China and India where most of the energy consumption rise is forecast.
Vaclav Smil (Bill Gates' favourite writer) would agree with you - energy transitions take a long time. See also David Egerton, the historian of technology ("The Shock of the Old") which underlines on how, on a usage basis, old technologies retain their presence for a very long time (the conversion of factories from central mechanical sources of energy to distributed electric motors, which began in the 1920s in America, was not finished until the 1960s -the world's foremost industrial producer over that time frame, and the most advanced, and it took 5 decades, say).

Forecasts tend to be linear. For example the EIA has consistenly under-forecast the amount of renewables constructed. So has the International Energy Agency. So has BP.

Be warned. We are at the edge of a technological disruption. Things are not, not, not and suddenly they are. The economics shift dramatically and suddenly, and the world changes.

Britain pioneered coal fired industrialisation - the world's largest free trade empire was based on coal. Britain was the world's first big coal exporter. The trade of Victoria's empire ran on it. Electricity has been generated with coal in Great Britain since the 1880s. Then, last year, the records fell- - the first coal-free day, the first coal-free week. By 2025 there will be none (there may be some imports from coal fired stations in Belgium).

We have reached the point where renewables are now cheaper than new fossil fueled power station (depends on capacity factor, i.e. location, but particularly in North America (as opposed to Germany and Poland) that's not such a worry - the US has lots of space to put the wind turbines and the solar panels in the right places). More importantly, North America is drowning in gas - someone from Alberta was telling me this week that the gas transmission system has reached negative pricing - periods when producers pay the system to take their gas. The amount of old to very old coal fired stations in North America is very large (say 25+ years old) and they will start to drop off the grid due to economic reasons - not worth expensive refurbishments. And it's a very brave utility Board that approves a new station.

(the picture changes totally if we have economic Carbon Capture & Storage. But, right now, we do not).

Then we come to China. But China has a massive political legitimacy problem around air pollution. The history of Japan (once the world's most polluted country, policemen in Tokyo in the early 1970s carried oxygen bottles to give themselves period bursts of fresh air) and the USA (similar conditions in LA around 1971) tells you that when these things move, they move. Countries get to a certain level of per capita income (certainly urban China has reached that level of 1971 Japan) and pollution suddenly moves up the agenda.

Trade wars are an issue - the Chinese may not wish to become dependent upon North American LNG. But they are also building pipelines in Siberia and Central Asia, and signing long term offtake contracts with Australian and Arctic Russian gas producers.

The Chinese will switch to gas primarily for local air pollution reasons. But they will do so very quickly when they realise it is the only way to maintain the political legitimacy of the state on this issue. The Beijing air basin is absolutely huge. There are structural issues around state-owned power companies not wanting to strand coal-fired assets, but fundamentally it will start to happen. Look at the scale of the Shell LNG project in British Columbia - higher on shore costs (Canada) compensated for by lower shipping costs to Asia - they are building for that demand.

The number of new coal-fired stations worldwide being planned is plummeting. If you were a bank, would you project finance a coal-fired station, now? Would you be sure you would be paid back over 20 years, say? As first world financial institutions and Government Sponsored Entities (World Bank, EIB, IADB etc.) pull back on this, yes the Chinese will fill the gap, for a while, but they too will come under pressure.

India yes there is growth. But the Indian power market is deeply constrained - getting people to pay for their electricity has major political issues. You are going to find that renewables take a bigger share in India, and that gas fired stations become important because of their flexibility and low cost to build. And the Indian coal industry itself is in a total mess.

Russia coal-fired stations will continue. Perhaps they will build new ones. But Russian coal mines are not low cost, and many are old - the kind of surface mining you do in Wyoming, say, is not possible in much of Russia AFAIK - so there's always a productivity issue. And Russia has plenty of natural gas.

South Africa? The Eskom centralised model has failed, its coal fired stations are so far over budget and behind, enmired in corruption scandals, that SA's new energy will mostly come from solar & wind. Again, the country is not short of land.

it's too early to call an end for (unabated) coal. But the point of disruption is upon us - first natural gas arising out of American fracking technology, plus the global-scale trade in LNG which has brought Australia on stream in world markets*, and will bring Mozambique and other places. But renewables as well.


