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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, 18 February 23
PAKISTAN PLANS TO QUADRUPLE DOMESTIC COAL-FIRED POWER, MOVE AWAY FROM GAS - REUTERS
Pakistan plans to quadruple its domestic coal-fired capacity to reduce power generation costs and will not build new gas-fired plants in the coming ...
Saturday, 18 February 23
2023 MARINE FUEL MARKET PREDICTIONS - JOHN BERGMAN, AURAMARINE
The drive for decarbonisation we witnessed in 2022 has continued into 2023, demonstrating the shipping’s industry positive strides in the fas ...
Saturday, 28 January 23
COAL GROWTH BLIP NOT TO BE REPEATED - BALTIC EXCHANGE
As 2022 drew to a close, global coal demand looked set to end the year just 1.2% up on the previous year. But that small increase was enough to pus ...
Thursday, 26 January 23
CHINA'S COAL OUTPUT INCREASES IN DECEMBER 2022 - XINHUA
China’s raw coal output posted stable expansion in December 2022, official data showed.
The country produced 400 million tonne ...
Thursday, 26 January 23
COKING COAL NARROWS THE GAP ON THERMAL AS CHINA REOPENS - REUTERS
The premium of high-grade thermal coal over coking coal in Asia is shrinking as China’s re-opening and ending of a ban on imports from Austra ...
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- ASAPP Information Group - India
- Attock Cement Pakistan Limited
- Larsen & Toubro Limited - India
- Bhushan Steel Limited - India
- Edison Trading Spa - Italy
- The State Trading Corporation of India Ltd
- Alfred C Toepfer International GmbH - Germany
- India Bulls Power Limited - India
- Essar Steel Hazira Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Oldendorff Carriers - Singapore
- Kohat Cement Company Ltd. - Pakistan
- GVK Power & Infra Limited - India
- Kobexindo Tractors - Indoneisa
- Georgia Ports Authority, United States
- TNB Fuel Sdn Bhd - Malaysia
- Kalimantan Lumbung Energi - Indonesia
- The University of Queensland
- Kartika Selabumi Mining - Indonesia
- Jaiprakash Power Ventures ltd
- Planning Commission, India
- Petron Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- VISA Power Limited - India
- Sarangani Energy Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- Energy Development Corp, Philippines
- Goldman Sachs - Singapore
- IEA Clean Coal Centre - UK
- Sinarmas Energy and Mining - Indonesia
- Bukit Baiduri Energy - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Cement Manufacturers Association - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Parliament of New Zealand
- Sojitz Corporation - Japan
- Riau Bara Harum - Indonesia
- MS Steel International - UAE
- Kumho Petrochemical, South Korea
- Coalindo Energy - Indonesia
- Baramulti Group, Indonesia
- Intertek Mineral Services - Indonesia
- OPG Power Generation Pvt Ltd - India
- Sakthi Sugars Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Altura Mining Limited, Indonesia
- Gujarat Sidhee Cement - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bhatia International Limited - India
- Indogreen Group - Indonesia
- Deloitte Consulting - India
- CNBM International Corporation - China
- Indo Tambangraya Megah - Indonesia
- IHS Mccloskey Coal Group - USA
- Electricity Generating Authority of Thailand
- CIMB Investment Bank - Malaysia
- Borneo Indobara - Indonesia
- Meralco Power Generation, Philippines
- PNOC Exploration Corporation - Philippines
- Siam City Cement - Thailand
- Antam Resourcindo - Indonesia
- Binh Thuan Hamico - Vietnam
- ICICI Bank Limited - India
- Banpu Public Company Limited - Thailand
- Samtan Co., Ltd - South Korea
- SMG Consultants - Indonesia
- Therma Luzon, Inc, Philippines
- Merrill Lynch Commodities Europe
- Toyota Tsusho Corporation, Japan
- Global Green Power PLC Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- GAC Shipping (India) Pvt Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Eastern Energy - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Gujarat Mineral Development Corp Ltd - India
- Mercator Lines Limited - India
- Semirara Mining Corp, Philippines
- Formosa Plastics Group - Taiwan
- Petrochimia International Co. Ltd.- Taiwan
- Straits Asia Resources Limited - Singapore
- Kapuas Tunggal Persada - Indonesia
- Sree Jayajothi Cements Limited - India
- Ceylon Electricity Board - Sri Lanka
- Asmin Koalindo Tuhup - Indonesia
- Holcim Trading Pte Ltd - Singapore
- International Coal Ventures Pvt Ltd - India
