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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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Saturday, 25 March 23
COAL INDIA HAS STRONG CASE TO INCREASE PRICES, TALKS ON: CMD AGRAWAL - BUSINESS STANDARD
Coal India (CIL) Chairman and Managing Director Pramod Agrawal said on Monday there is a “strong case” for increasing coal prices, and ...
Saturday, 25 March 23
ASIAN CRUDE PALM OIL WATCH 1Q23 - FITCH RATINGS
Malaysian benchmark crude palm oil (CPO) spot prices have averaged around USD915 per tonne (t) so far in 1Q23, sharply lower than the average of ar ...
Saturday, 25 March 23
INDONESIA’S COAL EXPORT INCREASED BY 21.0% YOY TO 388.4 MLN T IN 2022 - BANCHERO COSTA
After a slow start in the first quarter, global coal trade has really picked up pace last year, and is now fully back to pre-Covid levels. In the f ...
Saturday, 25 March 23
GLOBAL LNG-ASIA SPOT PRICES SLIP AS WEAK NORTHERN DEMAND REMAINS - REUTERS
Asian spot prices of liquefied natural gas (LNG) declined this week, falling to a 21-month low, as weak demand in the northeast Asia region continu ...
Wednesday, 22 March 23
OIL PRICE FALL SPECULATIVE, TO HIT $140 BY YEAR-END -ANDURAND: REUTERS
The recent fall in oil prices due to banking jitters is speculative and oil will hit $140 a barrel by the end of the year, hedge fund manager Pierr ...
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- Maharashtra Electricity Regulatory Commission - India
- Ceylon Electricity Board - Sri Lanka
- Renaissance Capital - South Africa
- CIMB Investment Bank - Malaysia
- SMG Consultants - Indonesia
- Coastal Gujarat Power Limited - India
- VISA Power Limited - India
- OPG Power Generation Pvt Ltd - India
- Mercator Lines Limited - India
- Commonwealth Bank - Australia
- Banpu Public Company Limited - Thailand
- Malabar Cements Ltd - India
- Toyota Tsusho Corporation, Japan
- GMR Energy Limited - India
- Samtan Co., Ltd - South Korea
- Carbofer General Trading SA - India
- White Energy Company Limited
- CNBM International Corporation - China
- Miang Besar Coal Terminal - Indonesia
- Bulk Trading Sa - Switzerland
- TNB Fuel Sdn Bhd - Malaysia
- Tamil Nadu electricity Board
- Madhucon Powers Ltd - India
- Parry Sugars Refinery, India
- Maheswari Brothers Coal Limited - India
- Iligan Light & Power Inc, Philippines
- Indika Energy - Indonesia
- PowerSource Philippines DevCo
- Mjunction Services Limited - India
- Edison Trading Spa - Italy
- Sarangani Energy Corporation, Philippines
- Coal and Oil Company - UAE
- Siam City Cement PLC, Thailand
- Latin American Coal - Colombia
- Thai Mozambique Logistica
- Wood Mackenzie - Singapore
- Salva Resources Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Marubeni Corporation - India
- Ministry of Finance - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Altura Mining Limited, Indonesia
- Economic Council, Georgia
- Anglo American - United Kingdom
- Bangladesh Power Developement Board
- Holcim Trading Pte Ltd - Singapore
- Standard Chartered Bank - UAE
- Kalimantan Lumbung Energi - Indonesia
- Interocean Group of Companies - India
- SN Aboitiz Power Inc, Philippines
- Orica Australia Pty. Ltd.