* that's another disruptive change. There is a constant forecast of LNG glut. But it does not quite seem to happen. The reason? You can now put your regasification terminal in a ship - thus you can import natural gas by tanker without building the infrastructure of a full LNG port. So countries like Bangladesh and Pakistan have become significant importers in a relatively short time period.
Last edited by Valuethinker on Sun Aug 11, 2019 7:36 am, edited 1 time in total.
Valuethinker
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Re: If you think oil prices will drop where would you invest?

Post by Valuethinker »

robertmcd wrote: Sun Aug 11, 2019 1:04 am From a petroleum engineer: you still need to look at how much oil demand is still expected to grow. The yearly growth is significant, and the recent “massive shale discovery” and discoveries like it are peanuts when you look at legacy decline rates vs new discoveries. The new discoveries we will need to find in 30 years are where it doesn’t appear there is any way we will have enough. Oil price will need to be very high to support exploration and production of the lower quality horizontal unconventionals around the world. Tight sands and shales are in pretty much every producing basin in the world, and there are a lot that open up at $100 oil. We will be very dependent on Saudi, Iran, Africa, Venezuela large reserves to have enough
I broadly agree with this. It's not so much oil demand will rise as oil supply from conventional sources will decline.

As I understand it the problem is very much depreciation of existing fields? Most of the world's "super major" oil fields were discovered in the 1930s-50s. They are now late middle age to old, and they deplete by 4-8% p.a. drop in output.

Fracking as a technology means supply is much more responsive to demand. But the figures I have seen suggest that fracking has in aggregate only made about as much cash flow as has been invested in it? So it needs a price (as you point out) to keep going.

I think that it's not so much that oil demand growth will continue - or rather it will continue at historic rates or less (say 1% p.a.?) but that supply will struggle to meet that? As long as prices are above say $60/ bl that supply will be there, but long periods below $60/bl will choke off new investment, thus leading to a rising price (if supply is not there, price has to rise for demand to be reduced enough to equal supply).

I think the fact that the Saudis are willing to sell off a part of Aramco as part of their economic plans is significant. They can see the end of oil coming, and they want to diversify away from being totally dependent on oil (Norway, with its $1 trillion + investment fund, is way ahead of them).

Iran if the technology and investment which is available to other countries is able to go in, I am sure there is more oil. But domestic demand is also robust (partly due to unrealistically cheap prices for gasoline, a problem shared by Saudi Arabia and Venezuela - if the urban classes lose their cheap fuel, they riot - see the Gilet Jaunes protests in France which was kicked off by rises in petrol taxes). So I am not sure if Iran stays as a big world producer due to impacts of the sanctions + domestic situation.

Africa? Offshore certainly there are resources. Probably more to find.

Venezuela is a mirror of Canada. They have Saudi-Arabian scale oil reserves, but locked up in sand. Getting it out requires multi billion dollar facilities and decades-long time horizons. And political stability. For Canada the constraints are increasingly environmental, plus the absence of the sustained $100/ bl + prices we experienced in the 2000s. For Venezuela - well we know. Mexico is in a similar position - a politically managed State Owned Oil company is incapable of maintaining and expanding production. Mexico actually imports natural gas from the United State? Who knew?
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Re: If you think oil prices will drop where would you invest?

Post by Valuethinker »

misterno wrote: Sat Aug 10, 2019 1:50 pm Wherever i look or read i see articles talking about sales explosion in electric cars all over the world.

Sooner or later in the long run, this will depress oil prices. This is inevitable.

If you believe 10% that oil prices will decrease big time say in 10 years, where would you invest to get the most out of this bet?
I don't think it's obvious how this plays out.

And you have no better guess at the balance of probabilities than the market as a whole. After all even the experts have no success predicting the price of oil in the future.

It's worth remembering that of that triad oil-natural gas-coal: oil is the key transport fuel and is such a dense source of energy that's it's quite hard to replace; natural gas is a key home heating and electricity generation fuel and is relatively very clean compared to the other two. It's coal that is the most vulnerable because there is lots of supply and there is a structural shift against its demand.
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Re: If you think oil prices will drop where would you invest?

Post by columbia »

Valuethinker wrote: Sun Aug 11, 2019 7:34 am
misterno wrote: Sat Aug 10, 2019 1:50 pm Wherever i look or read i see articles talking about sales explosion in electric cars all over the world.

Sooner or later in the long run, this will depress oil prices. This is inevitable.

If you believe 10% that oil prices will decrease big time say in 10 years, where would you invest to get the most out of this bet?
I don't think it's obvious how this plays out.

And you have no better guess at the balance of probabilities than the market as a whole. After all even the experts have no success predicting the price of oil in the future.

