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Tuesday, 10 March 15
OIL PRICE FORECASTING - IGNORE THE EXPERTS: COLIN MARSHALL
 KNOWLEDGE TO ELEVATE
Experts put themselves on a pedestal, making claims to have special forecasting abilities for oil price trends. They, too, one way or another, charge for making those claims. Because of this, they deserve to be investigated. And, depending on the outcome of the investigation, they may also be deserving of ridicule.So, what is driving the oil price today? Many commentators have noted that today, there are a number of hypotheses, phenomena and factors all contributing to the vagaries of the oil price:
Rising shale hydrocarbon supply. Shale oil and gas ramping up, as producers have recognized that shale production is more prolific than expected. Furthermore, the certainty of shale hydrocarbon production has proved attractive (compared with normal exploration), following more of a “production line” model, where every dollar injected delivers a reasonably certain production.
Worldwide oil demand is dropping and not just in China. Efficiencies are resulting in reduced demand. Winters are generally milder. Slowly but surely, global users are switching to gas and dropping the price as technology improves and economies of scale kick in.
Cars create about 60 percent of the demand for oil, and the introduction of gas-powered and electric vehicles is increasing. Solar power is also increasing and could become a material alternative energy source in the medium term.
The Middle East is unstable. The potential for severe supply disruption from war, political (“Arab Spring”) uprisings or even sanctions adds tension and uncertainty into the already precarious supply and demand balancing acts. Erratic production from war-torn countries like Iraq and Libya often surprise the market with actual supply far different from predictions.
The Islamic State (IS) scares analysts as well. The market is easily spooked by terrorism, notably IS, who frightens even al-Qaeda. This threat of terrorist activities tends to keep prices high or at least volatile.
Prices need to support budgets. Many countries rely heavily on oil and gas revenues to support their national budgets.
In other words, once prices drop, their pain may force them to cut production themselves if they are Organization of Petroleum Exporting Countries (OPEC) members, or at least put significant pressure on swing producers to reduce production to increase prices.
Saudi believes in supply and demand. Saudi Arabia, and hence OPEC, has maintained a firm stance not to cut production to maintain prices, as they believe that any reduction would probably not increase oil prices, as the shale producers would simply fill the gap.
By allowing oil prices to fall, Saudi hopes the shale producers will reduce production, and not make material shale-related infrastructure capital commitments.
Supply will drop, prices rise, allowing OPEC to maintain their market share, at higher prices, in the future.
Saudi doesn’t believe in supply and demand — it’s all geo-politics. Saudi wants to see the end of the current Syrian regime, as does Qatar, as Syria blocks their access to European gas.
Despite this anti-Syria alignment, Qatar allegedly supports IS as a catalyst to topple Syria whereas Saudi chooses to allow oil prices to free-fall, to put pressure on Russia to stop supporting Syria, a position the US allegedly supports.
Putin is unlikely to capitulate as giving central Europe an alternative gas supply to mother Russia may bring even more pain than low oil prices.
Reduced costs will mitigate the lower prices. Some ambivalence toward low prices, especially by the majors, comes from the fact that costs are expected to eventually drop as inefficiencies (“fat”) are taken out of various components of the energy value chain.
In other words, providing one has the resources to endure the period until costs “catch-up” and reduce sufficiently, producers should eventually see a return to the profits they were previously receiving, even in a low oil-price environment.
Work programs are committed. Some companies have work commitments that cannot be immediately adjusted as a result of oil price changes.
Hedges give some short-term protection. Some companies will have taken out oil price hedges and this will have protected them from low oil prices, disincentivizing them to reduce production — but these hedges will drop off soon.
Two primary observations develop from this long list: first, there are a lot of points, perhaps suggesting that we really cannot expect to make a sensible prediction.
Second, there are arguments on both the supply and demand side, making anyone who tediously repeats the platitude about “the oil price being simply about supply and demand” appears somewhat simple-minded.
Whilst people may believe that their (or others) actions affect or manipulate the oil price, the reality may be that the consequences of those actions are of minor importance only.
The low oil price fluctuations are possibly due to unimagined and unfathomable factors, or complex combinations of factors.
The bottom line is that the world is much more complex these days and this makes the oil price difficult to predict. Even the fact that most commentators today believe that the oil price will stay low for at least a year or so should be taken with a grain of salt — nobody really knows.
A single war or major terrorist action could have catastrophic consequences on oil prices.
So what will happen to the oil price? As one with no pretensions of having knowledge, I predict oil price will swing in a US$50-100/per barrel range for the next few years or so, then gradually rise as population, education, prosperity and demand continues to rise, but still swinging in a fairly large range.
This $50-100/bbl range is justified as follows: Putting aside all the excuses for not being able to make predictions, including the obfuscating geopolitical conspiracy theories, it appears that a major factor is the addition of large quantities of shale hydrocarbons on the market, accessible as a result of new technology.
As oil prices increased an alternative has appeared, today in the form of shale hydrocarbons.
Shale oil is believed to cost around $85/bbl to produce — and a well’s production declines rapidly, falling by about 60 percent in the first year alone. In other words, shale hydrocarbons need new, expensive wells continuously to maintain production — below $85/bbl this will not happen and supply will reduce as wells are not drilled, increasing demand.
