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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, 16 April 23
CHINA JUGGLES FOUR MAJOR ECONOMIC CHANGES IN 2023 - WOOD MACKENZIE
Change is afoot in China. Economic growth is slowing, while rising political tensions between China and the US, coupled with global supply chain re ...
Sunday, 16 April 23
CHINA'S MARCH COAL IMPORTS JUMP TO 3-YEAR HIGH - REUTERS
China’s coal imports surged in March to their highest in any month over the past three years as utilities increased purchases on expectations ...
Sunday, 16 April 23
OPEC KEEPS WORLD OIL DEMAND GROWTH OUTLOOK UNCHANGED
The OPEC Reference Basket (ORB) declined in March by $3.43, or 4.2%, m-o-m to average $78.45/b. The ICE Brent first-month contract fell by $4.33, o ...
Sunday, 16 April 23
CHEAPER SPOT LNG PRICES TEMPT SOME ASIAN BUYERS AMID SUPPLY GAINS - REUTERS
Cheaper spot prices for liquefied natural gas (LNG) are luring price-sensitive buyers back in Asia, with China and India recording rising imports i ...
Tuesday, 11 April 23
COAL USE CLIMBS WORLDWIDE DESPITE PROMISES TO SLASH IT - AAP
The burning of coal for electricity, cement, steel and other uses went up in 2022 despite global promises to phase down the fuel that is the bigges ...
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- Toyota Tsusho Corporation, Japan
- Holcim Trading Pte Ltd - Singapore
- Tata Chemicals Ltd - India
- Antam Resourcindo - Indonesia
- Larsen & Toubro Limited - India
- San Jose City I Power Corp, Philippines
- Jaiprakash Power Ventures ltd
- Barasentosa Lestari - Indonesia
- Mercuria Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Indogreen Group - Indonesia
- Timah Investasi Mineral - Indoneisa
- Price Waterhouse Coopers - Russia
- Rio Tinto Coal - Australia
- Deloitte Consulting - India
- Borneo Indobara - Indonesia
- SN Aboitiz Power Inc, Philippines
- Ambuja Cements Ltd - India
- Banpu Public Company Limited - Thailand
- Siam City Cement - Thailand
- Mintek Dendrill Indonesia
- Krishnapatnam Port Company Ltd. - India
- Global Coal Blending Company Limited - Australia
- Coastal Gujarat Power Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- CNBM International Corporation - China
- Sical Logistics Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Coal and Oil Company - UAE
- Gujarat Mineral Development Corp Ltd - India
- Marubeni Corporation - India
- Kohat Cement Company Ltd. - Pakistan
- Grasim Industreis Ltd - India
- Indian Oil Corporation Limited
- Iligan Light & Power Inc, Philippines
- Indika Energy - Indonesia
- Indo Tambangraya Megah - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Eastern Energy - Thailand
- Africa Commodities Group - South Africa
- Formosa Plastics Group - Taiwan
- Kartika Selabumi Mining - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Port Waratah Coal Services - Australia
- Ministry of Finance - Indonesia
- Essar Steel Hazira Ltd - India
- Mercator Lines Limited - India
- GVK Power & Infra Limited - India
- Goldman Sachs - Singapore
- Indonesian Coal Mining Association
- Karbindo Abesyapradhi - Indoneisa
- Bharathi Cement Corporation - India
- Lanco Infratech Ltd - India
- Wilmar Investment Holdings
- European Bulk Services B.V. - Netherlands
- Rashtriya Ispat Nigam Limited - India
- Bukit Makmur.PT - Indonesia
- PowerSource Philippines DevCo
- IEA Clean Coal Centre - UK
- Leighton Contractors Pty Ltd - Australia
- Orica Mining Services - Indonesia
- Latin American Coal - Colombia
- Planning Commission, India
- VISA Power Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Georgia Ports Authority, United States
- Cigading International Bulk Terminal - Indonesia
- Heidelberg Cement - Germany
- Kalimantan Lumbung Energi - Indonesia
- Thai Mozambique Logistica
- Billiton Holdings Pty Ltd - Australia
- Malabar Cements Ltd - India
- Trasteel International SA, Italy
- SMG Consultants - Indonesia
- Independent Power Producers Association of India
- Sree Jayajothi Cements Limited - India
- Gujarat Sidhee Cement - India
- Central Electricity Authority - India
- Miang Besar Coal Terminal - Indonesia
- Indian Energy Exchange, India
- India Bulls Power Limited - India
- Bangladesh Power Developement Board
- New Zealand Coal & Carbon
- Videocon Industries ltd - India
- Bhatia International Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Thiess Contractors Indonesia
- Standard Chartered Bank - UAE
- ASAPP Information Group - India
- Central Java Power - Indonesia
- Simpson Spence & Young - Indonesia