It's worth remembering that of that triad oil-natural gas-coal: oil is the key transport fuel and is such a dense source of energy that's it's quite hard to replace; natural gas is a key home heating and electricity generation fuel and is relatively very clean compared to the other two. It's coal that is the most vulnerable because there is lots of supply and there is a structural shift against its demand.

re:coal

Shorting Consol, etc. is probably a reasonable play for this general type of pure speculation.
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Re: If you think oil prices will drop where would you invest?

Post by hirlaw »

misterno wrote: Sat Aug 10, 2019 1:50 pm Wherever i look or read i see articles talking about sales explosion in electric cars all over the world.

Sooner or later in the long run, this will depress oil prices. This is inevitable.

If you believe 10% that oil prices will decrease big time say in 10 years, where would you invest to get the most out of this bet?
Perhaps airline stocks. Of course, if oil prices drop because of a recession, airlines will also be effected.
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Re: If you think oil prices will drop where would you invest?

Post by TBillT »

Here we are talking about macro-economic trends, and there I go with investor/economists like A. Gary Shilling.
Shilling of course famous for predicting 2% TBond rates for last 40 years.
In other words, he is focus on long term generic trends so that the rich people he invests for can at least be rowing in the right direction.

I do not get his monthly newsletter where he gives specific investments, but I used to get it. He has gone from bullish on the oil, to I think neutral. but I do not think he is shorting it.

Personally I feel price of oil itself is fickle, but could go up. However, what looks less solid is any investment in say Big Oil. That's a big dividend play, but obviously they face an unfriendly business environment.

Electric cars you gotta watch out for the hype. The EV advocates are more aggressive than ethnaol advocates and are trying to paint overly rosy picture, and also they virulently kill any neutral or negative talk, which are strategies they feel helps to sell Americans on it. If it was not for massive subsidies and free HOV for BEV's in Calfornia, and the success of Tesla as a luxury car, EV would be lack luster. Yet many elected officials feel the BEV subsidies should be yet massiver, and the punitive tax on fossil fuels should be huger. So it's gov't forced trend, and may continue in that manner, like E10 ethnaol, is my anology maybe we get to 10% BEV someday with mandates.
esteen
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Re: If you think oil prices will drop where would you invest?

Post by esteen »

misterno wrote: Sun Aug 11, 2019 2:02 am
esteen wrote: Sat Aug 10, 2019 10:14 pm VTSAX :beer
And what is your reason?
Because I know I can't time the market. Ymmv
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Re: If you think oil prices will drop where would you invest?

Post by Grt2bOutdoors »

misterno wrote: Sun Aug 11, 2019 1:58 am
Grt2bOutdoors wrote: Sat Aug 10, 2019 2:24 pm
misterno wrote: Sat Aug 10, 2019 1:50 pm Wherever i look or read i see articles talking about sales explosion in electric cars all over the world.

Sooner or later in the long run, this will depress oil prices. This is inevitable.

If you believe 10% that oil prices will decrease big time say in 10 years, where would you invest to get the most out of this bet?
Is that so? How will the electricity that powers those cars get generated? How will the goods in your possession, home get from the manufacturers to you? How do you currently heat your living space? Wood? Do you fly on airplanes? Suggest you take a look very closely at the annual review on world energy distributed by BP. You can find it on their website. Then go over to Royal Dutch Shell and read their report, then Exxon and Chevron. It’s quite clear that while electricity is and will be in demand, the natural resources that will be used to generate it continue to be fossil fuels (coal, oil and natural gas) in your lifetime.
Just because there is demand for oil that does not mean price will stay high

What determines oil price is the marginal demand. If that goes away, oil price will drop dramatically
Demand is not going away, read the reports and don't think that it is self-interest that is driving those reports.
Watch the news, if you think oil prices are going down, look to the ME. It's your money, report back in 10 years how your speculation turned out.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
RAchip
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Re: If you think oil prices will drop where would you invest?

Post by RAchip »

“Nothing is "inevitable".”

Thats what the horse and buggy companies said when those pesky automobile companies started showing up.

If you think electric cars will dominate, then invest in car companies (they will all go electric and the good ones will do well). Also, batteries will be huge as will their component parts.
Valuethinker
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Re: If you think oil prices will drop where would you invest?

Post by Valuethinker »

RAchip wrote: Sun Aug 11, 2019 11:14 am “Nothing is "inevitable".”

Thats what the horse and buggy companies said when those pesky automobile companies started showing up.

