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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, 01 December 23
COAL MINERS GROUP EXPECTS INDONESIA’S 2023 COAL OUTPUT TO SURPASS TARGET - REUTERS
The Indonesian Coal Mining Association (ICMA) expects the country’s 2023 coal output to surpass the official target of 695 million metric ton ...
Friday, 24 November 23
COAL IMPORTS TO INDIA IN OCTOBER 2023 REACHED HIGHEST LEVELS IN NEARLY A YEAR AND A HALF - VESSELSVALUE, VESON NAUTICAL
In October, coal imports to India reached 13.8 mt in October 2023, according to Oceanbolt, a Veson Nautical solution, the highest level since May 2 ...
Friday, 24 November 23
COAL SHIPMENTS TO ADVANCED ECONOMIES DOWN 17% SO FAR IN 2023 - BIMCO
In the first ten months of 2023, coal shipments to advanced economies fell by 17% y/y, as demand for electricity declined and the share of electric ...
Friday, 24 November 23
INTELLIGENT COAL MINES CONTRIBUTE TO IMPROVING SAFETY STANDARDS - CHINA DAILY
Mechanization, automation and intelligent upgrades have contributed to improved safety in coal mines, though the level of development of intelligen ...
Friday, 24 November 23
WHY AUSTRALIA'S COAL MINES ARE GETTING BIGGER - IEEFA
Australia’s largest coal mines are getting larger. Mines in New South Wales (NSW) are ramping up production following the state’s recov ...
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- Semirara Mining and Power Corporation, Philippines
- Lanco Infratech Ltd - India
- Karaikal Port Pvt Ltd - India
- Edison Trading Spa - Italy
- Directorate Of Revenue Intelligence - India
- Deloitte Consulting - India
- Siam City Cement - Thailand
- McConnell Dowell - Australia
- Samtan Co., Ltd - South Korea
- Pipit Mutiara Jaya. PT, Indonesia
- South Luzon Thermal Energy Corporation
- Kaltim Prima Coal - Indonesia
- Sindya Power Generating Company Private Ltd
- SMG Consultants - Indonesia
- Australian Coal Association
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indian Energy Exchange, India
- Orica Mining Services - Indonesia
- International Coal Ventures Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Wood Mackenzie - Singapore
- Parry Sugars Refinery, India
- Africa Commodities Group - South Africa
- Bangladesh Power Developement Board
- London Commodity Brokers - England
- Essar Steel Hazira Ltd - India
- Videocon Industries ltd - India
- Ministry of Transport, Egypt
- PetroVietnam Power Coal Import and Supply Company
- Timah Investasi Mineral - Indoneisa
- Sojitz Corporation - Japan
- Formosa Plastics Group - Taiwan
- Mercuria Energy - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Bahari Cakrawala Sebuku - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Petron Corporation, Philippines
- Sical Logistics Limited - India
- Star Paper Mills Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Kobexindo Tractors - Indoneisa
- Mercator Lines Limited - India
- Bulk Trading Sa - Switzerland
- Global Coal Blending Company Limited - Australia
- Tata Chemicals Ltd - India
- Toyota Tsusho Corporation, Japan
- San Jose City I Power Corp, Philippines
- GVK Power & Infra Limited - India
- Wilmar Investment Holdings
- Orica Australia Pty. Ltd.
- Merrill Lynch Commodities Europe
- Price Waterhouse Coopers - Russia
- Cigading International Bulk Terminal - Indonesia
- Oldendorff Carriers - Singapore
- PNOC Exploration Corporation - Philippines
- LBH Netherlands Bv - Netherlands
- Planning Commission, India
- Kideco Jaya Agung - Indonesia
- Medco Energi Mining Internasional
- Metalloyd Limited - United Kingdom
- Barasentosa Lestari - Indonesia
- Ministry of Finance - Indonesia
- TeaM Sual Corporation - Philippines
- Marubeni Corporation - India
- Tamil Nadu electricity Board
- Aboitiz Power Corporation - Philippines
- Bharathi Cement Corporation - India
- Straits Asia Resources Limited - Singapore
- Siam City Cement PLC, Thailand
- PowerSource Philippines DevCo
- White Energy Company Limited
- Chamber of Mines of South Africa
- Eastern Energy - Thailand
- Dalmia Cement Bharat India
- Indonesian Coal Mining Association
- Directorate General of MIneral and Coal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- New Zealand Coal & Carbon
- Salva Resources Pvt Ltd - India
- Mintek Dendrill Indonesia
- Independent Power Producers Association of India
- Bukit Baiduri Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Bhoruka Overseas - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indogreen Group - Indonesia
- Vedanta Resources Plc - India
- Gujarat Mineral Development Corp Ltd - India
- OPG Power Generation Pvt Ltd - India
