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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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Wednesday, 22 November 23
INDIA: GOVERNMENT PLANS 1.4 BILLION TONNE COAL OUTPUT BY 2027 - LIVEMINT
The Union coal ministry on Monday announced plans to increase India’s coal production to 1.404 billion tonne by 2027, with an eye to further ...
Wednesday, 22 November 23
OBLIGATION. INDONESIA AIMS TO START COLLECTING LEVIES FROM COAL MINERS IN JANUARY - REUTERS
Indonesia plans to start collecting levies from coal miners in January to be used to compensate miners who sell coal to the state utility at lower ...
Tuesday, 21 November 23
INDIAN COAL POWER PLANTS’ CAPACITY UTILISATION WILL IMPROVE TO 65% THIS FISCAL: - CRISIL
Coal-based thermal power units’ plant load factor (PLF) or capacity utilisation will improve to 65 percent in the current fiscal year despite ...
Tuesday, 14 November 23
CAPITAL PRODUCT PARTNERS L.P. ANNOUNCES TRANSFORMATIVE TRANSACTION INCLUDING THE ACQUISITION OF 11 NEWBUILD LNG CARRIERS FOR $3.1 BILLION
Capital Product Partners L.P. announced that it has entered into an umbrella agreement (the “Umbrella Agreement”) with Capital Maritime ...
Tuesday, 14 November 23
COAL INDIA BEATS Q2 PROFIT VIEW ON HIGH POWER DEMAND AMID WEAK MONSOON - REUTERS
Coal India on Friday reported better-than-expected second-quarter profit, helped by high power demand and boosted production amid a weak monsoon.
...
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- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Jaiprakash Power Ventures ltd
- Bangladesh Power Developement Board
- Indian Oil Corporation Limited
- TNB Fuel Sdn Bhd - Malaysia
- Binh Thuan Hamico - Vietnam
- Timah Investasi Mineral - Indoneisa
- Ind-Barath Power Infra Limited - India
- Thiess Contractors Indonesia
- Sojitz Corporation - Japan
- Borneo Indobara - Indonesia
- Lanco Infratech Ltd - India
- Bukit Makmur.PT - Indonesia
- Electricity Authority, New Zealand
- Parry Sugars Refinery, India
- Kartika Selabumi Mining - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- London Commodity Brokers - England
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Thai Mozambique Logistica
- Asmin Koalindo Tuhup - Indonesia
- Siam City Cement PLC, Thailand
- Heidelberg Cement - Germany
- Gujarat Electricity Regulatory Commission - India
- Cement Manufacturers Association - India
- SMC Global Power, Philippines
- IHS Mccloskey Coal Group - USA
- Kaltim Prima Coal - Indonesia
- Dalmia Cement Bharat India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Standard Chartered Bank - UAE
- Mercuria Energy - Indonesia
- Sical Logistics Limited - India
- Sakthi Sugars Limited - India
- Energy Development Corp, Philippines
- Semirara Mining Corp, Philippines
- IEA Clean Coal Centre - UK
- Bukit Baiduri Energy - Indonesia
- Alfred C Toepfer International GmbH - Germany
- ICICI Bank Limited - India
- Kepco SPC Power Corporation, Philippines
- Wilmar Investment Holdings
- Coastal Gujarat Power Limited - India
- Salva Resources Pvt Ltd - India
- Ambuja Cements Ltd - India
- OPG Power Generation Pvt Ltd - India
- Grasim Industreis Ltd - India
- Carbofer General Trading SA - India
- Xindia Steels Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Vizag Seaport Private Limited - India
- Indogreen Group - Indonesia
- VISA Power Limited - India
- Ministry of Transport, Egypt
- Planning Commission, India
- South Luzon Thermal Energy Corporation
- Mintek Dendrill Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Tata Chemicals Ltd - India
- Barasentosa Lestari - Indonesia
- Orica Australia Pty. Ltd.
