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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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Tuesday, 11 April 23
OIL RISES ON CHINA STIMULUS EXPECTATIONS, WEAKER DOLLAR - REUTERS
Oil prices rose on Tuesday on expectations of potential economic stimulus by China, healthy demand in the rest of Asia and a drop in U.S. crude sto ...
Sunday, 09 April 23
CHINA’S BUSINESS INCOME REBOUND POINTS TO IMPROVING ECONOMY: OFFICIAL - XINHUA
Chinese businesses have posted a strong rebound in sales revenue since the beginning of this year in the latest signal of an improving economy.
...
Sunday, 09 April 23
COAL INDIA TO BOOST SUPPLIES TO INDUSTRIES AS UTILITIES’ INVENTORIES RISE - REUTERS
Coal India Ltd will increase supplies to industries, the world’s largest coal miner said on Wednesday as fuel inventories at utilities run by ...
Thursday, 06 April 23
MARKET INSIGHT - INTERMODAL
LNG Current Supply/Demand Dynamics
This year, LNG supply will likely exceed demand, so prices will need to decline to levels that will encourag ...
Sunday, 26 March 23
EUROPE’S RUSH TO LNG COULD TURN INTO 'WORLD’S MOST EXPENSIVE AND UNNECESSARY INSURANCE POLICY'- CNBC
Europe’s rapid buildout of liquefied natural gas infrastructure is on track to far exceed demand by the end of the decade, according to new r ...
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- Sinarmas Energy and Mining - Indonesia
- Australian Coal Association
- Energy Link Ltd, New Zealand
- Aditya Birla Group - India
- Straits Asia Resources Limited - Singapore
- Central Electricity Authority - India
- The University of Queensland
- Ind-Barath Power Infra Limited - India
- IHS Mccloskey Coal Group - USA
- India Bulls Power Limited - India
- Bukit Baiduri Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Riau Bara Harum - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Price Waterhouse Coopers - Russia
- Kalimantan Lumbung Energi - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Kideco Jaya Agung - Indonesia
- Energy Development Corp, Philippines
- Toyota Tsusho Corporation, Japan
- Ceylon Electricity Board - Sri Lanka
- Banpu Public Company Limited - Thailand
- New Zealand Coal & Carbon
- Petron Corporation, Philippines
- Tamil Nadu electricity Board
- Savvy Resources Ltd - HongKong
- McConnell Dowell - Australia
- MS Steel International - UAE
- PetroVietnam Power Coal Import and Supply Company
- Gujarat Electricity Regulatory Commission - India
- Vedanta Resources Plc - India
- Indian Oil Corporation Limited
- Petrochimia International Co. Ltd.- Taiwan
- Merrill Lynch Commodities Europe
- Lanco Infratech Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Bangladesh Power Developement Board
- South Luzon Thermal Energy Corporation
- Semirara Mining and Power Corporation, Philippines
- Grasim Industreis Ltd - India
- Agrawal Coal Company - India
- Mjunction Services Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Coastal Gujarat Power Limited - India
- GVK Power & Infra Limited - India
- Barasentosa Lestari - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Attock Cement Pakistan Limited
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bhushan Steel Limited - India
- Eastern Coal Council - USA
- Marubeni Corporation - India
- Parliament of New Zealand
- TeaM Sual Corporation - Philippines
- Global Coal Blending Company Limited - Australia
- Wood Mackenzie - Singapore
- Ambuja Cements Ltd - India
- Port Waratah Coal Services - Australia
- Karaikal Port Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Rio Tinto Coal - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Baramulti Group, Indonesia
- Planning Commission, India
- Vijayanagar Sugar Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Tata Chemicals Ltd - India
- Therma Luzon, Inc, Philippines
- OPG Power Generation Pvt Ltd - India
- Mercuria Energy - Indonesia
- CNBM International Corporation - China
- Bhatia International Limited - India
- Essar Steel Hazira Ltd - India
- Indian Energy Exchange, India
- Sree Jayajothi Cements Limited - India
- Ministry of Finance - Indonesia
- Coalindo Energy - Indonesia
- Formosa Plastics Group - Taiwan
- Kapuas Tunggal Persada - Indonesia
- Power Finance Corporation Ltd., India
- Romanian Commodities Exchange
- Bulk Trading Sa - Switzerland
- The Treasury - Australian Government
- Georgia Ports Authority, United States
- Bank of Tokyo Mitsubishi UFJ Ltd
- LBH Netherlands Bv - Netherlands
- Wilmar Investment Holdings
- VISA Power Limited - India
- Bhoruka Overseas - Indonesia
- Sindya Power Generating Company Private Ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Dalmia Cement Bharat India
- GMR Energy Limited - India
- Indogreen Group - Indonesia
- Makarim & Taira - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Thiess Contractors Indonesia
- Borneo Indobara - Indonesia
- Singapore Mercantile Exchange
- Vizag Seaport Private Limited - India
- ASAPP Information Group - India
- Xindia Steels Limited - India
- Malabar Cements Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Kepco SPC Power Corporation, Philippines
- Siam City Cement - Thailand
- SN Aboitiz Power Inc, Philippines
- PTC India Limited - India
- Sojitz Corporation - Japan
- Meralco Power Generation, Philippines
- Kaltim Prima Coal - Indonesia
- Simpson Spence & Young - Indonesia
- Independent Power Producers Association of India
- TNB Fuel Sdn Bhd - Malaysia
- Indo Tambangraya Megah - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Kartika Selabumi Mining - Indonesia
- Cement Manufacturers Association - India
- Pendopo Energi Batubara - Indonesia
- Videocon Industries ltd - India
- San Jose City I Power Corp, Philippines
- Jindal Steel & Power Ltd - India
- Indika Energy - Indonesia
- SMG Consultants - Indonesia
- Minerals Council of Australia
- Ministry of Transport, Egypt
- Goldman Sachs - Singapore
- Orica Australia Pty. Ltd.
