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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, 26 February 23
MAWANI AND JEDDAH CHAMBER SIGN AN AGREEMENT TO BUILD INTEGRATED LOGISTICS PARK
Press Release: The Saudi Ports Authority (Mawani) and Jeddah Chamber of Commerce and Industry have today inked an agreement to set up an integrated ...
Saturday, 25 February 23
INDONESIA IS STILL BY FAR THE TOP SUPPLIER OF COAL TO CHINA - 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, said ban ...
Wednesday, 22 February 23
MARKET INSIGHT - INTERMODAL
The short-term outlook of the global soybean market is currently pivoted by a combination of weather patterns that are affecting the harvest progre ...
Saturday, 18 February 23
OIL UNLIKELY TO BREAK ABOVE $100/BBL THIS YEAR, J.P.MORGAN SAYS –- REUTERS
Brent oil prices are unlikely to breach the $100 a barrel level this year, barring any significant geopolitical drivers, with OPEC+ potentially add ...
Saturday, 18 February 23
CHINA'S COAL PRICES FALL TO 1 YR-LOW, CLOUDING DEMAND AND IMPORT OUTLOOK - REUTERS
China’s thermal coal prices hit their lowest levels in a year this week on rising inventories as domestic mine production is recovering faste ...
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- Carbofer General Trading SA - India
- Holcim Trading Pte Ltd - Singapore
- Kobexindo Tractors - Indoneisa
- Bhushan Steel Limited - India
- Economic Council, Georgia
- ICICI Bank Limited - India
- Port Waratah Coal Services - Australia
- Price Waterhouse Coopers - Russia
- Australian Coal Association
- Ministry of Mines - Canada
- Indian Oil Corporation Limited
- Planning Commission, India
- Therma Luzon, Inc, Philippines
- Sical Logistics Limited - India
- Sakthi Sugars Limited - India
- Meralco Power Generation, Philippines
- OPG Power Generation Pvt Ltd - India
- Energy Link Ltd, New Zealand
- Mintek Dendrill Indonesia
- European Bulk Services B.V. - Netherlands
- Timah Investasi Mineral - Indoneisa
- Chettinad Cement Corporation Ltd - India
- PTC India Limited - India
- ASAPP Information Group - India
- Deloitte Consulting - India
- London Commodity Brokers - England
- Riau Bara Harum - Indonesia
- Standard Chartered Bank - UAE
- Pipit Mutiara Jaya. PT, Indonesia
- Parry Sugars Refinery, India
- International Coal Ventures Pvt Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Dalmia Cement Bharat India
- Sarangani Energy Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Straits Asia Resources Limited - Singapore
- Kideco Jaya Agung - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Marubeni Corporation - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Xindia Steels Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Vizag Seaport Private Limited - India
- Kepco SPC Power Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Eastern Energy - Thailand
- Wilmar Investment Holdings
- Trasteel International SA, Italy
- Chamber of Mines of South Africa
- Rio Tinto Coal - Australia
- Kumho Petrochemical, South Korea
- India Bulls Power Limited - India
- Grasim Industreis Ltd - India
- Agrawal Coal Company - India
- Coal and Oil Company - UAE
- Altura Mining Limited, Indonesia
- MS Steel International - UAE
- Edison Trading Spa - Italy
- Indogreen Group - Indonesia
- CIMB Investment Bank - Malaysia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Cement Manufacturers Association - India
- Indika Energy - Indonesia
- Star Paper Mills Limited - India
- Metalloyd Limited - United Kingdom
- Ambuja Cements Ltd - India
- Kartika Selabumi Mining - Indonesia
- Bharathi Cement Corporation - India
- Binh Thuan Hamico - Vietnam
- Toyota Tsusho Corporation, Japan
- Minerals Council of Australia
- VISA Power Limited - India
- Parliament of New Zealand
- Heidelberg Cement - Germany
- PNOC Exploration Corporation - Philippines
- The Treasury - Australian Government
- Barasentosa Lestari - Indonesia
- Billiton Holdings Pty Ltd - Australia
- CNBM International Corporation - China
- Sojitz Corporation - Japan
- Leighton Contractors Pty Ltd - Australia
- Renaissance Capital - South Africa
- Energy Development Corp, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kalimantan Lumbung Energi - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- IEA Clean Coal Centre - UK
- San Jose City I Power Corp, Philippines
- Vedanta Resources Plc - India
- Jindal Steel & Power Ltd - India
- Thai Mozambique Logistica
- Siam City Cement - Thailand
