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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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Tuesday, 17 January 23
CHINA'S SHANXI TARGETS 2023 COAL PRODUCTION OF NEARLY 1.37B TONS - XINHUA
China’s coal-rich province of Shanxi has set a coal production target of nearly 1.37 billion metric tons for 2023, according to a government ...
Tuesday, 17 January 23
MARKET INSIGHT - INTERMODAL
Rumor has it that the New Year has come, to set the pace in, for Russia to continue hostilities against Ukraine. Ten months on the go, into Russia& ...
Tuesday, 17 January 23
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Tuesday, 10 January 23
INDONESIAN HBA IS SEEING A SPIKE IN JANUARY 2023 INSTEAD OF A SIGNIFICANT FALL IN DECEMBER 2022
COALspot.com: Indonesian Coal Price Reference up 8.43% in January 2023.
HBA is seeing a dramatic spike in January 2023 i ...
Sunday, 08 January 23
INDIAN COAL POWER PLANTS SHOULD BE COMPENSATED FOR 2022 FORCED GENERATION – REGULATOR : REUTERS
Indian power plants that rely on imported coal should be fully compensated when forced to supply electricity, the country’s power regulator s ...
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- Bangladesh Power Developement Board
- Medco Energi Mining Internasional
- Pipit Mutiara Jaya. PT, Indonesia
- Electricity Generating Authority of Thailand
- Orica Australia Pty. Ltd.
- Binh Thuan Hamico - Vietnam
- Trasteel International SA, Italy
- Leighton Contractors Pty Ltd - Australia
- Rio Tinto Coal - Australia
- Formosa Plastics Group - Taiwan
- Meenaskhi Energy Private Limited - India
- SN Aboitiz Power Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- PTC India Limited - India
- Minerals Council of Australia
- SMG Consultants - Indonesia
- Central Java Power - Indonesia
- Toyota Tsusho Corporation, Japan
- Planning Commission, India
- Agrawal Coal Company - India
- Miang Besar Coal Terminal - Indonesia
- Vizag Seaport Private Limited - India
- Ministry of Mines - Canada
- Carbofer General Trading SA - India
- Bukit Baiduri Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- Economic Council, Georgia
- Tamil Nadu electricity Board
- Intertek Mineral Services - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- The University of Queensland
- Coal and Oil Company - UAE
- Ministry of Transport, Egypt
- Kumho Petrochemical, South Korea
- Independent Power Producers Association of India
- ASAPP Information Group - India
- Directorate General of MIneral and Coal - Indonesia
- Parliament of New Zealand
- Global Coal Blending Company Limited - Australia
- Mercator Lines Limited - India
- Thiess Contractors Indonesia
- Bhushan Steel Limited - India
- Pendopo Energi Batubara - Indonesia
- Deloitte Consulting - India
- OPG Power Generation Pvt Ltd - India
- Indonesian Coal Mining Association
- Maheswari Brothers Coal Limited - India
- Standard Chartered Bank - UAE
- IEA Clean Coal Centre - UK
- SMC Global Power, Philippines
- Cement Manufacturers Association - India
- Siam City Cement PLC, Thailand
- Ministry of Finance - Indonesia
- Star Paper Mills Limited - India
- Romanian Commodities Exchange
- Indika Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- Uttam Galva Steels Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Makarim & Taira - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Neyveli Lignite Corporation Ltd, - India
- Electricity Authority, New Zealand
- Posco Energy - South Korea
- Australian Commodity Traders Exchange
- Sarangani Energy Corporation, Philippines
- Sojitz Corporation - Japan
- CNBM International Corporation - China
- CIMB Investment Bank - Malaysia
- Anglo American - United Kingdom
- Xindia Steels Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Kaltim Prima Coal - Indonesia
- Essar Steel Hazira Ltd - India
- Oldendorff Carriers - Singapore
- Jaiprakash Power Ventures ltd
- IHS Mccloskey Coal Group - USA
- Simpson Spence & Young - Indonesia
- Gujarat Sidhee Cement - India
- VISA Power Limited - India
- GAC Shipping (India) Pvt Ltd
- Energy Development Corp, Philippines
- Goldman Sachs - Singapore
- Therma Luzon, Inc, Philippines
- Chettinad Cement Corporation Ltd - India
- Indian Oil Corporation Limited
- Sakthi Sugars Limited - India
- Indian Energy Exchange, India
- Ambuja Cements Ltd - India
- White Energy Company Limited