If you think electric cars will dominate, then invest in car companies (they will all go electric and the good ones will do well). Also, batteries will be huge as will their component parts.
Actually the incumbents usually get killed in s technology shift.

Google and Facebook were start ups. It wasn't AT&T or Time Warner that grasped the internet. Amazon not Sears or even WalMart.

Some car companies may survive the technology shift. But not all.

Early mover advantage may not be realised. The fast followers may catch up.
Valuethinker
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Re: If you think oil prices will drop where would you invest?

Post by Valuethinker »

TBillT wrote: Sun Aug 11, 2019 9:31 am Here we are talking about macro-economic trends, and there I go with investor/economists like A. Gary Shilling.
Shilling of course famous for predicting 2% TBond rates for last 40 years.
In other words, he is focus on long term generic trends so that the rich people he invests for can at least be rowing in the right direction.

I do not get his monthly newsletter where he gives specific investments, but I used to get it. He has gone from bullish on the oil, to I think neutral. but I do not think he is shorting it.

Personally I feel price of oil itself is fickle, but could go up. However, what looks less solid is any investment in say Big Oil. That's a big dividend play, but obviously they face an unfriendly business environment.

Electric cars you gotta watch out for the hype. The EV advocates are more aggressive than ethnaol advocates and are trying to paint overly rosy picture, and also they virulently kill any neutral or negative talk, which are strategies they feel helps to sell Americans on it. If it was not for massive subsidies and free HOV for BEV's in Calfornia, and the success of Tesla as a luxury car, EV would be lack luster. Yet many elected officials feel the BEV subsidies should be yet massiver, and the punitive tax on fossil fuels should be huger. So it's gov't forced trend, and may continue in that manner, like E10 ethnaol, is my anology maybe we get to 10% BEV someday with mandates.
Jeremy Grantham is also an investor who has thought a lot about this.

EVs are going to get a huge push as policymakers grow more desperate. Europe and Japan first but not only. China and then India.

There was talk of the technological superiority of fuel cells. But that hasn't played out.

EVs have hit that "good enough " moment of s disruptive technology. They do what ICE vehicles do 90% of the time and 90 % of the capability.

And total lifecycle cost of an EV is now below that of an ICE car in a lot of countries.

This is how disruptive innovation plays out. The new technology gets to be good enough and the cost of switching falls. Once you hit that moment you get the avalanche effect. Incremental change stops.

2040 there won't be a majority of EV cars. 2050? It will be hard to find an ICE car on the roads*

*if anything I am too conservative because I think we will be in raw panic by then. The speed of society when this becomes a global necessity will stun us.
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Re: If you think oil prices will drop where would you invest?

Post by RAchip »

Valuethinker wrote: Sun Aug 11, 2019 11:25 am
RAchip wrote: Sun Aug 11, 2019 11:14 am “Nothing is "inevitable".”

Thats what the horse and buggy companies said when those pesky automobile companies started showing up.

If you think electric cars will dominate, then invest in car companies (they will all go electric and the good ones will do well). Also, batteries will be huge as will their component parts.
Actually the incumbents usually get killed in s technology shift.

Google and Facebook were start ups. It wasn't AT&T or Time Warner that grasped the internet. Amazon not Sears or even WalMart.

Some car companies may survive the technology shift. But not all.

Early mover advantage may not be realised. The fast followers may catch up.
Yes but the technology shift isn't cars themselves its the fuel and engines that power cars. So I agree that the in incumbents — the gasoline companies — are not going to be able shift to selling electric batteries. But it could be a bonanza for car and battery companies because everyone will need the new version of the automobile. Existing car companies are better positioned for this change than start ups.
JackoC
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Re: If you think oil prices will drop where would you invest?

Post by JackoC »

