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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, 21 June 23
CHINA'S MAY COAL IMPORTS FROM AUSTRALIA RECOVER TO PRE-BAN LEVELS - REUTERS
Australian coal sales to China increased in May, as trade resumed between them even as overall coal demand weakened against an uncertain macroecono ...
Monday, 19 June 23
DROUGHT-DEPLETED HYDROPOWER DRIVES CHINA TO TURN TO COAL - REUTERS
China has leant hard on coal-fired power plants as well as wind and solar generators to make up for a shortfall in hydroelectric generation as a re ...
Monday, 19 June 23
CHINA COAL OUTPUT UP 4.2 PCT IN MAY - XINHUA
China’s raw coal output posted steady growth in May, official data showed.
The country produced 390 million tonnes of raw coal ...
Wednesday, 24 May 23
AMMONIA-FUELLED BULK CARRIERS WITHIN FIVE YEARS - BALTIC EXCHANGE
Within five years, ships powered by clean ammonia could be a feature on the iron ore trade routes between West Australia and East Asia.
A study ...
Tuesday, 23 May 23
CHINA'S APRIL COAL OUTPUT LEAPS 11% ON YEAR, BUT DEMAND DOWNTURN LOOMS - REUTERS
China’s daily coal output in April jumped 11% from the same month a year earlier, boosted by Beijing’s order to increase supply to ensu ...
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- Coastal Gujarat Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- Xindia Steels Limited - India
- Anglo American - United Kingdom
- Borneo Indobara - Indonesia
- Electricity Authority, New Zealand
- Energy Development Corp, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Tamil Nadu electricity Board
- Australian Coal Association
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sakthi Sugars Limited - India
- Malabar Cements Ltd - India
- Economic Council, Georgia
- Karbindo Abesyapradhi - Indoneisa
- Essar Steel Hazira Ltd - India
- Indonesian Coal Mining Association
- Grasim Industreis Ltd - India
- Kartika Selabumi Mining - Indonesia
- IEA Clean Coal Centre - UK
- Aditya Birla Group - India
- Riau Bara Harum - Indonesia
- Globalindo Alam Lestari - Indonesia
- ASAPP Information Group - India
- Latin American Coal - Colombia
- Attock Cement Pakistan Limited
- Aboitiz Power Corporation - Philippines
- Bangladesh Power Developement Board
- MS Steel International - UAE
- CNBM International Corporation - China
- Toyota Tsusho Corporation, Japan
- Indian Energy Exchange, India
- Heidelberg Cement - Germany
- ICICI Bank Limited - India
- Gujarat Sidhee Cement - India
- Central Java Power - Indonesia
- Mercuria Energy - Indonesia
- Orica Mining Services - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- SMC Global Power, Philippines
- Savvy Resources Ltd - HongKong
- Kobexindo Tractors - Indoneisa
- Star Paper Mills Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sojitz Corporation - Japan
- CIMB Investment Bank - Malaysia
- Indo Tambangraya Megah - Indonesia
- Georgia Ports Authority, United States
- Carbofer General Trading SA - India
- Bhushan Steel Limited - India
- Singapore Mercantile Exchange
- Independent Power Producers Association of India
- Chamber of Mines of South Africa
- The State Trading Corporation of India Ltd
- Price Waterhouse Coopers - Russia
- Edison Trading Spa - Italy
- Global Coal Blending Company Limited - Australia
- Trasteel International SA, Italy
- Thiess Contractors Indonesia
- PNOC Exploration Corporation - Philippines
- Ministry of Mines - Canada
- Jaiprakash Power Ventures ltd
- TNB Fuel Sdn Bhd - Malaysia
- PetroVietnam Power Coal Import and Supply Company
- Goldman Sachs - Singapore
- Global Business Power Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Metalloyd Limited - United Kingdom
- Sree Jayajothi Cements Limited - India
- Bhoruka Overseas - Indonesia
- Vizag Seaport Private Limited - India
- Interocean Group of Companies - India
- Bharathi Cement Corporation - India
- Kideco Jaya Agung - Indonesia
- Pendopo Energi Batubara - Indonesia
- Maheswari Brothers Coal Limited - India
- GMR Energy Limited - India
- GVK Power & Infra Limited - India
- OPG Power Generation Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Iligan Light & Power Inc, Philippines
- Standard Chartered Bank - UAE
- Siam City Cement - Thailand
- PTC India Limited - India
- Parry Sugars Refinery, India
- Sindya Power Generating Company Private Ltd
- Ministry of Transport, Egypt
- Krishnapatnam Port Company Ltd. - India
- Barasentosa Lestari - Indonesia
- Banpu Public Company Limited - Thailand
