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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, 26 January 23
AUSTRALIA'S CORONADO GLOBAL SEES COAL PRICES RISING ON RESUMING CHINA IMPORTS - REUTERS
Australia’s Coronado Global Resources said on Tuesday resuming metallurgical coal imports to China would likely push sea-borne coal prices hi ...
Monday, 23 January 23
CHINA'S MAJOR COAL-PRODUCING PROVINCE ACCELERATES DIGITAL TRANSFORMATION - XINHUA
At Chindata Group’s big-data industrial park in Lingqiu County of Datong City, hundreds of thousands of servers are running round-the-clock t ...
Monday, 23 January 23
CHINA'S COAL-RICH PROVINCE SEES COAL PRODUCTION INCREASE IN 2022 - XINHUA
North China’s coal-rich province of Shanxi saw its coal production hit 1.31 billion tonnes in 2022, up 8.7 percent year on year, local author ...
Wednesday, 18 January 23
MARKET INSIGHT - INTERMODAL
From Feb 5, another price cap will be introduced to Russian fuels and oil products, adding to the one for crude oil, already in place from Dec. 3. ...
Tuesday, 17 January 23
FRAUD IS THE BIGGEST THREAT TO CARGO LOSSES - TT CLUB
The almost exclusive use of online facilities to process business transactions allows a myriad of fraudulent pursuits to find opportunities within ...
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- Planning Commission, India
- The State Trading Corporation of India Ltd
- International Coal Ventures Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Bhushan Steel Limited - India
- Port Waratah Coal Services - Australia
- Trasteel International SA, Italy
- Lanco Infratech Ltd - India
- Aboitiz Power Corporation - Philippines
- Orica Mining Services - Indonesia
- IEA Clean Coal Centre - UK
- Makarim & Taira - Indonesia
- The University of Queensland
- Indika Energy - Indonesia
- Eastern Coal Council - USA
- CNBM International Corporation - China
- VISA Power Limited - India
- Bhatia International Limited - India
- Kobexindo Tractors - Indoneisa
- Offshore Bulk Terminal Pte Ltd, Singapore
- Coastal Gujarat Power Limited - India
- Larsen & Toubro Limited - India
- Coal and Oil Company - UAE
- Mercator Lines Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Meralco Power Generation, Philippines
- Renaissance Capital - South Africa
- Commonwealth Bank - Australia
- Banpu Public Company Limited - Thailand
- Grasim Industreis Ltd - India
- South Luzon Thermal Energy Corporation
- Indonesian Coal Mining Association
- MS Steel International - UAE
- Uttam Galva Steels Limited - India
- Global Green Power PLC Corporation, Philippines
- Altura Mining Limited, Indonesia
- Ambuja Cements Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Indogreen Group - Indonesia
- Tata Chemicals Ltd - India
- Bukit Makmur.PT - Indonesia
- Malabar Cements Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kaltim Prima Coal - Indonesia
- Parliament of New Zealand
- Chettinad Cement Corporation Ltd - India
- Timah Investasi Mineral - Indoneisa
- Sical Logistics Limited - India
- Rio Tinto Coal - Australia
- Eastern Energy - Thailand
- Ministry of Finance - Indonesia
- Siam City Cement - Thailand
- Energy Link Ltd, New Zealand
- Jaiprakash Power Ventures ltd
- Meenaskhi Energy Private Limited - India
- GVK Power & Infra Limited - India
- Mintek Dendrill Indonesia
- Chamber of Mines of South Africa
- Indian Energy Exchange, India
- GMR Energy Limited - India
- Baramulti Group, Indonesia
- Metalloyd Limited - United Kingdom
- Central Java Power - Indonesia
- Sojitz Corporation - Japan
- Dalmia Cement Bharat India
- ICICI Bank Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Merrill Lynch Commodities Europe
- Sarangani Energy Corporation, Philippines
- White Energy Company Limited
- Bukit Baiduri Energy - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- LBH Netherlands Bv - Netherlands
- ASAPP Information Group - India
- Jorong Barutama Greston.PT - Indonesia
- Economic Council, Georgia
- Price Waterhouse Coopers - Russia
- Vizag Seaport Private Limited - India
- Africa Commodities Group - South Africa
- Bangladesh Power Developement Board
- Mjunction Services Limited - India
- Pendopo Energi Batubara - Indonesia
- Directorate Of Revenue Intelligence - India
- Semirara Mining and Power Corporation, Philippines
- Romanian Commodities Exchange
- Wilmar Investment Holdings
- Aditya Birla Group - India
- Electricity Generating Authority of Thailand
- Petron Corporation, Philippines
- Orica Australia Pty. Ltd.