- Directorate Of Revenue Intelligence - India
- Madhucon Powers Ltd - India
- Standard Chartered Bank - UAE
- Binh Thuan Hamico - Vietnam
- Kumho Petrochemical, South Korea
- Thai Mozambique Logistica
- Mintek Dendrill Indonesia
- Semirara Mining Corp, Philippines
- Uttam Galva Steels Limited - India
- Edison Trading Spa - Italy
- Manunggal Multi Energi - Indonesia
- Aboitiz Power Corporation - Philippines
- IEA Clean Coal Centre - UK
- Bharathi Cement Corporation - India
- Parry Sugars Refinery, India
- London Commodity Brokers - England
- Asmin Koalindo Tuhup - Indonesia
- Commonwealth Bank - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Deloitte Consulting - India
- Economic Council, Georgia
- Globalindo Alam Lestari - Indonesia
- Interocean Group of Companies - India
- AsiaOL BioFuels Corp., Philippines
- PNOC Exploration Corporation - Philippines
- Heidelberg Cement - Germany
- Trasteel International SA, Italy
- Intertek Mineral Services - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Sarangani Energy Corporation, Philippines
- Larsen & Toubro Limited - India
- Timah Investasi Mineral - Indoneisa
- Antam Resourcindo - Indonesia
- Indonesian Coal Mining Association
- Sakthi Sugars Limited - India
- Chamber of Mines of South Africa
- Star Paper Mills Limited - India
- Leighton Contractors Pty Ltd - Australia
- Mercator Lines Limited - India
- GAC Shipping (India) Pvt Ltd
- Bayan Resources Tbk. - Indonesia
- ICICI Bank Limited - India
- CIMB Investment Bank - Malaysia
- Chettinad Cement Corporation Ltd - India
- Africa Commodities Group - South Africa
- Salva Resources Pvt Ltd - India
- Ministry of Mines - Canada
- Anglo American - United Kingdom
- The State Trading Corporation of India Ltd
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Electricity Authority, New Zealand
- Cigading International Bulk Terminal - Indonesia
- PowerSource Philippines DevCo
- SMC Global Power, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Eastern Energy - Thailand
- Australian Commodity Traders Exchange
- Central Java Power - Indonesia
- Global Business Power Corporation, Philippines
- Electricity Generating Authority of Thailand
- Latin American Coal - Colombia
- White Energy Company Limited
- Medco Energi Mining Internasional
- Coal and Oil Company - UAE
- Posco Energy - South Korea
- Global Green Power PLC Corporation, Philippines
- Gujarat Sidhee Cement - India
- Metalloyd Limited - United Kingdom
- Bukit Asam (Persero) Tbk - Indonesia
- Carbofer General Trading SA - India
- Siam City Cement PLC, Thailand
- Altura Mining Limited, Indonesia
- International Coal Ventures Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Jaiprakash Power Ventures ltd
- Meenaskhi Energy Private Limited - India
- Samtan Co., Ltd - South Korea
- Kobexindo Tractors - Indoneisa
- European Bulk Services B.V. - Netherlands
- Oldendorff Carriers - Singapore
- GN Power Mariveles Coal Plant, Philippines
- Orica Mining Services - Indonesia
- Bukit Makmur.PT - Indonesia
- Renaissance Capital - South Africa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sical Logistics Limited - India
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