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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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Sunday, 10 September 23
CHINA AUGUST COAL IMPORTS OF 44.3 MLN T HIT RECORD - REUTERS
China, the world’s top coal consumer, imported 44.3 million metric tons of the fuel last month, customs data showed, the highest amount in an ...
Tuesday, 22 August 23
CHINA'S COAL PRODUCTION LOGS STEADY GROWTH IN JANUARY-JULY: XINHUA
China’s output of raw coal went up 3.6 percent year on year in the first seven months of this year, official data showed.
The ...
Sunday, 13 August 23
THE COMMODITIES FEED: LNG SUPPLY RISKS LINGER - ING
Energy – OPEC sees deficit over remainder of 2023
Oil prices came under some pressure yesterday with ICE Brent settling a litt ...
Wednesday, 09 August 23
COAL TRADE TO RETURN TO 2019 LEVELS - BALTIC EXCHANGE
The International Energy Agency’s mid-year Coal Market Update for 2023 brings both positive and concerning news for the global coal industry. ...
Sunday, 23 July 23
ANALYSIS-INDIA'S COAL MINING BET STUMBLES AS WARY BANKS WEIGH RISING RISKS - REUTERS
India’s drive to ramp up coal output to meet growing energy demand is faltering due to banks’ reluctance to finance newly auctioned min ...
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- Latin American Coal - Colombia
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- Planning Commission, India
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- White Energy Company Limited
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- Romanian Commodities Exchange
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- Africa Commodities Group - South Africa
- McConnell Dowell - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Mintek Dendrill Indonesia
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- Economic Council, Georgia
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- Ind-Barath Power Infra Limited - India
- Wilmar Investment Holdings
- Sojitz Corporation - Japan
- Thai Mozambique Logistica
- Lanco Infratech Ltd - India
- Indika Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Eastern Energy - Thailand
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- Aboitiz Power Corporation - Philippines
- Semirara Mining Corp, Philippines
- Barasentosa Lestari - Indonesia
- Grasim Industreis Ltd - India
- Singapore Mercantile Exchange
- Indogreen Group - Indonesia
- Price Waterhouse Coopers - Russia
- Ministry of Finance - Indonesia
- SMC Global Power, Philippines
- IHS Mccloskey Coal Group - USA
- Savvy Resources Ltd - HongKong
- Cement Manufacturers Association - India
- Directorate General of MIneral and Coal - Indonesia
- Malabar Cements Ltd - India
- Chamber of Mines of South Africa
- Deloitte Consulting - India
- Larsen & Toubro Limited - India
- Bhatia International Limited - India
- Oldendorff Carriers - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Toyota Tsusho Corporation, Japan
- Merrill Lynch Commodities Europe
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- Coal and Oil Company - UAE
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- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
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- Ceylon Electricity Board - Sri Lanka
- India Bulls Power Limited - India
- Altura Mining Limited, Indonesia
- Timah Investasi Mineral - Indoneisa
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- Parliament of New Zealand
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- Siam City Cement - Thailand
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- CNBM International Corporation - China
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- Binh Thuan Hamico - Vietnam
- Kaltim Prima Coal - Indonesia
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- ASAPP Information Group - India
- Indonesian Coal Mining Association
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- Australian Coal Association
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- Petron Corporation, Philippines
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- Directorate Of Revenue Intelligence - India
- Bukit Asam (Persero) Tbk - Indonesia
- Vizag Seaport Private Limited - India
- Standard Chartered Bank - UAE
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- Gujarat Sidhee Cement - India
- Energy Development Corp, Philippines
- Videocon Industries ltd - India
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- Global Coal Blending Company Limited - Australia
- Anglo American - United Kingdom
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- Australian Commodity Traders Exchange
- Maheswari Brothers Coal Limited - India
- Trasteel International SA, Italy
- Pipit Mutiara Jaya. PT, Indonesia
- MS Steel International - UAE
- International Coal Ventures Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Globalindo Alam Lestari - Indonesia
- GVK Power & Infra Limited - India
- Straits Asia Resources Limited - Singapore
- Parry Sugars Refinery, India
- Kideco Jaya Agung - Indonesia
- IEA Clean Coal Centre - UK
- Electricity Authority, New Zealand
- European Bulk Services B.V. - Netherlands
- Jindal Steel & Power Ltd - India
- Siam City Cement PLC, Thailand
- Sical Logistics Limited - India
- Indo Tambangraya Megah - Indonesia
- Global Business Power Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- London Commodity Brokers - England
- Georgia Ports Authority, United States
- Attock Cement Pakistan Limited
- Port Waratah Coal Services - Australia
- The University of Queensland
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- New Zealand Coal & Carbon
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- Goldman Sachs - Singapore
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- Pendopo Energi Batubara - Indonesia
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- Independent Power Producers Association of India
- Sindya Power Generating Company Private Ltd
- Antam Resourcindo - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Holcim Trading Pte Ltd - Singapore
- Bharathi Cement Corporation - India
- Carbofer General Trading SA - India
- Eastern Coal Council - USA
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Alfred C Toepfer International GmbH - Germany
- The State Trading Corporation of India Ltd
- Chettinad Cement Corporation Ltd - India
- Heidelberg Cement - Germany
- Kohat Cement Company Ltd. - Pakistan
- Meralco Power Generation, Philippines
- Makarim & Taira - Indonesia
- Central Electricity Authority - India
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- Electricity Generating Authority of Thailand
- Leighton Contractors Pty Ltd - Australia
- Aditya Birla Group - India
- Madhucon Powers Ltd - India
- Renaissance Capital - South Africa
- Karaikal Port Pvt Ltd - India
- Posco Energy - South Korea
- Kobexindo Tractors - Indoneisa
- Dalmia Cement Bharat India
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