- New Zealand Coal & Carbon
- Ministry of Finance - Indonesia
- Sree Jayajothi Cements Limited - India
- Jorong Barutama Greston.PT - Indonesia
- GVK Power & Infra Limited - India
- Iligan Light & Power Inc, Philippines
- Australian Commodity Traders Exchange
- Central Java Power - Indonesia
- Makarim & Taira - Indonesia
- Electricity Authority, New Zealand
- Wood Mackenzie - Singapore
- Oldendorff Carriers - Singapore
- Posco Energy - South Korea
- Petrochimia International Co. Ltd.- Taiwan
- Directorate General of MIneral and Coal - Indonesia
- Larsen & Toubro Limited - India
- Borneo Indobara - Indonesia
- Alfred C Toepfer International GmbH - Germany
- The University of Queensland
- Vijayanagar Sugar Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- TeaM Sual Corporation - Philippines
- Semirara Mining and Power Corporation, Philippines
- Videocon Industries ltd - India
- Independent Power Producers Association of India
- AsiaOL BioFuels Corp., Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Baramulti Group, Indonesia
- Eastern Coal Council - USA
- Indo Tambangraya Megah - Indonesia
- Uttam Galva Steels Limited - India
- Mercuria Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Commonwealth Bank - Australia
- GN Power Mariveles Coal Plant, Philippines
- Global Coal Blending Company Limited - Australia
- Thiess Contractors Indonesia
- Samtan Co., Ltd - South Korea
- Bukit Baiduri Energy - Indonesia
- Savvy Resources Ltd - HongKong
- Medco Energi Mining Internasional
- Maharashtra Electricity Regulatory Commission - India
- Coalindo Energy - Indonesia
- White Energy Company Limited
- Africa Commodities Group - South Africa
- The State Trading Corporation of India Ltd
- Electricity Generating Authority of Thailand
- Indian Energy Exchange, India
- Georgia Ports Authority, United States
- Tamil Nadu electricity Board
- GMR Energy Limited - India
- Aditya Birla Group - India
- Pendopo Energi Batubara - Indonesia
- Bukit Makmur.PT - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Sindya Power Generating Company Private Ltd
- Attock Cement Pakistan Limited
- Bayan Resources Tbk. - Indonesia
- Goldman Sachs - Singapore
- Mercator Lines Limited - India
- SMC Global Power, Philippines
- Intertek Mineral Services - Indonesia
- Coastal Gujarat Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Ministry of Transport, Egypt
- SN Aboitiz Power Inc, Philippines
- Banpu Public Company Limited - Thailand
- Singapore Mercantile Exchange
- Orica Mining Services - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Bukit Asam (Persero) Tbk - Indonesia
- Bhatia International Limited - India
- Bulk Trading Sa - Switzerland
- Formosa Plastics Group - Taiwan
- Petron Corporation, Philippines
- Global Business Power Corporation, Philippines
- PowerSource Philippines DevCo
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kaltim Prima Coal - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Latin American Coal - Colombia
- Aboitiz Power Corporation - Philippines
- Simpson Spence & Young - Indonesia
- Antam Resourcindo - Indonesia
- Ind-Barath Power Infra Limited - India
- Maheswari Brothers Coal Limited - India
- Romanian Commodities Exchange
- Orica Australia Pty. Ltd.
- Karbindo Abesyapradhi - Indoneisa
- Globalindo Alam Lestari - Indonesia
- Essar Steel Hazira Ltd - India
- South Luzon Thermal Energy Corporation
- Bhoruka Overseas - Indonesia
- Tata Chemicals Ltd - India
- Meenaskhi Energy Private Limited - India
- Indonesian Coal Mining Association
- Interocean Group of Companies - India
- Lanco Infratech Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Merrill Lynch Commodities Europe
- Salva Resources Pvt Ltd - India
- Siam City Cement PLC, Thailand
- McConnell Dowell - Australia
- Anglo American - United Kingdom
- Jaiprakash Power Ventures ltd
- GAC Shipping (India) Pvt Ltd
- Krishnapatnam Port Company Ltd. - India
- Mjunction Services Limited - India
- Central Electricity Authority - India
- Semirara Mining Corp, Philippines
- Bangladesh Power Developement Board
- Asmin Koalindo Tuhup - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Karaikal Port Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- SMG Consultants - Indonesia
- Power Finance Corporation Ltd., India
- Gujarat Sidhee Cement - India
- Malabar Cements Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Madhucon Powers Ltd - India
- LBH Netherlands Bv - Netherlands
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