Recognizing that price does not rebound immediately, that there is a lag or elasticity to the price, prices may drop to a natural floor of around $50, by which point under most circumstances demand will send the price north once again.
The longer oil is “low”, then the more quickly it will swing back and likely over-shoot the $85/bbl ceiling, perhaps up to around $100/bbl, before inevitably descending once again.
Hence I believe the price will be around $50-100, the period and magnitude of the changes primarily in response to the ongoing geopolitical parlor games.
Some may accuse me of protecting myself by suggesting such a large range, but in fact I am specifically predicting there will be fluctuations in that bandwidth, with an average price around $75/bbl over the next few years.
I do, however, believe it is beyond the ability of men to predict the exact shape of the swing cycle, in terms of the period and cycle frequency.
Source: The Jakarta Post
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The writer has been working in the oil and gas business for about 30 years.
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Thursday, 25 January 24
THE RED SEA ESCALATION IMPLICATIONS ON GLOBAL SEABORNE TRADE - MARIA BERTZELETOU
In recent days, discussions have intensified about the potential impact on the seaborne trade and ton-miles due to the evolving dynamics of market ...
Thursday, 25 January 24
RED SEA SHIPPING DISRUPTIONS KEEP GEOPOLITICAL PREMIUM FOR COMMODITIES - FITCH RATINGS
Shipping disruptions and re-routing away from the Red Sea will maintain the geopolitical premium in the main commodity markets, including for oil a ...
Friday, 19 January 24
INDONESIA TARGETS 710 MLN METRIC TONS COAL OUTPUT IN 2024 AFTER RECORD 2023 - REUTERS
Indonesia, a major thermal coal exporter, aims to produce 710 million metric tons of coal in 2024, its mining minister said on Monday, after postin ...
Friday, 19 January 24
DRUMMOND COLOMBIA COAL OUTPUT ROSE 7.1% IN 2023 - REUTERS
Coal production from miner Drummond’s Colombia operations rose 7.1% in 2023 to 29.5 million metric tons, while exports declined by 2.6% to 27 ...
Friday, 19 January 24
CHINA'S 2023 COAL OUTPUT HITS RECORD HIGH - REUTERS
China’s coal output reached a record high in 2023, data from the statistics bureau showed on Wednesday, amid an ongoing focus on energy secur ...
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- PowerSource Philippines DevCo
- Anglo American - United Kingdom
- Gujarat Electricity Regulatory Commission - India
- SMG Consultants - Indonesia
- Latin American Coal - Colombia
- Merrill Lynch Commodities Europe
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- Banpu Public Company Limited - Thailand
- Carbofer General Trading SA - India
- Edison Trading Spa - Italy
- Electricity Authority, New Zealand
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- SMC Global Power, Philippines
- ASAPP Information Group - India
- Aditya Birla Group - India
- Gujarat Sidhee Cement - India
- OPG Power Generation Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Sarangani Energy Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Globalindo Alam Lestari - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Lanco Infratech Ltd - India
- Chamber of Mines of South Africa
- Grasim Industreis Ltd - India
- Mjunction Services Limited - India
- Siam City Cement PLC, Thailand
- Uttam Galva Steels Limited - India
- PNOC Exploration Corporation - Philippines
- Goldman Sachs - Singapore
- Australian Commodity Traders Exchange
- Makarim & Taira - Indonesia
- Jindal Steel & Power Ltd - India
- GAC Shipping (India) Pvt Ltd
- The State Trading Corporation of India Ltd
- Indo Tambangraya Megah - Indonesia
- Essar Steel Hazira Ltd - India
- Orica Australia Pty. Ltd.