- Rio Tinto Coal - Australia
- Kepco SPC Power Corporation, Philippines
- Energy Link Ltd, New Zealand
- ASAPP Information Group - India
- Globalindo Alam Lestari - Indonesia
- Bayan Resources Tbk. - Indonesia
- Binh Thuan Hamico - Vietnam
- Latin American Coal - Colombia
- Bhushan Steel Limited - India
- Riau Bara Harum - Indonesia
- Electricity Authority, New Zealand
- Agrawal Coal Company - India
- Bhatia International Limited - India
- Romanian Commodities Exchange
- VISA Power Limited - India
- CNBM International Corporation - China
- Chettinad Cement Corporation Ltd - India
- GAC Shipping (India) Pvt Ltd
- Coal and Oil Company - UAE
- Bukit Makmur.PT - Indonesia
- India Bulls Power Limited - India
- Ministry of Mines - Canada
- Minerals Council of Australia
- Cement Manufacturers Association - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Trasteel International SA, Italy
- Global Business Power Corporation, Philippines
- Central Electricity Authority - India
- Power Finance Corporation Ltd., India
- Kumho Petrochemical, South Korea
- Indian Oil Corporation Limited
- Standard Chartered Bank - UAE
- Energy Development Corp, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Coalindo Energy - Indonesia
- Heidelberg Cement - Germany
- Leighton Contractors Pty Ltd - Australia
- Vijayanagar Sugar Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Interocean Group of Companies - India
- Uttam Galva Steels Limited - India
- Pendopo Energi Batubara - Indonesia
- Iligan Light & Power Inc, Philippines
- Meenaskhi Energy Private Limited - India
- Miang Besar Coal Terminal - Indonesia
- GMR Energy Limited - India
- Billiton Holdings Pty Ltd - Australia
- Kapuas Tunggal Persada - Indonesia
- Xindia Steels Limited - India
- Central Java Power - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Indika Energy - Indonesia
- Baramulti Group, Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Electricity Generating Authority of Thailand
- Therma Luzon, Inc, Philippines
- Aditya Birla Group - India
- Grasim Industreis Ltd - India
- Goldman Sachs - Singapore
- GN Power Mariveles Coal Plant, Philippines
- Ceylon Electricity Board - Sri Lanka
- Bank of Tokyo Mitsubishi UFJ Ltd
- Simpson Spence & Young - Indonesia
- Manunggal Multi Energi - Indonesia
- CIMB Investment Bank - Malaysia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- MS Steel International - UAE
- Anglo American - United Kingdom
- Kartika Selabumi Mining - Indonesia
- PTC India Limited - India
- SN Aboitiz Power Inc, Philippines
- Mjunction Services Limited - India
- Gujarat Sidhee Cement - India
- Jaiprakash Power Ventures ltd
- Asmin Koalindo Tuhup - Indonesia
- Madhucon Powers Ltd - India
- IHS Mccloskey Coal Group - USA
- Sinarmas Energy and Mining - Indonesia
- Intertek Mineral Services - Indonesia
- SMC Global Power, Philippines
- Rashtriya Ispat Nigam Limited - India
- Thiess Contractors Indonesia
- Port Waratah Coal Services - Australia
- ICICI Bank Limited - India
- Meralco Power Generation, Philippines
- Antam Resourcindo - Indonesia
- European Bulk Services B.V. - Netherlands
- Eastern Coal Council - USA
- Semirara Mining Corp, Philippines
- IEA Clean Coal Centre - UK
- Gujarat Electricity Regulatory Commission - India
- Attock Cement Pakistan Limited
- Larsen & Toubro Limited - India
- Carbofer General Trading SA - India
- Ambuja Cements Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Parliament of New Zealand
- Sree Jayajothi Cements Limited - India
- Jindal Steel & Power Ltd - India
- Vizag Seaport Private Limited - India
- Sakthi Sugars Limited - India
- Thai Mozambique Logistica
- Maheswari Brothers Coal Limited - India
- Altura Mining Limited, Indonesia
- Holcim Trading Pte Ltd - Singapore
- Renaissance Capital - South Africa
- Posco Energy - South Korea
- The State Trading Corporation of India Ltd
- Singapore Mercantile Exchange
- Neyveli Lignite Corporation Ltd, - India
- Makarim & Taira - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Malabar Cements Ltd - India
- Global Green Power PLC Corporation, Philippines
- Australian Commodity Traders Exchange
- Banpu Public Company Limited - Thailand
- Georgia Ports Authority, United States
- Ind-Barath Power Infra Limited - India
- The Treasury - Australian Government
- Commonwealth Bank - Australia
- Petrochimia International Co. Ltd.- Taiwan
- The University of Queensland
- Savvy Resources Ltd - HongKong
- Coastal Gujarat Power Limited - India
- Borneo Indobara - Indonesia
- Sarangani Energy Corporation, Philippines
- Economic Council, Georgia
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