gch wrote: Sat Aug 10, 2019 6:56 pm
"Optimists forecast that the number of EVs in the world will rise from today’s nearly 4 million to 400 million in two decades. A world with 400 million EVs by 2040 would decrease global oil demand by barely 6%. This sounds counter intuitive, but the numbers are straightforward. There are about 1 billion automobiles today, and they use about 30% of the world’s oil. (Heavy trucks, aviation, petrochemicals, heat, etc. use the rest.) By 2040, there would be an estimated 2 billion cars in the world. Four hundred million EVs would amount to 20% of all the cars on the road—which would thus replace about 6% of petroleum demand.
I like this point along with that of robertmcd about oil supply. In both cases less quantitatively oriented people tend to draw conclusions like 'EV's will take over' and 'new technology will flood the world with oil' when in fact both changes are at the margin. As you say, a huge growth in EV numbers would noticeably, but not dramatically, decrease oil demand all else equal, and factors like the big recent US increase in oil production have to be viewed in context of the typically short life of shale production, and inexorable depletion of conventional deposits everywhere. Plus all else isn't equal: developed economies are still growing which somewhat counters their gradual reduction in oil use per unit of GDP, and there are more rapidly growing developing world economies. So the problem tends to shift to questions like for example whether China and India will get caught in a 'middle income trap' or motor ahead no pun intended to levels of GDP per capita like Taiwan or South Korea. Who can confidently predict that?

Changes at the margin can create big price changes. So I'm not saying I know the EV's will be insignificant to oil prices. It's just extremely difficult to predict the effect among all the other things going on. Long term oil prices IMO is a particularly bad place to look for exceptions to the idea you can't outguess markets.
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Re: If you think oil prices will drop where would you invest?

Post by Wakefield1 »

HawkeyePierce wrote: Sun Aug 11, 2019 4:06 am
misterno wrote: Sun Aug 11, 2019 1:58 am
Wakefield1 wrote: Sat Aug 10, 2019 2:29 pm Oil is also feedstock for much of the chemical industry I think. Insulating coating for the wire used in the electric car motor windings?
Didn't Mr. Rockefeller say that no one can predict future oil prices,so if you want to build a great oil company you have to figure out how to make a profit when prices are high and when prices are low?
when did Rockefeller say that? 50 years ago?
He died in 1937, so it was at least 82 years ago.

In any case, it's as true now as it was then.
:idea: :idea: :idea: :idea: :idea: :idea: :idea: :idea: :idea: :idea: :idea: :idea:
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Re: If you think oil prices will drop where would you invest?

Post by averagedude »

If I invested by what i thought, my net worth would be half of what it is today. I would be changing my investments on every election cycle. I would be changing my investments on any news event that triggered any fear or greed emotions. I would have larger trading costs. I would engage in stock picking and market timing. I would have to work longer. My marriage would suffer due to my spouse being angry at me for making dumb investing choices. Our goals would not get accomplished in a timely fashion. I would live a slightly less happy life. There is wisdom in the saying " ignore the noise and stay the course".
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Re: If you think oil prices will drop where would you invest?

Post by Independent George »

misterno wrote: Sat Aug 10, 2019 1:50 pm Wherever i look or read i see articles talking about sales explosion in electric cars all over the world.

Sooner or later in the long run, this will depress oil prices. This is inevitable.

If you believe 10% that oil prices will decrease big time say in 10 years, where would you invest to get the most out of this bet?
And what happens if we start using nuclear power to synthesize fossil fuels from ocean water? That would probably kill the EV market while also depressing the price of oil even as it increases oil consumption. The point is, as always, there are a LOT of ways this can shake out, and trying to predict a single specific outcome is near impossible.

Incidentally, this idea is very much on the horizon:

https://youtu.be/G8zOHZINyG8
https://youtu.be/YUUMz3Uv0ps
Last edited by Independent George on Sun Aug 11, 2019 1:09 pm, edited 1 time in total.
Northern Flicker
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Re: If you think oil prices will drop where would you invest?

Post by Northern Flicker »

misterno wrote: Sat Aug 10, 2019 1:50 pm Wherever i look or read i see articles talking about sales explosion in electric cars all over the world.

Sooner or later in the long run, this will depress oil prices. This is inevitable.

If you believe 10% that oil prices will decrease big time say in 10 years, where would you invest to get the most out of this bet?
A total market stock index fund. Oil traders already have all the information about this that you have, plus a whole lot more. Why would you want to go toe-to-toe with them? It is not a fair fight given the difference in information and resources between them and you.
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Re: If you think oil prices will drop where would you invest?

Post by garlandwhizzer »

Predicting the future over a given time frame of oil prices or any other commodity price is exceptional difficult. The chance of achieving success in this enterprise based on the theory that electric cars will dominate the auto market and kill demand for oil is very close to zero in my opinion. There are so many unpredictable variables including global economic growth and adverse geopolitical events that affect oil supply, making it very difficult to accurately predict what supply will be at any point in the future. When the demand for any commodity goes down, less efficient suppliers cease production so the overall price may be only modestly altered. Both supply and demand can respond to each other rather quickly in the oil market making it difficult to predict future price appreciation which depends on the real time interplay between the two.