- ASAPP Information Group - India
- Petrochimia International Co. Ltd.- Taiwan
- GN Power Mariveles Coal Plant, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- AsiaOL BioFuels Corp., Philippines
- Madhucon Powers Ltd - India
- PNOC Exploration Corporation - Philippines
- Vedanta Resources Plc - India
- Deloitte Consulting - India
- International Coal Ventures Pvt Ltd - India
- The Treasury - Australian Government
- Ministry of Finance - Indonesia
- Sindya Power Generating Company Private Ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- PTC India Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Edison Trading Spa - Italy
- Attock Cement Pakistan Limited
- Savvy Resources Ltd - HongKong
- Marubeni Corporation - India
- Global Business Power Corporation, Philippines
- SMG Consultants - Indonesia
- Formosa Plastics Group - Taiwan
- Antam Resourcindo - Indonesia
- Wood Mackenzie - Singapore
- Pendopo Energi Batubara - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Posco Energy - South Korea
- Orica Mining Services - Indonesia
- Renaissance Capital - South Africa
- Riau Bara Harum - Indonesia
- GVK Power & Infra Limited - India
- Eastern Coal Council - USA
- Therma Luzon, Inc, Philippines
- Gujarat Sidhee Cement - India
- GAC Shipping (India) Pvt Ltd
- Merrill Lynch Commodities Europe
- Larsen & Toubro Limited - India
- Singapore Mercantile Exchange
- Maharashtra Electricity Regulatory Commission - India
- Indonesian Coal Mining Association
- Samtan Co., Ltd - South Korea
- Energy Link Ltd, New Zealand
- Australian Commodity Traders Exchange
- Coal and Oil Company - UAE
- Star Paper Mills Limited - India
- Krishnapatnam Port Company Ltd. - India
- PowerSource Philippines DevCo
- Holcim Trading Pte Ltd - Singapore
- Central Java Power - Indonesia
- Meralco Power Generation, Philippines
- Mjunction Services Limited - India
- Latin American Coal - Colombia
- MS Steel International - UAE
- Interocean Group of Companies - India
- Romanian Commodities Exchange
- Makarim & Taira - Indonesia
- Medco Energi Mining Internasional
- Eastern Energy - Thailand
- McConnell Dowell - Australia
- Bhushan Steel Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Rashtriya Ispat Nigam Limited - India
- Oldendorff Carriers - Singapore
- Parliament of New Zealand
- Independent Power Producers Association of India
- Indika Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- Commonwealth Bank - Australia
- GMR Energy Limited - India
- Globalindo Alam Lestari - Indonesia
- Siam City Cement - Thailand
- Malabar Cements Ltd - India
- Essar Steel Hazira Ltd - India
- Aboitiz Power Corporation - Philippines
- Coalindo Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- Georgia Ports Authority, United States
- SN Aboitiz Power Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- Uttam Galva Steels Limited - India
- San Jose City I Power Corp, Philippines
- Global Green Power PLC Corporation, Philippines
- Videocon Industries ltd - India
- Power Finance Corporation Ltd., India
- CIMB Investment Bank - Malaysia
- Jindal Steel & Power Ltd - India
- Agrawal Coal Company - India
- The University of Queensland
- Karaikal Port Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Semirara Mining and Power Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Electricity Generating Authority of Thailand
- Africa Commodities Group - South Africa
- Bhatia International Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Directorate General of MIneral and Coal - Indonesia
- Iligan Light & Power Inc, Philippines
- Tamil Nadu electricity Board
- Bulk Trading Sa - Switzerland
- Central Electricity Authority - India
- Mercator Lines Limited - India
- Petron Corporation, Philippines
- Intertek Mineral Services - Indonesia
- The State Trading Corporation of India Ltd
- Indo Tambangraya Megah - Indonesia
- Port Waratah Coal Services - Australia
- Miang Besar Coal Terminal - Indonesia
- Kumho Petrochemical, South Korea
- CNBM International Corporation - China
- Chamber of Mines of South Africa
- Kobexindo Tractors - Indoneisa
- Kideco Jaya Agung - Indonesia
- Banpu Public Company Limited - Thailand
- Vijayanagar Sugar Pvt Ltd - India
- Bharathi Cement Corporation - India
- Jorong Barutama Greston.PT - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Bayan Resources Tbk. - Indonesia
- Rio Tinto Coal - Australia
- Global Coal Blending Company Limited - Australia
- Directorate Of Revenue Intelligence - India
- Meenaskhi Energy Private Limited - India
- Ministry of Mines - Canada
- Altura Mining Limited, Indonesia
- Sarangani Energy Corporation, Philippines
- India Bulls Power Limited - India
- Aditya Birla Group - India
- Chettinad Cement Corporation Ltd - India
- TeaM Sual Corporation - Philippines
- Toyota Tsusho Corporation, Japan
- PetroVietnam Power Coal Import and Supply Company
- Bhoruka Overseas - Indonesia
- Goldman Sachs - Singapore
- Ceylon Electricity Board - Sri Lanka
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Price Waterhouse Coopers - Russia
- Straits Asia Resources Limited - Singapore
- Trasteel International SA, Italy
- Economic Council, Georgia
- Baramulti Group, Indonesia
- Manunggal Multi Energi - Indonesia
- Indian Energy Exchange, India
- White Energy Company Limited
- Simpson Spence & Young - Indonesia
- Sinarmas Energy and Mining - Indonesia
- New Zealand Coal & Carbon
- LBH Netherlands Bv - Netherlands
- Minerals Council of Australia
- Anglo American - United Kingdom
- Australian Coal Association
- Kapuas Tunggal Persada - Indonesia
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