- Lanco Infratech Ltd - India
- Kumho Petrochemical, South Korea
- AsiaOL BioFuels Corp., Philippines
- Tata Chemicals Ltd - India
- Metalloyd Limited - United Kingdom
- Bharathi Cement Corporation - India
- Thiess Contractors Indonesia
- Rio Tinto Coal - Australia
- Kartika Selabumi Mining - Indonesia
- Attock Cement Pakistan Limited
- Coalindo Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Ambuja Cements Ltd - India
- Energy Development Corp, Philippines
- Orica Mining Services - Indonesia
- Siam City Cement - Thailand
- Xindia Steels Limited - India
- ICICI Bank Limited - India
- Essar Steel Hazira Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Indonesian Coal Mining Association
- PNOC Exploration Corporation - Philippines
- Australian Commodity Traders Exchange
- Borneo Indobara - Indonesia
- Meenaskhi Energy Private Limited - India
- South Luzon Thermal Energy Corporation
- Vizag Seaport Private Limited - India
- Ministry of Mines - Canada
- Medco Energi Mining Internasional
- Manunggal Multi Energi - Indonesia
- London Commodity Brokers - England
- Indo Tambangraya Megah - Indonesia
- Timah Investasi Mineral - Indoneisa
- PTC India Limited - India
- Goldman Sachs - Singapore
- Krishnapatnam Port Company Ltd. - India
- GAC Shipping (India) Pvt Ltd
- Globalindo Alam Lestari - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Mercuria Energy - Indonesia
- Mintek Dendrill Indonesia
- Oldendorff Carriers - Singapore
- McConnell Dowell - Australia
- Gujarat Sidhee Cement - India
- Billiton Holdings Pty Ltd - Australia
- ASAPP Information Group - India
- Chamber of Mines of South Africa
- Petrochimia International Co. Ltd.- Taiwan
- Planning Commission, India
- Baramulti Group, Indonesia
- SMC Global Power, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Kaltim Prima Coal - Indonesia
- Riau Bara Harum - Indonesia
- Indian Oil Corporation Limited
- Rashtriya Ispat Nigam Limited - India
- Indogreen Group - Indonesia
- Central Electricity Authority - India
- Leighton Contractors Pty Ltd - Australia
- GVK Power & Infra Limited - India
- Straits Asia Resources Limited - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- TeaM Sual Corporation - Philippines
- Karaikal Port Pvt Ltd - India
- Larsen & Toubro Limited - India
- Minerals Council of Australia
- Power Finance Corporation Ltd., India
- Singapore Mercantile Exchange
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Romanian Commodities Exchange
- The State Trading Corporation of India Ltd
- Aditya Birla Group - India
- Ind-Barath Power Infra Limited - India
- Kobexindo Tractors - Indoneisa
- Cigading International Bulk Terminal - Indonesia
- Indian Energy Exchange, India
- Deloitte Consulting - India
- Asmin Koalindo Tuhup - Indonesia
- India Bulls Power Limited - India
- Ministry of Transport, Egypt
- Global Coal Blending Company Limited - Australia
- Wilmar Investment Holdings
- Jaiprakash Power Ventures ltd
- Chettinad Cement Corporation Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Bukit Asam (Persero) Tbk - Indonesia
- Pendopo Energi Batubara - Indonesia
- Meralco Power Generation, Philippines
- Sree Jayajothi Cements Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Petron Corporation, Philippines
- Global Green Power PLC Corporation, Philippines
- Vedanta Resources Plc - India
- Merrill Lynch Commodities Europe
- Intertek Mineral Services - Indonesia
- Sindya Power Generating Company Private Ltd
- GN Power Mariveles Coal Plant, Philippines
- Eastern Coal Council - USA
- Sojitz Corporation - Japan
- Bukit Makmur.PT - Indonesia
- The Treasury - Australian Government
- Binh Thuan Hamico - Vietnam
- Directorate General of MIneral and Coal - Indonesia
- Dalmia Cement Bharat India
- Semirara Mining Corp, Philippines
- Australian Coal Association
- Sakthi Sugars Limited - India
- San Jose City I Power Corp, Philippines
- Sical Logistics Limited - India
- Uttam Galva Steels Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Directorate Of Revenue Intelligence - India
- Bayan Resources Tbk. - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Offshore Bulk Terminal Pte Ltd, Singapore
- Heidelberg Cement - Germany
- IHS Mccloskey Coal Group - USA
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Antam Resourcindo - Indonesia
- Aboitiz Power Corporation - Philippines
- Grasim Industreis Ltd - India
- Bhushan Steel Limited - India
- Kideco Jaya Agung - Indonesia
- Electricity Authority, New Zealand
- Kapuas Tunggal Persada - Indonesia
- New Zealand Coal & Carbon
- Jindal Steel & Power Ltd - India
- Agrawal Coal Company - India
- Bahari Cakrawala Sebuku - Indonesia
- Star Paper Mills Limited - India
- Bukit Baiduri Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- Eastern Energy - Thailand
- Therma Luzon, Inc, Philippines
- MS Steel International - UAE
- Price Waterhouse Coopers - Russia
- Simpson Spence & Young - Indonesia
- Central Java Power - Indonesia
- Global Business Power Corporation, Philippines
- Makarim & Taira - Indonesia
- Africa Commodities Group - South Africa
- Alfred C Toepfer International GmbH - Germany
- Bhoruka Overseas - Indonesia
- Bhatia International Limited - India
- Independent Power Producers Association of India
- Parliament of New Zealand
- Energy Link Ltd, New Zealand
- Georgia Ports Authority, United States
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Neyveli Lignite Corporation Ltd, - India
- International Coal Ventures Pvt Ltd - India
- Trasteel International SA, Italy
- Sinarmas Energy and Mining - Indonesia
- Port Waratah Coal Services - Australia
- Posco Energy - South Korea
- European Bulk Services B.V. - Netherlands
- Cement Manufacturers Association - India
- The University of Queensland
- IEA Clean Coal Centre - UK
- Barasentosa Lestari - Indonesia
- LBH Netherlands Bv - Netherlands
- Videocon Industries ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Electricity Generating Authority of Thailand
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