About 10 years ago an acknowledged oil market expert, Boone Pickens, stated that we would never again in our lifetimes see oil prices at less than $100/barrel. It was selling at $140+/barrel at that time as oil bulls dominated the market. In less than a decade the same barrel was selling for $45/barrel. This gives some idea about difficult it is to predict future oil prices. The expected real long term return of broad commodity exposure is expected be close to zero. For a single commodity it can be quite volatile in the direction opposite to the one expected.

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Re: If you think oil prices will drop where would you invest?

Post by H-Town »

misterno wrote: Sat Aug 10, 2019 1:50 pm Wherever i look or read i see articles talking about sales explosion in electric cars all over the world.

Sooner or later in the long run, this will depress oil prices. This is inevitable.

If you believe 10% that oil prices will decrease big time say in 10 years, where would you invest to get the most out of this bet?
Betting on a sport game might give a better odds of winning (and more fun).

Your argument against oil price focuses only on the demand side. If (and it's a big if) that electric cars can take over, many things in our life still involve around crude oil. The only thing I can see is that the supply will go down, eventually will drive the price up. The shift towards renewable energy and electric car can only slow down consuming of crude oil. But it won't make a dent on oil industry.

But hey, if you feel lucky, bet on future contracts and short sell on oil price futures.
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Re: If you think oil prices will drop where would you invest?

Post by wootwoot »

misterno wrote: Sun Aug 11, 2019 1:58 am
Grt2bOutdoors wrote: Sat Aug 10, 2019 2:24 pm
misterno wrote: Sat Aug 10, 2019 1:50 pm Wherever i look or read i see articles talking about sales explosion in electric cars all over the world.

Sooner or later in the long run, this will depress oil prices. This is inevitable.

If you believe 10% that oil prices will decrease big time say in 10 years, where would you invest to get the most out of this bet?
Is that so? How will the electricity that powers those cars get generated? How will the goods in your possession, home get from the manufacturers to you? How do you currently heat your living space? Wood? Do you fly on airplanes? Suggest you take a look very closely at the annual review on world energy distributed by BP. You can find it on their website. Then go over to Royal Dutch Shell and read their report, then Exxon and Chevron. It’s quite clear that while electricity is and will be in demand, the natural resources that will be used to generate it continue to be fossil fuels (coal, oil and natural gas) in your lifetime.
Just because there is demand for oil that does not mean price will stay high

What determines oil price is the marginal demand. If that goes away, oil price will drop dramatically
Marginal demand? Emerging markets are increasing consumption of oil for fuel and many plastics are made from processed oil. Oil fields also run dry over time, reducing supply. Predicting oil prices is a gamble at best. Maybe look into the boglehead 3 fund portfolio.
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Re: If you think oil prices will drop where would you invest?

Post by UpsetRaptor »

Airplanes aren't electrifying anytime soon. Nor ships. Nor passenger vehicle sales in non-developed countries where the electrical infrastructure is decades away, possibly beyond our lifetimes.

VTSAX.
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Re: If you think oil prices will drop where would you invest?

Post by Valuethinker »

RAchip wrote: Sun Aug 11, 2019 11:40 am
Valuethinker wrote: Sun Aug 11, 2019 11:25 am
RAchip wrote: Sun Aug 11, 2019 11:14 am “Nothing is "inevitable".”

Thats what the horse and buggy companies said when those pesky automobile companies started showing up.

If you think electric cars will dominate, then invest in car companies (they will all go electric and the good ones will do well). Also, batteries will be huge as will their component parts.
Actually the incumbents usually get killed in s technology shift.

Google and Facebook were start ups. It wasn't AT&T or Time Warner that grasped the internet. Amazon not Sears or even WalMart.

Some car companies may survive the technology shift. But not all.

Early mover advantage may not be realised. The fast followers may catch up.
Yes but the technology shift isn't cars themselves its the fuel and engines that power cars. So I agree that the in incumbents — the gasoline companies — are not going to be able shift to selling electric batteries. But it could be a bonanza for car and battery companies because everyone will need the new version of the automobile. Existing car companies are better positioned for this change than start ups.
It's fair to say that in the different segments of the industry value chain "incumbent" can differ.

But the EV car has a radically simpler drivetrain than an ICE vehicle. A lot of what car makers "make" gets wiped away. And the vehicles can last a lot longer as a result. It probably significantly lowers the barrier to entry to the industry.