- Sinarmas Energy and Mining - Indonesia
- Ambuja Cements Ltd - India
- Coalindo Energy - Indonesia
- Kaltim Prima Coal - Indonesia
- Wood Mackenzie - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bulk Trading Sa - Switzerland
- Larsen & Toubro Limited - India
- GVK Power & Infra Limited - India
- Ministry of Mines - Canada
- Indonesian Coal Mining Association
- GN Power Mariveles Coal Plant, Philippines
- MS Steel International - UAE
- Mintek Dendrill Indonesia
- Alfred C Toepfer International GmbH - Germany
- Simpson Spence & Young - Indonesia
- Eastern Energy - Thailand
- Leighton Contractors Pty Ltd - Australia
- Cigading International Bulk Terminal - Indonesia
- Sindya Power Generating Company Private Ltd
- Jaiprakash Power Ventures ltd
- GMR Energy Limited - India
- Orica Mining Services - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Karaikal Port Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- IEA Clean Coal Centre - UK
- VISA Power Limited - India
- Star Paper Mills Limited - India
- Bukit Baiduri Energy - Indonesia
- Sakthi Sugars Limited - India
- Kalimantan Lumbung Energi - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Samtan Co., Ltd - South Korea
- Rio Tinto Coal - Australia
- Baramulti Group, Indonesia
- Sojitz Corporation - Japan
- Kohat Cement Company Ltd. - Pakistan
- Meenaskhi Energy Private Limited - India
- Bhoruka Overseas - Indonesia
- Cement Manufacturers Association - India
- Bayan Resources Tbk. - Indonesia
- ICICI Bank Limited - India
- Electricity Generating Authority of Thailand
- Jorong Barutama Greston.PT - Indonesia
- McConnell Dowell - Australia
- Interocean Group of Companies - India
- Bukit Makmur.PT - Indonesia
- Australian Coal Association
- Toyota Tsusho Corporation, Japan
- Commonwealth Bank - Australia
- European Bulk Services B.V. - Netherlands
- Binh Thuan Hamico - Vietnam
- Global Coal Blending Company Limited - Australia
- Antam Resourcindo - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Romanian Commodities Exchange
- Indogreen Group - Indonesia
- Mercuria Energy - Indonesia
- Ministry of Transport, Egypt
- Formosa Plastics Group - Taiwan
- Medco Energi Mining Internasional
- India Bulls Power Limited - India
- Siam City Cement - Thailand
- Ministry of Finance - Indonesia
- Ind-Barath Power Infra Limited - India
- Aboitiz Power Corporation - Philippines
- Billiton Holdings Pty Ltd - Australia
- Coastal Gujarat Power Limited - India
- Videocon Industries ltd - India
- Global Business Power Corporation, Philippines
- Parliament of New Zealand
- Karbindo Abesyapradhi - Indoneisa
- Savvy Resources Ltd - HongKong
- Coal and Oil Company - UAE
- Indika Energy - Indonesia
- Straits Asia Resources Limited - Singapore
- Thai Mozambique Logistica
- Economic Council, Georgia
- Chettinad Cement Corporation Ltd - India
- Tata Chemicals Ltd - India
- Renaissance Capital - South Africa
- Singapore Mercantile Exchange
- Kobexindo Tractors - Indoneisa
- Xindia Steels Limited - India
- Bangladesh Power Developement Board
- Georgia Ports Authority, United States
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Manunggal Multi Energi - Indonesia
- Planning Commission, India
- TNB Fuel Sdn Bhd - Malaysia
- Tamil Nadu electricity Board
- Energy Link Ltd, New Zealand
- Indian Energy Exchange, India
- Intertek Mineral Services - Indonesia
- Global Green Power PLC Corporation, Philippines
- Sree Jayajothi Cements Limited - India
- The University of Queensland
- CIMB Investment Bank - Malaysia
- TeaM Sual Corporation - Philippines
- Trasteel International SA, Italy
- White Energy Company Limited
- Central Electricity Authority - India
- Salva Resources Pvt Ltd - India
- Standard Chartered Bank - UAE
- Price Waterhouse Coopers - Russia
- Parry Sugars Refinery, India
- IHS Mccloskey Coal Group - USA
- Iligan Light & Power Inc, Philippines
- Kumho Petrochemical, South Korea
- Madhucon Powers Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Power Finance Corporation Ltd., India
- Maharashtra Electricity Regulatory Commission - India
- Directorate General of MIneral and Coal - Indonesia
- Eastern Coal Council - USA
- Vijayanagar Sugar Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Sical Logistics Limited - India
- Directorate Of Revenue Intelligence - India
- Marubeni Corporation - India
- International Coal Ventures Pvt Ltd - India
- Indian Oil Corporation Limited
- AsiaOL BioFuels Corp., Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bharathi Cement Corporation - India
- Neyveli Lignite Corporation Ltd, - India
- LBH Netherlands Bv - Netherlands
- Kepco SPC Power Corporation, Philippines
- Vedanta Resources Plc - India
- Dalmia Cement Bharat India
- Mercator Lines Limited - India
- Central Java Power - Indonesia
- Attock Cement Pakistan Limited
- Bank of Tokyo Mitsubishi UFJ Ltd
- Riau Bara Harum - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Port Waratah Coal Services - Australia
- Africa Commodities Group - South Africa
- Independent Power Producers Association of India
- Timah Investasi Mineral - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Borneo Indobara - Indonesia
- San Jose City I Power Corp, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kideco Jaya Agung - Indonesia
- Thiess Contractors Indonesia
- New Zealand Coal & Carbon
- Krishnapatnam Port Company Ltd. - India
- Energy Development Corp, Philippines
- Posco Energy - South Korea
- Deloitte Consulting - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Heidelberg Cement - Germany
- Malabar Cements Ltd - India
- Minerals Council of Australia
- Semirara Mining and Power Corporation, Philippines
- Altura Mining Limited, Indonesia
- SN Aboitiz Power Inc, Philippines
- Agrawal Coal Company - India
- Therma Luzon, Inc, Philippines
- CNBM International Corporation - China
- Bhatia International Limited - India
- Petron Corporation, Philippines
- Maheswari Brothers Coal Limited - India
- PTC India Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Wilmar Investment Holdings
- Bhushan Steel Limited - India
- Vizag Seaport Private Limited - India
- Kapuas Tunggal Persada - Indonesia
- Meralco Power Generation, Philippines
- The Treasury - Australian Government
- Ceylon Electricity Board - Sri Lanka
- London Commodity Brokers - England
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