- Mjunction Services Limited - India
- Videocon Industries ltd - India
- Eastern Energy - Thailand
- Baramulti Group, Indonesia
- Coal and Oil Company - UAE
- Wilmar Investment Holdings
- European Bulk Services B.V. - Netherlands
- New Zealand Coal & Carbon
- Ambuja Cements Ltd - India
- Vedanta Resources Plc - India
- Bhatia International Limited - India
- India Bulls Power Limited - India
- Gujarat Mineral Development Corp Ltd - India
- GAC Shipping (India) Pvt Ltd
- Renaissance Capital - South Africa
- Jindal Steel & Power Ltd - India
- Mintek Dendrill Indonesia
- Romanian Commodities Exchange
- Merrill Lynch Commodities Europe
- Energy Link Ltd, New Zealand
- IHS Mccloskey Coal Group - USA
- Neyveli Lignite Corporation Ltd, - India
- Bukit Baiduri Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- SMG Consultants - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Semirara Mining Corp, Philippines
- Semirara Mining and Power Corporation, Philippines
- Medco Energi Mining Internasional
- Samtan Co., Ltd - South Korea
- Sical Logistics Limited - India
- Ind-Barath Power Infra Limited - India
- San Jose City I Power Corp, Philippines
- Dalmia Cement Bharat India
- Port Waratah Coal Services - Australia
- Timah Investasi Mineral - Indoneisa
- Posco Energy - South Korea
- Kumho Petrochemical, South Korea
- Africa Commodities Group - South Africa
- Eastern Coal Council - USA
- Uttam Galva Steels Limited - India
- Madhucon Powers Ltd - India
- Indogreen Group - Indonesia
- Australian Commodity Traders Exchange
- Binh Thuan Hamico - Vietnam
- Lanco Infratech Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Wood Mackenzie - Singapore
- Cement Manufacturers Association - India
- The Treasury - Australian Government
- Coalindo Energy - Indonesia
- Antam Resourcindo - Indonesia
- Intertek Mineral Services - Indonesia
- Alfred C Toepfer International GmbH - Germany
- GN Power Mariveles Coal Plant, Philippines
- Ceylon Electricity Board - Sri Lanka
- VISA Power Limited - India
- Leighton Contractors Pty Ltd - Australia
- Meralco Power Generation, Philippines
- Kepco SPC Power Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Deloitte Consulting - India
- Karaikal Port Pvt Ltd - India
- PowerSource Philippines DevCo
- Vijayanagar Sugar Pvt Ltd - India
- Siam City Cement PLC, Thailand
- Cigading International Bulk Terminal - Indonesia
- Bulk Trading Sa - Switzerland
- Bukit Makmur.PT - Indonesia
- Mercator Lines Limited - India
- Bayan Resources Tbk. - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Sarangani Energy Corporation, Philippines
- Central Electricity Authority - India
- Altura Mining Limited, Indonesia
- South Luzon Thermal Energy Corporation
- Thai Mozambique Logistica
- Makarim & Taira - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- SN Aboitiz Power Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- London Commodity Brokers - England
- White Energy Company Limited
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- International Coal Ventures Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- Parliament of New Zealand
- Planning Commission, India
- Directorate Of Revenue Intelligence - India
- Global Green Power PLC Corporation, Philippines
- Agrawal Coal Company - India
- Bahari Cakrawala Sebuku - Indonesia
- Formosa Plastics Group - Taiwan
- Simpson Spence & Young - Indonesia
- Commonwealth Bank - Australia
- Chettinad Cement Corporation Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Straits Asia Resources Limited - Singapore
- Directorate General of MIneral and Coal - Indonesia
- McConnell Dowell - Australia
- Marubeni Corporation - India
- Kapuas Tunggal Persada - Indonesia
- Power Finance Corporation Ltd., India
- Tata Chemicals Ltd - India
- Kaltim Prima Coal - Indonesia
- Minerals Council of Australia
- Manunggal Multi Energi - Indonesia
- Therma Luzon, Inc, Philippines
- Orica Australia Pty. Ltd.
- Rashtriya Ispat Nigam Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- Indian Oil Corporation Limited
- Ministry of Finance - Indonesia
- Oldendorff Carriers - Singapore
- Billiton Holdings Pty Ltd - Australia
- Petron Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- TeaM Sual Corporation - Philippines
- Larsen & Toubro Limited - India
- Salva Resources Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Rio Tinto Coal - Australia
- The University of Queensland
- Indika Energy - Indonesia
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