The main losers are the component suppliers - the Tier 1 component suppliers are actually more concentrated than the auto OEMS (manufacturers) and make higher margins (EBIT/ Sales). We think we are buying a Ford but we are actually buying is a Lear (seats), TRW, Nippon Safety Glass etc assembled at a Ford factory. And the engine makers - who are car companies and in fact these days they share engine manufacture.

The criticism (valid) of Tesla is that making a car is not like making an electronic device - where you just bash them out and you have a known failure rate. A car is much more complex, it's more critical that everything works, it's taken the car companies literally 100 years to figure out how to put them together.

But it's not at all clear the car companies are up to this (I am desperately trying to avoid using the word "paradigm" ;-)) fundamental shift. Tesla "lapped" them on the first round. They have the classic problem of an incumbent (think DEC at the dawn of the microcomputer) - the EV car eats their lunch, so to introduce it they have to hurt themselves.

EDIT: and my mind snaps back into place. In the back of it was that James Dyson- of fan, vacuum cleaner & hand dryer fame - is launching an electric car. We'd laugh, except that Dyson cracked all of those mature, technologically well developed markets, wide open.

My hindsight will be 20-20 ;-). And you may well be right.
Last edited by Valuethinker on Sun Aug 11, 2019 4:06 pm, edited 1 time in total.
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Re: If you think oil prices will drop where would you invest?

Post by Valuethinker »

UpsetRaptor wrote: Sun Aug 11, 2019 1:58 pm Airplanes aren't electrifying anytime soon. Nor ships. Nor passenger vehicle sales in non-developed countries where the electrical infrastructure is decades away, possibly beyond our lifetimes.

VTSAX.
Ships can be run with LNG. And, indeed, European shipping emission rules are coming in, which will limit the use of bunker fuel, at least, in that part of the world (although I think they basically compel a move to more refined, low sulphur, oil).

The electrical infrastructure is interesting, because I think there are analogies to fixed line telecoms and the way mobile has taken off in emerging markets. The developing world will build the grid, last, or not at all. Rather it will be about micro-grids.
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Re: If you think oil prices will drop where would you invest?

Post by Valuethinker »

Independent George wrote: Sun Aug 11, 2019 12:56 pm
misterno wrote: Sat Aug 10, 2019 1:50 pm Wherever i look or read i see articles talking about sales explosion in electric cars all over the world.

Sooner or later in the long run, this will depress oil prices. This is inevitable.

If you believe 10% that oil prices will decrease big time say in 10 years, where would you invest to get the most out of this bet?
And what happens if we start using nuclear power to synthesize fossil fuels from ocean water? That would probably kill the EV market while also depressing the price of oil even as it increases oil consumption. The point is, as always, there are a LOT of ways this can shake out, and trying to predict a single specific outcome is near impossible.

Incidentally, this idea is very much on the horizon:

https://youtu.be/G8zOHZINyG8
https://youtu.be/YUUMz3Uv0ps
I am something of a sceptic on the "4th generation" reactors:

- the reason water is used as a moderator is that it is chemically well understood, and transparent, and fairly non reactive (steam, to be fair, is more of a pain). You lose all of these things with the various proposed SMRs (liquid lead moderator etc.)

- you still haven't done away with the need for a containment vessel - if a plane or truck bomb hits this reactor, you will have its entire contents sprayed over the landscape Chernobyl style, penetrating groundwater etc. That's also true if you have a meltdown for more innocuous reasons (say a tsunami). What happens if the ship your reactor is on sinks (especially on the Continental Shelf)?

- it takes 20 years to get a reactor design from drawing board to working production version, approved by the regulatory authorities

- nuclear reactors are not load followers. You can't yank them on and off the grid. So they don't solve the intermittency problem

- meanwhile the price of renewables continues to fall -- 15-20% drop down the cost curve per kw for each doubling of world capacity (that was the rate for wind, I think for solar it has been higher)

As to nuclear energy to make fossil fuels - the problem is in the "fossil" - if you don't avoid that (or can't figure out a way to capture and sequester the emissions) then there is, fundamentally, no point. You can always synthesize oil from coal, or from natural gas, more cheaply. The CTL (Coal to Liquids) process is ridiculously inefficient - the Sasol process has never been economic. The GTL process is working in commercial scale (although the Qataris and the oil majors show no particular sign of building another).
Last edited by Valuethinker on Sun Aug 11, 2019 4:08 pm, edited 1 time in total.
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nedsaid
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Re: If you think oil prices will drop where would you invest?