- Coalindo Energy - Indonesia
- Aditya Birla Group - India
- Riau Bara Harum - Indonesia
- Star Paper Mills Limited - India
- Kobexindo Tractors - Indoneisa
- Directorate Of Revenue Intelligence - India
- TNB Fuel Sdn Bhd - Malaysia
- Sindya Power Generating Company Private Ltd
- Neyveli Lignite Corporation Ltd, - India
- International Coal Ventures Pvt Ltd - India
- Vizag Seaport Private Limited - India
- Oldendorff Carriers - Singapore
- SMC Global Power, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Romanian Commodities Exchange
- Directorate General of MIneral and Coal - Indonesia
- Energy Link Ltd, New Zealand
- Economic Council, Georgia
- Commonwealth Bank - Australia
- Sojitz Corporation - Japan
- GMR Energy Limited - India
- Vedanta Resources Plc - India
- Samtan Co., Ltd - South Korea
- Semirara Mining and Power Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- CIMB Investment Bank - Malaysia
- LBH Netherlands Bv - Netherlands
- Kumho Petrochemical, South Korea
- Manunggal Multi Energi - Indonesia
- Edison Trading Spa - Italy
- Bahari Cakrawala Sebuku - Indonesia
- Madhucon Powers Ltd - India
- ICICI Bank Limited - India
- Australian Coal Association
- Global Business Power Corporation, Philippines
- Renaissance Capital - South Africa
- Parliament of New Zealand
- Ministry of Transport, Egypt
- Jorong Barutama Greston.PT - Indonesia
- Posco Energy - South Korea
- Singapore Mercantile Exchange
- Orica Australia Pty. Ltd.
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Minerals Council of Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Mjunction Services Limited - India
- The University of Queensland
- GAC Shipping (India) Pvt Ltd
- White Energy Company Limited
- Anglo American - United Kingdom
- Bhushan Steel Limited - India
- Karaikal Port Pvt Ltd - India
- Uttam Galva Steels Limited - India
- Therma Luzon, Inc, Philippines
- PNOC Exploration Corporation - Philippines
- Bulk Trading Sa - Switzerland
- Ind-Barath Power Infra Limited - India
- Medco Energi Mining Internasional
- Alfred C Toepfer International GmbH - Germany
- Sinarmas Energy and Mining - Indonesia
- Meenaskhi Energy Private Limited - India
- Merrill Lynch Commodities Europe
- Kepco SPC Power Corporation, Philippines
- Energy Development Corp, Philippines
- Chamber of Mines of South Africa
- Meralco Power Generation, Philippines
- Metalloyd Limited - United Kingdom
- Petron Corporation, Philippines
- Straits Asia Resources Limited - Singapore
- Aboitiz Power Corporation - Philippines
- Sakthi Sugars Limited - India
- Gujarat Electricity Regulatory Commission - India
- Kaltim Prima Coal - Indonesia
- Sarangani Energy Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kideco Jaya Agung - Indonesia
- Semirara Mining Corp, Philippines
- Australian Commodity Traders Exchange
- Eastern Coal Council - USA
- Bukit Baiduri Energy - Indonesia
- PTC India Limited - India
- Electricity Authority, New Zealand
- MS Steel International - UAE
- Cement Manufacturers Association - India
- Electricity Generating Authority of Thailand
- Altura Mining Limited, Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Attock Cement Pakistan Limited
- Carbofer General Trading SA - India
- McConnell Dowell - Australia
- Tamil Nadu electricity Board
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- London Commodity Brokers - England
- Power Finance Corporation Ltd., India
- The State Trading Corporation of India Ltd
- Pendopo Energi Batubara - Indonesia
- Interocean Group of Companies - India
- PetroVietnam Power Coal Import and Supply Company
- Binh Thuan Hamico - Vietnam
- Jindal Steel & Power Ltd - India
- Dalmia Cement Bharat India
- Maheswari Brothers Coal Limited - India
- Wood Mackenzie - Singapore
- Ministry of Mines - Canada
- Parry Sugars Refinery, India
- Bhoruka Overseas - Indonesia
- Agrawal Coal Company - India
- Baramulti Group, Indonesia
- OPG Power Generation Pvt Ltd - India
- Xindia Steels Limited - India
- Siam City Cement PLC, Thailand
- Bayan Resources Tbk. - Indonesia
- Savvy Resources Ltd - HongKong
- Intertek Mineral Services - Indonesia
- Globalindo Alam Lestari - Indonesia
- Chettinad Cement Corporation Ltd - India
- South Luzon Thermal Energy Corporation
- Kapuas Tunggal Persada - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Makarim & Taira - Indonesia
- The Treasury - Australian Government
- IHS Mccloskey Coal Group - USA
- TeaM Sual Corporation - Philippines
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