- Vijayanagar Sugar Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Kideco Jaya Agung - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- LBH Netherlands Bv - Netherlands
- Semirara Mining and Power Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Samtan Co., Ltd - South Korea
- Kepco SPC Power Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Global Green Power PLC Corporation, Philippines
- PowerSource Philippines DevCo
- GVK Power & Infra Limited - India
- Vedanta Resources Plc - India
- AsiaOL BioFuels Corp., Philippines
- Timah Investasi Mineral - Indoneisa
- Bhoruka Overseas - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- The State Trading Corporation of India Ltd
- European Bulk Services B.V. - Netherlands
- Bahari Cakrawala Sebuku - Indonesia
- Iligan Light & Power Inc, Philippines
- ICICI Bank Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Chamber of Mines of South Africa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Straits Asia Resources Limited - Singapore
- Wilmar Investment Holdings
- Coalindo Energy - Indonesia
- Commonwealth Bank - Australia
- Sindya Power Generating Company Private Ltd
- Heidelberg Cement - Germany
- Meralco Power Generation, Philippines
- Videocon Industries ltd - India
- India Bulls Power Limited - India
- Eastern Energy - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Malabar Cements Ltd - India
- GMR Energy Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Bukit Asam (Persero) Tbk - Indonesia
- Altura Mining Limited, Indonesia
- Karaikal Port Pvt Ltd - India
- Renaissance Capital - South Africa
- Eastern Coal Council - USA
- Asmin Koalindo Tuhup - Indonesia
- Attock Cement Pakistan Limited
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indo Tambangraya Megah - Indonesia
- Madhucon Powers Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Banpu Public Company Limited - Thailand
- Semirara Mining Corp, Philippines
- New Zealand Coal & Carbon
- Indogreen Group - Indonesia
- Larsen & Toubro Limited - India
- San Jose City I Power Corp, Philippines
- Bulk Trading Sa - Switzerland
- Cigading International Bulk Terminal - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Mjunction Services Limited - India
- Kobexindo Tractors - Indoneisa
- Siam City Cement - Thailand
- Australian Coal Association
- Parry Sugars Refinery, India
- Rashtriya Ispat Nigam Limited - India
- Jindal Steel & Power Ltd - India
- Ind-Barath Power Infra Limited - India
- Energy Link Ltd, New Zealand
- Bank of Tokyo Mitsubishi UFJ Ltd
- McConnell Dowell - Australia
- Petron Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Bharathi Cement Corporation - India
- Merrill Lynch Commodities Europe
- Bhatia International Limited - India
- MS Steel International - UAE
- Wood Mackenzie - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Holcim Trading Pte Ltd - Singapore
- Barasentosa Lestari - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Interocean Group of Companies - India
- Orica Mining Services - Indonesia
- Power Finance Corporation Ltd., India
- Sree Jayajothi Cements Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Baramulti Group, Indonesia
- Singapore Mercantile Exchange
- Mercuria Energy - Indonesia
- Marubeni Corporation - India
- The Treasury - Australian Government
- Thai Mozambique Logistica
- Sical Logistics Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Grasim Industreis Ltd - India
- Dalmia Cement Bharat India
- Tata Chemicals Ltd - India
- Georgia Ports Authority, United States
- Kapuas Tunggal Persada - Indonesia
- Global Business Power Corporation, Philippines
- Coastal Gujarat Power Limited - India
- Mintek Dendrill Indonesia
- International Coal Ventures Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- South Luzon Thermal Energy Corporation
- Bayan Resources Tbk. - Indonesia
- Port Waratah Coal Services - Australia
- Edison Trading Spa - Italy
- Manunggal Multi Energi - Indonesia
- London Commodity Brokers - England
- Antam Resourcindo - Indonesia
- Metalloyd Limited - United Kingdom
- Borneo Indobara - Indonesia
- Aditya Birla Group - India
- Riau Bara Harum - Indonesia
- Lanco Infratech Ltd - India
- Price Waterhouse Coopers - Russia
- Alfred C Toepfer International GmbH - Germany
- Latin American Coal - Colombia
- Central Electricity Authority - India
- Salva Resources Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Africa Commodities Group - South Africa
- Sinarmas Energy and Mining - Indonesia
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