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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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Thursday, 02 March 23
DRY BULK MARKET: THE WAY CHINA GOES, SO GOES THE MARKET - BIMCO
We expect demand growth within the 1.5-2.5% range in 2023, driven by China’s economic recovery. Improvements in consumer sentiment should hel ...
Thursday, 02 March 23
INDIA, CHINA DEMAND BOOST LOW-RANK THERMAL COAL PRICES IN ASIA - RUSSELL, REUTERS
Signs of stronger import demand from India have arrested the decline in price of the thermal coal grades most commonly sought by the world’s ...
Thursday, 02 March 23
INDIA CHEERS THE RETURN OF ‘KING COAL’ AS INDUSTRY SEES BUOYANT FUTURE - REUTERS
India’s coal industry celebrated the return of its major conference after a three-year pandemic hiatus by presenting a bullish view of demand ...
Wednesday, 01 March 23
GEO CONNECT ASIA RETURNS IN MARCH TO ACCELERATE THE REGION’S GEOSPATIAL AND LOCATION INTELLIGENCE CAPABILITIES
Press Release: The third edition of GCA will be held in conjunction with Digital Construction Asia and the inaugural Drones Asia – an event d ...
Wednesday, 01 March 23
THE DECLINE IN THE COAL PRICE SINCE THE BEGINNING OF THE YEAR HAS BEEN SIGNIFICANT - INTERMODAL
Last week, the front-month API2 future rose by 3.5%, but since the beginning of the year the future has fallen by 39% to $136.65/t, while the Newca ...
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- Petrochimia International Co. Ltd.- Taiwan
- Samtan Co., Ltd - South Korea
- Marubeni Corporation - India
- Leighton Contractors Pty Ltd - Australia
- Planning Commission, India
- Directorate General of MIneral and Coal - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Kideco Jaya Agung - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Parry Sugars Refinery, India
- Thiess Contractors Indonesia
- Singapore Mercantile Exchange
- Directorate Of Revenue Intelligence - India
- PowerSource Philippines DevCo
- Bukit Baiduri Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Billiton Holdings Pty Ltd - Australia
- GN Power Mariveles Coal Plant, Philippines
- Merrill Lynch Commodities Europe
- Energy Link Ltd, New Zealand
- White Energy Company Limited
- Essar Steel Hazira Ltd - India
- Barasentosa Lestari - Indonesia
- Chettinad Cement Corporation Ltd - India
- MS Steel International - UAE
- Kobexindo Tractors - Indoneisa
- Wilmar Investment Holdings
- Bayan Resources Tbk. - Indonesia
- Chamber of Mines of South Africa
- Gujarat Sidhee Cement - India
- McConnell Dowell - Australia
- Indian Energy Exchange, India
- Savvy Resources Ltd - HongKong
- Pipit Mutiara Jaya. PT, Indonesia
- Tata Chemicals Ltd - India
- Ministry of Transport, Egypt
- Rashtriya Ispat Nigam Limited - India
- Latin American Coal - Colombia
- Ind-Barath Power Infra Limited - India
- Interocean Group of Companies - India
- Power Finance Corporation Ltd., India
- VISA Power Limited - India
- Romanian Commodities Exchange
- Global Coal Blending Company Limited - Australia
- Central Electricity Authority - India
- London Commodity Brokers - England
- Global Green Power PLC Corporation, Philippines
- Electricity Authority, New Zealand
- Bhatia International Limited - India
- Therma Luzon, Inc, Philippines
- Antam Resourcindo - Indonesia
- Attock Cement Pakistan Limited
- OPG Power Generation Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Bharathi Cement Corporation - India
- PTC India Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Medco Energi Mining Internasional
- Renaissance Capital - South Africa
- Coalindo Energy - Indonesia
- Edison Trading Spa - Italy
- Bhushan Steel Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Pendopo Energi Batubara - Indonesia
- Ministry of Finance - Indonesia
- Standard Chartered Bank - UAE
- Karbindo Abesyapradhi - Indoneisa
- Timah Investasi Mineral - Indoneisa
- Economic Council, Georgia
- GVK Power & Infra Limited - India
- Sarangani Energy Corporation, Philippines
- Sojitz Corporation - Japan
- Coastal Gujarat Power Limited - India
- Ambuja Cements Ltd - India
- Mercuria Energy - Indonesia
- Cement Manufacturers Association - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ceylon Electricity Board - Sri Lanka
- Semirara Mining Corp, Philippines
- Petron Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Bhoruka Overseas - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Minerals Council of Australia
- SMG Consultants - Indonesia
- Videocon Industries ltd - India
- Eastern Coal Council - USA
- Baramulti Group, Indonesia
- Semirara Mining and Power Corporation, Philippines
- Aboitiz Power Corporation - Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Heidelberg Cement - Germany
- Uttam Galva Steels Limited - India
- Commonwealth Bank - Australia
- Sindya Power Generating Company Private Ltd
- Sinarmas Energy and Mining - Indonesia
- Binh Thuan Hamico - Vietnam
- Australian Commodity Traders Exchange
- Wood Mackenzie - Singapore
- Price Waterhouse Coopers - Russia
- Miang Besar Coal Terminal - Indonesia
- Star Paper Mills Limited - India
- Mintek Dendrill Indonesia
- AsiaOL BioFuels Corp., Philippines
- Maharashtra Electricity Regulatory Commission - India
- Global Business Power Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Rio Tinto Coal - Australia
- Metalloyd Limited - United Kingdom
- Oldendorff Carriers - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Thai Mozambique Logistica
- Indian Oil Corporation Limited
- Altura Mining Limited, Indonesia
- Maheswari Brothers Coal Limited - India
- The Treasury - Australian Government
- Meralco Power Generation, Philippines
- Larsen & Toubro Limited - India
- Malabar Cements Ltd - India
- Simpson Spence & Young - Indonesia
- Ministry of Mines - Canada
- Orica Australia Pty. Ltd.
