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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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Friday, 05 January 24
BANGLADESH’S 2023 COAL-FIRED POWER OUTPUT TRIPLED, EASING SHORTAGES - REUTERS
Bangladesh nearly tripled its coal-fired power output in 2023, a Reuters analysis of government data showed, helping it tide over the worst power s ...
Tuesday, 02 January 24
COAL TRADE CONTINUES TO HEAD EAST - BALTIC EXCHANGE
The global coal trade, once concentrated in the Pacific and Atlantic basins, is undergoing a significant transformation, as highlighted in the Inte ...
Tuesday, 02 January 24
COAL CARGOES: AVOIDING EXPLOSION AND SELF-HEATING - GARD
KNOWLEDGE TO ELEVATE
Despite its contribution to greenhouse gas emissions, global coal consumption climbed to an all-time high in 2022 and is ...
Tuesday, 02 January 24
SINOPEC FORECASTS CHINA’S COAL CONSUMPTION TO PEAK AROUND 2025 - REUTERS
China Petrochemical Corp, or Sinopec, expects coal consumption to peak around 2025 at 4.37 billion metric tons, the state energy group said in an o ...
Thursday, 07 December 23
CHINA TO SET UP COAL PRODUCTION RESERVE TO STABILISE PRICES - REUTERS
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 ...
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- Bank of Tokyo Mitsubishi UFJ Ltd
- Dalmia Cement Bharat India
- Bukit Asam (Persero) Tbk - Indonesia
- Agrawal Coal Company - India
- Kepco SPC Power Corporation, Philippines
- Thai Mozambique Logistica
- Australian Coal Association
- Salva Resources Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Barasentosa Lestari - Indonesia
- Cement Manufacturers Association - India
- Australian Commodity Traders Exchange
- Altura Mining Limited, Indonesia
- Bukit Baiduri Energy - Indonesia
- Gujarat Sidhee Cement - India
- PNOC Exploration Corporation - Philippines
- Ministry of Finance - Indonesia
- Wilmar Investment Holdings
- Karbindo Abesyapradhi - Indoneisa
- IHS Mccloskey Coal Group - USA
- Merrill Lynch Commodities Europe
- Vizag Seaport Private Limited - India
- Indonesian Coal Mining Association
- Kideco Jaya Agung - Indonesia
- Borneo Indobara - Indonesia
- Intertek Mineral Services - Indonesia
- Samtan Co., Ltd - South Korea
- Grasim Industreis Ltd - India
- ASAPP Information Group - India
- Larsen & Toubro Limited - India
- South Luzon Thermal Energy Corporation
- Siam City Cement - Thailand
- Gujarat Electricity Regulatory Commission - India
- Madhucon Powers Ltd - India
- Oldendorff Carriers - Singapore
- Ind-Barath Power Infra Limited - India
- Star Paper Mills Limited - India
- Africa Commodities Group - South Africa
- Vedanta Resources Plc - India
- GVK Power & Infra Limited - India
- Sree Jayajothi Cements Limited - India
- Energy Development Corp, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Electricity Generating Authority of Thailand
- New Zealand Coal & Carbon
- Formosa Plastics Group - Taiwan
- Kartika Selabumi Mining - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Carbofer General Trading SA - India
- Mjunction Services Limited - India
- Siam City Cement PLC, Thailand
- Directorate General of MIneral and Coal - Indonesia
- Banpu Public Company Limited - Thailand
- Planning Commission, India
- Billiton Holdings Pty Ltd - Australia
- Romanian Commodities Exchange
- The University of Queensland
- Latin American Coal - Colombia
- Wood Mackenzie - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Singapore Mercantile Exchange
- Trasteel International SA, Italy
- Bulk Trading Sa - Switzerland
- Gujarat Mineral Development Corp Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Coalindo Energy - Indonesia
- Tata Chemicals Ltd - India
- Price Waterhouse Coopers - Russia
- Therma Luzon, Inc, Philippines
- Port Waratah Coal Services - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- White Energy Company Limited
- Semirara Mining Corp, Philippines
- MS Steel International - UAE
- LBH Netherlands Bv - Netherlands
- Simpson Spence & Young - Indonesia
- Eastern Energy - Thailand
- Essar Steel Hazira Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Medco Energi Mining Internasional
- Rashtriya Ispat Nigam Limited - India
- San Jose City I Power Corp, Philippines
- VISA Power Limited - India
- Leighton Contractors Pty Ltd - Australia
- Independent Power Producers Association of India
- Krishnapatnam Port Company Ltd. - India
- Indian Energy Exchange, India
- Parliament of New Zealand
- Standard Chartered Bank - UAE
- Lanco Infratech Ltd - India
