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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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Monday, 08 January 24
KOSPO TO BUY 80000 MT OF INDONESIAN LOW CALORIFIC VALUE COAL FOR FEB 2024
Korea Southern Power Co., Ltd. (KOSPO), is inviting bids for the supply of Indonesian Low Calorific Value Coal from qualified suppliers for Korean ...
Monday, 08 January 24
SEABORNE TRADE REACHES 12.4BN TONNES - CLARKSONS
China will establish a back-up coal production system by 2027 to stabilise prices and secure coal supply, the state planner said on Wednesday, even ...
Monday, 08 January 24
CAPESIZES START THE NEW YEAR ON POSITIVE NOTE - BALTIC EXCHANGE
Capesize
This week the capsize market has been marked by a mix of activities and challenges. Despite a slow start following the Christmas and N ...
Friday, 05 January 24
MORGAN STANLEY SEES LOWER OIL PRICES IN 2024 ON OVERSUPPLY CONCERNS - REUTERS
Morgan Stanley sees Brent crude prices anchored near $80 per barrel in the first half in 2024 before declining towards the end of the year as it ex ...
Friday, 05 January 24
INDIA'S COAL OUTPUT RISES NEARLY 11 PC IN DEC TO 92.87 MT - PTI
India’s coal production increased by 10.75 per cent to 92.87 million tonne in December 2023 as compared to the year-ago period, an official s ...
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Showing 56 to 60 news of total 6871 |
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- Cement Manufacturers Association - India
- Indian Oil Corporation Limited
- Bhatia International Limited - India
- Sojitz Corporation - Japan
- Interocean Group of Companies - India
- The Treasury - Australian Government
- Xindia Steels Limited - India
- Straits Asia Resources Limited - Singapore
- Gujarat Sidhee Cement - India
- IHS Mccloskey Coal Group - USA
- Billiton Holdings Pty Ltd - Australia
- Manunggal Multi Energi - Indonesia
- Parliament of New Zealand
- SMC Global Power, Philippines
- Power Finance Corporation Ltd., India
- Medco Energi Mining Internasional
- AsiaOL BioFuels Corp., Philippines
- Oldendorff Carriers - Singapore
- Karbindo Abesyapradhi - Indoneisa
- South Luzon Thermal Energy Corporation
- Energy Development Corp, Philippines
- Barasentosa Lestari - Indonesia
- Indo Tambangraya Megah - Indonesia
- Petron Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Rio Tinto Coal - Australia
- PetroVietnam Power Coal Import and Supply Company
- Simpson Spence & Young - Indonesia
- Ministry of Transport, Egypt
- Maheswari Brothers Coal Limited - India
- Independent Power Producers Association of India
- Siam City Cement PLC, Thailand
- Mintek Dendrill Indonesia
- Renaissance Capital - South Africa
- CIMB Investment Bank - Malaysia
- Borneo Indobara - Indonesia
- Altura Mining Limited, Indonesia
- Sarangani Energy Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Kalimantan Lumbung Energi - Indonesia
- Banpu Public Company Limited - Thailand
- Coastal Gujarat Power Limited - India
- Intertek Mineral Services - Indonesia
- Attock Cement Pakistan Limited
- Electricity Generating Authority of Thailand
- GN Power Mariveles Coal Plant, Philippines
- Karaikal Port Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Agrawal Coal Company - India
- Energy Link Ltd, New Zealand
- Anglo American - United Kingdom
- Thiess Contractors Indonesia
- Global Green Power PLC Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kobexindo Tractors - Indoneisa
- Videocon Industries ltd - India
- Directorate Of Revenue Intelligence - India
- Sakthi Sugars Limited - India
- Samtan Co., Ltd - South Korea
- ASAPP Information Group - India
- Malabar Cements Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Price Waterhouse Coopers - Russia
- Cigading International Bulk Terminal - Indonesia
- Salva Resources Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Jaiprakash Power Ventures ltd
- San Jose City I Power Corp, Philippines
- Semirara Mining Corp, Philippines
- Bangladesh Power Developement Board
- Baramulti Group, Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Toyota Tsusho Corporation, Japan
- European Bulk Services B.V. - Netherlands
- Orica Mining Services - Indonesia
- Indika Energy - Indonesia
- Larsen & Toubro Limited - India
- GMR Energy Limited - India
- Chamber of Mines of South Africa
- Makarim & Taira - Indonesia
- TeaM Sual Corporation - Philippines
- Electricity Authority, New Zealand
- GVK Power & Infra Limited - India
- Kapuas Tunggal Persada - Indonesia