- Oldendorff Carriers - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Power Finance Corporation Ltd., India
- Global Coal Blending Company Limited - Australia
- Savvy Resources Ltd - HongKong
- SMC Global Power, Philippines
- Vedanta Resources Plc - India
- Sindya Power Generating Company Private Ltd
- Sree Jayajothi Cements Limited - India
- McConnell Dowell - Australia
- Wood Mackenzie - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Thiess Contractors Indonesia
- Simpson Spence & Young - Indonesia
- Bhoruka Overseas - Indonesia
- The Treasury - Australian Government
- Kideco Jaya Agung - Indonesia
- London Commodity Brokers - England
- India Bulls Power Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Carbofer General Trading SA - India
- SN Aboitiz Power Inc, Philippines
- Jindal Steel & Power Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Bulk Trading Sa - Switzerland
- Riau Bara Harum - Indonesia
- Borneo Indobara - Indonesia
- Anglo American - United Kingdom
- Medco Energi Mining Internasional
- OPG Power Generation Pvt Ltd - India
- SMG Consultants - Indonesia
- Madhucon Powers Ltd - India
- Ministry of Mines - Canada
- Thai Mozambique Logistica
- Independent Power Producers Association of India
- AsiaOL BioFuels Corp., Philippines
- Sinarmas Energy and Mining - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Bayan Resources Tbk. - Indonesia
- Kumho Petrochemical, South Korea
- Iligan Light & Power Inc, Philippines
- New Zealand Coal & Carbon
- Maharashtra Electricity Regulatory Commission - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Tamil Nadu electricity Board
- Semirara Mining Corp, Philippines
- Australian Commodity Traders Exchange
- Toyota Tsusho Corporation, Japan
- Cement Manufacturers Association - India
- Ind-Barath Power Infra Limited - India
- Goldman Sachs - Singapore
- Manunggal Multi Energi - Indonesia
- Kartika Selabumi Mining - Indonesia
- Agrawal Coal Company - India
- Karaikal Port Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Australian Coal Association
- Videocon Industries ltd - India
- Cigading International Bulk Terminal - Indonesia
- Straits Asia Resources Limited - Singapore
- Siam City Cement PLC, Thailand
- Xindia Steels Limited - India
- Star Paper Mills Limited - India
- Heidelberg Cement - Germany
- CIMB Investment Bank - Malaysia
- Latin American Coal - Colombia
- Maheswari Brothers Coal Limited - India
- Global Business Power Corporation, Philippines
- Marubeni Corporation - India
- Karbindo Abesyapradhi - Indoneisa
- Energy Development Corp, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Kepco SPC Power Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Samtan Co., Ltd - South Korea
- PTC India Limited - India
- Binh Thuan Hamico - Vietnam
- Billiton Holdings Pty Ltd - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Parry Sugars Refinery, India
- Georgia Ports Authority, United States
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indo Tambangraya Megah - Indonesia
- European Bulk Services B.V. - Netherlands
- Therma Luzon, Inc, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Indian Oil Corporation Limited
- PowerSource Philippines DevCo
- Gujarat Electricity Regulatory Commission - India
- Alfred C Toepfer International GmbH - Germany
- Coalindo Energy - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- GN Power Mariveles Coal Plant, Philippines
- Essar Steel Hazira Ltd - India
- TeaM Sual Corporation - Philippines
- GAC Shipping (India) Pvt Ltd
- Holcim Trading Pte Ltd - Singapore
- Sakthi Sugars Limited - India
- Minerals Council of Australia
- Ministry of Transport, Egypt
- Kapuas Tunggal Persada - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Central Electricity Authority - India
- IHS Mccloskey Coal Group - USA
- Standard Chartered Bank - UAE
- Globalindo Alam Lestari - Indonesia
- PNOC Exploration Corporation - Philippines
- Ceylon Electricity Board - Sri Lanka
- Mercuria Energy - Indonesia
- Electricity Authority, New Zealand
- Deloitte Consulting - India
- Antam Resourcindo - Indonesia
- San Jose City I Power Corp, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Interocean Group of Companies - India
- Singapore Mercantile Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Gujarat Sidhee Cement - India
- Posco Energy - South Korea
- Edison Trading Spa - Italy
- Bharathi Cement Corporation - India
- Salva Resources Pvt Ltd - India
- Attock Cement Pakistan Limited
- Intertek Mineral Services - Indonesia
- Barasentosa Lestari - Indonesia
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