- Karaikal Port Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Toyota Tsusho Corporation, Japan
- Sindya Power Generating Company Private Ltd
- Global Business Power Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- The State Trading Corporation of India Ltd
- Binh Thuan Hamico - Vietnam
- Pipit Mutiara Jaya. PT, Indonesia
- Thiess Contractors Indonesia
- Makarim & Taira - Indonesia
- India Bulls Power Limited - India
- Economic Council, Georgia
- Ceylon Electricity Board - Sri Lanka
- Straits Asia Resources Limited - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Anglo American - United Kingdom
- Georgia Ports Authority, United States
- Bhoruka Overseas - Indonesia
- Coastal Gujarat Power Limited - India
- Marubeni Corporation - India
- Miang Besar Coal Terminal - Indonesia
- Bhatia International Limited - India
- Interocean Group of Companies - India
- Global Green Power PLC Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Savvy Resources Ltd - HongKong
- PetroVietnam Power Coal Import and Supply Company
- Kohat Cement Company Ltd. - Pakistan
- Rio Tinto Coal - Australia
- Power Finance Corporation Ltd., India
- Bayan Resources Tbk. - Indonesia
- Global Coal Blending Company Limited - Australia
- Cigading International Bulk Terminal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Xindia Steels Limited - India
- TeaM Sual Corporation - Philippines
- Coal and Oil Company - UAE
- Globalindo Alam Lestari - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sinarmas Energy and Mining - Indonesia
- Ambuja Cements Ltd - India
- Pendopo Energi Batubara - Indonesia
- PTC India Limited - India
- Kobexindo Tractors - Indoneisa
- Mercator Lines Limited - India
- OPG Power Generation Pvt Ltd - India
- Petron Corporation, Philippines
- Electricity Authority, New Zealand
- Energy Link Ltd, New Zealand
- CNBM International Corporation - China
- Sojitz Corporation - Japan
- Kaltim Prima Coal - Indonesia
- Jindal Steel & Power Ltd - India
- Kumho Petrochemical, South Korea
- Bahari Cakrawala Sebuku - Indonesia
- Orica Mining Services - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Baramulti Group, Indonesia
- Deloitte Consulting - India
- Parry Sugars Refinery, India
- Posco Energy - South Korea
- ICICI Bank Limited - India
- Orica Australia Pty. Ltd.
- Manunggal Multi Energi - Indonesia
- Indogreen Group - Indonesia
- Commonwealth Bank - Australia
- Bharathi Cement Corporation - India
- Bangladesh Power Developement Board
- The Treasury - Australian Government
- Tamil Nadu electricity Board
- Mintek Dendrill Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Directorate Of Revenue Intelligence - India
- Central Electricity Authority - India
- Goldman Sachs - Singapore
- Maharashtra Electricity Regulatory Commission - India
- Minerals Council of Australia
- Jaiprakash Power Ventures ltd
- Heidelberg Cement - Germany
- Meenaskhi Energy Private Limited - India
- GMR Energy Limited - India
- Edison Trading Spa - Italy
- Maheswari Brothers Coal Limited - India
- Sakthi Sugars Limited - India
- Ministry of Mines - Canada
- Riau Bara Harum - Indonesia
- Indika Energy - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Malabar Cements Ltd - India
- Renaissance Capital - South Africa
- Central Java Power - Indonesia
- Attock Cement Pakistan Limited
- McConnell Dowell - Australia
- Bhushan Steel Limited - India
- IEA Clean Coal Centre - UK
- GN Power Mariveles Coal Plant, Philippines
- Iligan Light & Power Inc, Philippines
- SN Aboitiz Power Inc, Philippines
- Ministry of Transport, Egypt
- SMC Global Power, Philippines
- Aboitiz Power Corporation - Philippines
- Antam Resourcindo - Indonesia
- International Coal Ventures Pvt Ltd - India
- Aditya Birla Group - India
- CIMB Investment Bank - Malaysia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- GAC Shipping (India) Pvt Ltd
- Timah Investasi Mineral - Indoneisa
- Uttam Galva Steels Limited - India
- Meralco Power Generation, Philippines
- European Bulk Services B.V. - Netherlands
- PowerSource Philippines DevCo
- SMG Consultants - Indonesia
- London Commodity Brokers - England
- Indian Oil Corporation Limited
- Indo Tambangraya Megah - Indonesia
- Sical Logistics Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Chamber of Mines of South Africa
- AsiaOL BioFuels Corp., Philippines
- Videocon Industries ltd - India
- Chettinad Cement Corporation Ltd - India
- Metalloyd Limited - United Kingdom
- Mercuria Energy - Indonesia
- Eastern Coal Council - USA
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