Mining on Bitcoin converges with the oil trade

Oil, gas, and petrochemical industries are increasingly becoming more globalized and rely on a diverse set of suppliers, many of which are in emerging markets. So if you want to start trading oil in only three steps, visit ww.bitcoins-code.de, you will get the best liquidity, and the platform is immune to volatility risk. Primarily sourced from China, bitcoin miners have been driving up prices for graphic cards worldwide over the last few years.

The recent reports find that whereas oil producers have been able to play with prices to maintain their market share in other regions (i.e., Russia), world-class players — such as Exxon Mobil — cannot afford to stay out of this market or risk seeing their margins squeezed so tight as to force them out altogether. In other words, bitcoin miners are increasingly becoming a factor for oil, which has the power to disrupt the industry.

Recent Studies:

The recent reports break down the various implications of bitcoin mining on global oil and gas production and estimate how much it may affect crude-oil prices. It includes several facts that suggest that bitcoin miners are already impacting global production levels. In particular, utilization rates in China (where roughly half of all global bitcoin mining occurs) have increased by almost 20 per cent over the last several months.

Further, despite low oil prices over the last twelve months (aside from some spikes), dollar-denominated oil futures contracts have spiked as bitcoin has climbed in value. This rise makes it even more difficult for oil companies to translate their nominal production levels into the cost structure necessary to compete in the market. Again, a significant portion of oil and gas expenses are in dollars and are difficult to adjust quickly due to the long time frames needed throughout the process.

Furthermore, revenue variability can account for significant expenses, including physical storage costs. For example, according to a World Bank study, storage costs (also known as “transportation” or “carrying costs”) averaged 1 per cent of revenues for significant oil companies globally during 2009-2012. As the chart below shows, there is a clear correlation between bitcoin mining and oil production costs, and this is expected to cause oil companies to have to produce more barrels per day (BPD) to maintain their margins.

How bitcoin mining converges with the oil trade?

The study notes that bitcoin’s high energy costs have also caused oil companies to think about increasing production to maintain profit margins. It suggests that the capital expenditure required for bitcoin miners makes it more expensive for oil companies to ramp up production, increasing the likelihood of overshooting demand. Further, the global supply-demand balance may be disrupted by companies if Chinese factories can produce similar products at a lower cost than those in other regions

.Concerning the timing of this disruption, there is a clear correlation between bitcoin mining and price spikes in oil: Bitcoin prices often spike when there is news of disruptions in China’s supply-demand balance or an increase in China’s demand (such as during periods of economic growth).

Natural gas can help bitcoin mining and oil companies:

The low prices for natural gas over the past several years have likely helped oil companies cut costs, decreasing the risk for bitcoin miners. However, natural gas may not be immune from the effects of bitcoin mining either: There are signs that production may increase.

It could increase prices in the U.S., though it is difficult to pinpoint exactly how much since the data is incomplete. In addition, if a major player in the U.S. natural gas market adopts bitcoin mining as a business model, it may cause prices to rise.

Ultimately, this recent report finds that bitcoin mining is not isolated from oil and gas; instead, there is a clear evidentiary trail that shows how bitcoin can influence oil and gas prices, ultimately causing significant changes in the global supply and demand balance.

What does all this mean for the oil industry?

Oil companies should pay attention to this study for at least two reasons:

First, recent production disruptions in China may raise concerns about oversupply in the future if they are not addressed quickly and effectively. In addition, the rapid growth of bitcoin mining could eventually change the cost curve for oil companies.

Second, recent spikes in oil prices have been mainly attributed to geopolitical factors (for example, the war in Syria). However, this study asks whether other factors have been driving up oil prices and could be driving up future oil prices.

The demand for bitcoin mining will continue growing in the long run. If this is the case and oil prices increase commensurately, it poses a new risk for oil companies.

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