- Economic Council, Georgia
- Sindya Power Generating Company Private Ltd
- Dalmia Cement Bharat India
- Directorate General of MIneral and Coal - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Coastal Gujarat Power Limited - India
- TeaM Sual Corporation - Philippines
- Simpson Spence & Young - Indonesia
- Manunggal Multi Energi - Indonesia
- Directorate Of Revenue Intelligence - India
- Singapore Mercantile Exchange
- Karaikal Port Pvt Ltd - India
- Ministry of Finance - Indonesia
- Bangladesh Power Developement Board
- Orica Mining Services - Indonesia
- Indonesian Coal Mining Association
- Kaltim Prima Coal - Indonesia
- GMR Energy Limited - India
- Global Business Power Corporation, Philippines
- Wilmar Investment Holdings
- Romanian Commodities Exchange
- Iligan Light & Power Inc, Philippines
- South Luzon Thermal Energy Corporation
- LBH Netherlands Bv - Netherlands
- Grasim Industreis Ltd - India
- Videocon Industries ltd - India
- Heidelberg Cement - Germany
- Tamil Nadu electricity Board
- Pendopo Energi Batubara - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Aboitiz Power Corporation - Philippines
- Makarim & Taira - Indonesia
- Eastern Coal Council - USA
- Carbofer General Trading SA - India
- Indian Energy Exchange, India
- Indian Oil Corporation Limited
- Anglo American - United Kingdom
- Interocean Group of Companies - India
- Electricity Authority, New Zealand
- PTC India Limited - India
- Wood Mackenzie - Singapore
- Medco Energi Mining Internasional
- Sical Logistics Limited - India
- Savvy Resources Ltd - HongKong
- Leighton Contractors Pty Ltd - Australia
- Ministry of Mines - Canada
- Indika Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- Price Waterhouse Coopers - Russia
- London Commodity Brokers - England
- Africa Commodities Group - South Africa
- Barasentosa Lestari - Indonesia
- Minerals Council of Australia
- Marubeni Corporation - India
- Tata Chemicals Ltd - India
- Central Java Power - Indonesia
- Rio Tinto Coal - Australia
- Rashtriya Ispat Nigam Limited - India
- Mjunction Services Limited - India
- Renaissance Capital - South Africa
- Maheswari Brothers Coal Limited - India
- Bhoruka Overseas - Indonesia
- Independent Power Producers Association of India
- Malabar Cements Ltd - India
- Vizag Seaport Private Limited - India
- Ambuja Cements Ltd - India
- Thiess Contractors Indonesia
- Globalindo Alam Lestari - Indonesia
- Agrawal Coal Company - India
- Metalloyd Limited - United Kingdom
- Ind-Barath Power Infra Limited - India
- New Zealand Coal & Carbon
- Kideco Jaya Agung - Indonesia
- The Treasury - Australian Government
- Coal and Oil Company - UAE
- Salva Resources Pvt Ltd - India
- Latin American Coal - Colombia
- Madhucon Powers Ltd - India
- Bharathi Cement Corporation - India
- Ministry of Transport, Egypt
- Xindia Steels Limited - India
- Meenaskhi Energy Private Limited - India
- Star Paper Mills Limited - India
- Australian Coal Association
- Australian Commodity Traders Exchange
- Parry Sugars Refinery, India
- Orica Australia Pty. Ltd.
- Krishnapatnam Port Company Ltd. - India
- Central Electricity Authority - India
- PowerSource Philippines DevCo
- White Energy Company Limited
- Cigading International Bulk Terminal - Indonesia
- Lanco Infratech Ltd - India
- Energy Link Ltd, New Zealand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Siam City Cement PLC, Thailand
- Standard Chartered Bank - UAE
- Aditya Birla Group - India
- Bukit Asam (Persero) Tbk - Indonesia
- Commonwealth Bank - Australia
- Maharashtra Electricity Regulatory Commission - India
- Mercuria Energy - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Port Waratah Coal Services - Australia
- Vedanta Resources Plc - India
- Jindal Steel & Power Ltd - India
- Mintek Dendrill Indonesia
- McConnell Dowell - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Bukit Makmur.PT - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Chamber of Mines of South Africa
- SMC Global Power, Philippines
- Chettinad Cement Corporation Ltd - India
- Power Finance Corporation Ltd., India
- Trasteel International SA, Italy
- Uttam Galva Steels Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Bulk Trading Sa - Switzerland
- San Jose City I Power Corp, Philippines
- Thai Mozambique Logistica
- Posco Energy - South Korea
- SN Aboitiz Power Inc, Philippines
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