- CNBM International Corporation - China
- IEA Clean Coal Centre - UK
- Gujarat Mineral Development Corp Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Planning Commission, India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Parry Sugars Refinery, India
- Meralco Power Generation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Central Electricity Authority - India
- Neyveli Lignite Corporation Ltd, - India
- Holcim Trading Pte Ltd - Singapore
- Latin American Coal - Colombia
- Aditya Birla Group - India
- Central Java Power - Indonesia
- Merrill Lynch Commodities Europe
- Mjunction Services Limited - India
- White Energy Company Limited
- Rashtriya Ispat Nigam Limited - India
- Australian Coal Association
- Bhushan Steel Limited - India
- Savvy Resources Ltd - HongKong
- Marubeni Corporation - India
- Wood Mackenzie - Singapore
- Minerals Council of Australia
- LBH Netherlands Bv - Netherlands
- Offshore Bulk Terminal Pte Ltd, Singapore
- Jorong Barutama Greston.PT - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PTC India Limited - India
- Kumho Petrochemical, South Korea
- Globalindo Alam Lestari - Indonesia
- Wilmar Investment Holdings
- Binh Thuan Hamico - Vietnam
- Bukit Asam (Persero) Tbk - Indonesia
- Vizag Seaport Private Limited - India
- McConnell Dowell - Australia
- The University of Queensland
- Mercator Lines Limited - India
- Georgia Ports Authority, United States
- Sindya Power Generating Company Private Ltd
- Singapore Mercantile Exchange
- Grasim Industreis Ltd - India
- Indogreen Group - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Sinarmas Energy and Mining - Indonesia
- Eastern Coal Council - USA
- SN Aboitiz Power Inc, Philippines
- Bukit Makmur.PT - Indonesia
- Ministry of Finance - Indonesia
- Thai Mozambique Logistica
- India Bulls Power Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bulk Trading Sa - Switzerland
- Coalindo Energy - Indonesia
- Sical Logistics Limited - India
- Orica Australia Pty. Ltd.
- Antam Resourcindo - Indonesia
- VISA Power Limited - India
- SMG Consultants - Indonesia
- MS Steel International - UAE
- Leighton Contractors Pty Ltd - Australia
- Bharathi Cement Corporation - India
- Essar Steel Hazira Ltd - India
- Kartika Selabumi Mining - Indonesia
- Tamil Nadu electricity Board
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- ICICI Bank Limited - India
- Deloitte Consulting - India
- Timah Investasi Mineral - Indoneisa
- Lanco Infratech Ltd - India
- Pendopo Energi Batubara - Indonesia
- Carbofer General Trading SA - India
- Romanian Commodities Exchange
- Africa Commodities Group - South Africa
- Uttam Galva Steels Limited - India
- Posco Energy - South Korea
- Meenaskhi Energy Private Limited - India
- Siam City Cement - Thailand
- Eastern Energy - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Indonesian Coal Mining Association
- Ministry of Mines - Canada
- Chettinad Cement Corporation Ltd - India
- International Coal Ventures Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- Trasteel International SA, Italy
- Therma Luzon, Inc, Philippines
- Indian Energy Exchange, India
- Star Paper Mills Limited - India
- OPG Power Generation Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Aboitiz Power Corporation - Philippines
- Australian Commodity Traders Exchange
- TNB Fuel Sdn Bhd - Malaysia
- Bayan Resources Tbk. - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Formosa Plastics Group - Taiwan
- Miang Besar Coal Terminal - Indonesia
- PNOC Exploration Corporation - Philippines
- London Commodity Brokers - England
- Alfred C Toepfer International GmbH - Germany
- Iligan Light & Power Inc, Philippines
- The State Trading Corporation of India Ltd
- GAC Shipping (India) Pvt Ltd
- Mercuria Energy - Indonesia
- Edison Trading Spa - Italy
- Dalmia Cement Bharat India
- Heidelberg Cement - Germany
- PowerSource Philippines DevCo
- Bukit Baiduri Energy - Indonesia
- Vedanta Resources Plc - India
- Bhoruka Overseas - Indonesia
- Goldman Sachs - Singapore
- Riau Bara Harum - Indonesia
- Madhucon Powers Ltd - India
- Jindal Steel & Power Ltd - India
- Economic Council, Georgia
- Standard Chartered Bank - UAE
- Port Waratah Coal Services - Australia
- Ind-Barath Power Infra Limited - India
- Tata Chemicals Ltd - India
- Kepco SPC Power Corporation, Philippines
- Coal and Oil Company - UAE
- New Zealand Coal & Carbon
- Kideco Jaya Agung - Indonesia
- Commonwealth Bank - Australia
- Ambuja Cements Ltd - India
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