Post by nedsaid »

Valuethinker wrote: Sun Aug 11, 2019 3:48 pm
RAchip wrote: Sun Aug 11, 2019 11:40 am
Valuethinker wrote: Sun Aug 11, 2019 11:25 am
RAchip wrote: Sun Aug 11, 2019 11:14 am “Nothing is "inevitable".”

Thats what the horse and buggy companies said when those pesky automobile companies started showing up.

If you think electric cars will dominate, then invest in car companies (they will all go electric and the good ones will do well). Also, batteries will be huge as will their component parts.
Actually the incumbents usually get killed in s technology shift.

Google and Facebook were start ups. It wasn't AT&T or Time Warner that grasped the internet. Amazon not Sears or even WalMart.

Some car companies may survive the technology shift. But not all.

Early mover advantage may not be realised. The fast followers may catch up.
Yes but the technology shift isn't cars themselves its the fuel and engines that power cars. So I agree that the in incumbents — the gasoline companies — are not going to be able shift to selling electric batteries. But it could be a bonanza for car and battery companies because everyone will need the new version of the automobile. Existing car companies are better positioned for this change than start ups.
It's fair to say that in the different segments of the industry value chain "incumbent" can differ.

But the EV car has a radically simpler drivetrain than an ICE vehicle. A lot of what car makers "make" gets wiped away. And the vehicles can last a lot longer as a result. It probably significantly lowers the barrier to entry to the industry.

The main losers are the component suppliers - the Tier 1 component suppliers are actually more concentrated than the auto OEMS (manufacturers) and make higher margins (EBIT/ Sales). We think we are buying a Ford but we are actually buying is a Lear (seats), TRW, Nippon Safety Glass etc assembled at a Ford factory. And the engine makers - who are car companies and in fact these days they share engine manufacture.

The criticism (valid) of Tesla is that making a car is not like making an electronic device - where you just bash them out and you have a known failure rate. A car is much more complex, it's more critical that everything works, it's taken the car companies literally 100 years to figure out how to put them together.

But it's not at all clear the car companies are up to this (I am desperately trying to avoid using the word "paradigm" ;-)) fundamental shift. Tesla "lapped" them on the first round. They have the classic problem of an incumbent (think DEC at the dawn of the microcomputer) - the EV car eats their lunch, so to introduce it they have to hurt themselves.

My hindsight will be 20-20 ;-). And you may well be right.
Electric cars have been around for a very long time but for various reasons have not been economically viable until recent years. I remember reading the problems that electric cars have with the harsh winters in the American Mid-West, severe cold weather is a problem for all batteries. I will stick with my gas powered car for now. The idea of electric cars is still ahead of its time, if that time ever arrives. We can see the potential but the jury is still out whether that potential will be realized.

You also need the infrastructure of charging stations which we have now for gasoline. Recharging a battery is different from refueling a gas tank. Seems like you need a few hours to recharge. Somehow the image of a spindle mounted on the back of the car with a very long extension cord doesn't seem to work for me. Or the idea of sitting at a charging station for a few hours. For those of us who used to like road trips, 300 miles on a charge isn't long enough range, it is about 5 hours of driving. I used to drive 8-10 hours a day on a road trip. The hybrid seems a lot more viable to me.
Last edited by nedsaid on Sun Aug 11, 2019 4:17 pm, edited 1 time in total.
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Re: If you think oil prices will drop where would you invest?

Post by Valuethinker »

nedsaid wrote: Sun Aug 11, 2019 4:08 pm

Electric cars have been around for a very long time but for various reasons have not been economically viable until recent years. I remember reading the problems that electric cars have with the harsh winters in the American Mid-West, severe cold weather is a problem for all batteries. I will stick with my gas powered car for now. The idea of electric cars is still ahead of its time, if that time ever arrives. We can see the potential but the jury is still out whether that potential will be realized.
That time is now. Maybe not in the US Midwest, but in lots of other places. 5 years ago I think we could have had an argument about whether they would be stillborn, and of course there is always that possibility, but the balance of probability has shifted quite strongly in the last 5-10 years.

I had never actually seen a Tesla in London until the other day. Then I saw 2 in one day. There are of course lots of BMW i3s and Nissan Leafs around (they avoid paying the Congestion Charge - £12.50/ day on weekdays 7 AM to 7 PM to drive into central London). This is happening.
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