- IEA Clean Coal Centre - UK
- Globalindo Alam Lestari - Indonesia
- Jaiprakash Power Ventures ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Energy Development Corp, Philippines
- Coal and Oil Company - UAE
- India Bulls Power Limited - India
- Anglo American - United Kingdom
- ASAPP Information Group - India
- Xindia Steels Limited - India
- Indika Energy - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Georgia Ports Authority, United States
- GMR Energy Limited - India
- Deloitte Consulting - India
- Bulk Trading Sa - Switzerland
- Indogreen Group - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Makarim & Taira - Indonesia
- The State Trading Corporation of India Ltd
- PetroVietnam Power Coal Import and Supply Company
- Toyota Tsusho Corporation, Japan
- Parliament of New Zealand
- Trasteel International SA, Italy
- PNOC Exploration Corporation - Philippines
- Bukit Makmur.PT - Indonesia
- Eastern Energy - Thailand
- Port Waratah Coal Services - Australia
- Vizag Seaport Private Limited - India
- Iligan Light & Power Inc, Philippines
- Sree Jayajothi Cements Limited - India
- New Zealand Coal & Carbon
- Kaltim Prima Coal - Indonesia
- ICICI Bank Limited - India
- Orica Mining Services - Indonesia
- IHS Mccloskey Coal Group - USA
- Indo Tambangraya Megah - Indonesia
- SMC Global Power, Philippines
- Formosa Plastics Group - Taiwan
- Madhucon Powers Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Goldman Sachs - Singapore
- Kartika Selabumi Mining - Indonesia
- Agrawal Coal Company - India
- Kepco SPC Power Corporation, Philippines
- Siam City Cement PLC, Thailand
- Banpu Public Company Limited - Thailand
- Mercator Lines Limited - India
- Central Java Power - Indonesia
- Bangladesh Power Developement Board
- Sical Logistics Limited - India
- Australian Coal Association
- Cigading International Bulk Terminal - Indonesia
- Indonesian Coal Mining Association
- CIMB Investment Bank - Malaysia
- Electricity Generating Authority of Thailand
- Riau Bara Harum - Indonesia
- The University of Queensland
- Siam City Cement - Thailand
- San Jose City I Power Corp, Philippines
- Manunggal Multi Energi - Indonesia
- Meenaskhi Energy Private Limited - India
- Karaikal Port Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Posco Energy - South Korea
- Intertek Mineral Services - Indonesia
- Kumho Petrochemical, South Korea
- GAC Shipping (India) Pvt Ltd
- Bukit Asam (Persero) Tbk - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Aditya Birla Group - India
- Africa Commodities Group - South Africa
- Borneo Indobara - Indonesia
- International Coal Ventures Pvt Ltd - India
- Dalmia Cement Bharat India
- CNBM International Corporation - China
- Sakthi Sugars Limited - India
- Krishnapatnam Port Company Ltd. - India
- Salva Resources Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- Neyveli Lignite Corporation Ltd, - India
- Vedanta Resources Plc - India
- Grasim Industreis Ltd - India
- Mjunction Services Limited - India
- Independent Power Producers Association of India
- Carbofer General Trading SA - India
- European Bulk Services B.V. - Netherlands
- Tamil Nadu electricity Board
- Lanco Infratech Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
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