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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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Friday, 10 April 15
US COAL PRODUCTION FELL 4.7% W-O-W : EIA
COALspot.com – United States the second largest coal producer in the world has produced approximately totaled an estimated 17.4 million short ...
Friday, 10 April 15
DRY BULK MARKET'S DOWNFALL ALSO OFFER INVESTMENT BARGAINS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Dry bulk market rates have fallen to historical lows over the past few weeks, with no clear path of recovery, at least in the near term. As such, m ...
Thursday, 09 April 15
CAPESIZE: RATES ARE STILL DISAPPOINTING - FEARNLEYS
Handy
The handy market had a stronger sentiment before the Easter holidays, but have as the bigger panamaxes seen a softening tendency this week. ...
Wednesday, 08 April 15
DRY BULK MARKET SEEMS UNABLE TO CATCH A BREAK - INTERMODAL
COALspot.com: The Dry Bulk market seems unable to catch a break these days.
According to Intermodal, following the market stabilization that p ...
Wednesday, 08 April 15
CHINA BURNS HALF OF THE WORLD'S COAL - CHRISTOPHER T. WHITTY
Intermodal Weekly Market Update
China is the world's largest consumer of coal, using more coal each year than the United States, the Europ ...
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- Ministry of Mines - Canada
- Oldendorff Carriers - Singapore
- Essar Steel Hazira Ltd - India
- Mjunction Services Limited - India
- TeaM Sual Corporation - Philippines
- Alfred C Toepfer International GmbH - Germany
- Bhoruka Overseas - Indonesia
- Indonesian Coal Mining Association
- Kideco Jaya Agung - Indonesia
- SMC Global Power, Philippines
- Karbindo Abesyapradhi - Indoneisa
- CNBM International Corporation - China
- International Coal Ventures Pvt Ltd - India
- Central Java Power - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Siam City Cement PLC, Thailand
- Semirara Mining and Power Corporation, Philippines
- Madhucon Powers Ltd - India
- Iligan Light & Power Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Uttam Galva Steels Limited - India
- Rashtriya Ispat Nigam Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Global Coal Blending Company Limited - Australia
- Coal and Oil Company - UAE
- Parry Sugars Refinery, India
- IEA Clean Coal Centre - UK
- Sree Jayajothi Cements Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Gujarat Electricity Regulatory Commission - India
- London Commodity Brokers - England
- Georgia Ports Authority, United States
- Coalindo Energy - Indonesia
- Meenaskhi Energy Private Limited - India
- Bayan Resources Tbk. - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Merrill Lynch Commodities Europe
- Cigading International Bulk Terminal - Indonesia
- Bhushan Steel Limited - India
- Videocon Industries ltd - India
- Dalmia Cement Bharat India
- Gujarat Sidhee Cement - India
- ASAPP Information Group - India
- Price Waterhouse Coopers - Russia
- Thiess Contractors Indonesia
- Sojitz Corporation - Japan
- SN Aboitiz Power Inc, Philippines
- Goldman Sachs - Singapore
- Manunggal Multi Energi - Indonesia
- Baramulti Group, Indonesia
- Aboitiz Power Corporation - Philippines
- Kumho Petrochemical, South Korea
- AsiaOL BioFuels Corp., Philippines
- The State Trading Corporation of India Ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- Vizag Seaport Private Limited - India
- Karaikal Port Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Straits Asia Resources Limited - Singapore
- Eastern Energy - Thailand
- IHS Mccloskey Coal Group - USA
- Indo Tambangraya Megah - Indonesia
- Sindya Power Generating Company Private Ltd
- Bhatia International Limited - India
- Indian Energy Exchange, India
- GAC Shipping (India) Pvt Ltd
- Formosa Plastics Group - Taiwan
- Wood Mackenzie - Singapore
- The Treasury - Australian Government
- Metalloyd Limited - United Kingdom
- Indian Oil Corporation Limited
- Sinarmas Energy and Mining - Indonesia
- Posco Energy - South Korea
- Krishnapatnam Port Company Ltd. - India
- Renaissance Capital - South Africa
- Holcim Trading Pte Ltd - Singapore
- Anglo American - United Kingdom
- Trasteel International SA, Italy
- Timah Investasi Mineral - Indoneisa
- Electricity Authority, New Zealand
- Kartika Selabumi Mining - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Petron Corporation, Philippines
- Attock Cement Pakistan Limited
- Independent Power Producers Association of India
- Rio Tinto Coal - Australia
- Borneo Indobara - Indonesia
- Toyota Tsusho Corporation, Japan
- Therma Luzon, Inc, Philippines
- GMR Energy Limited - India
- Banpu Public Company Limited - Thailand
- Star Paper Mills Limited - India
- Latin American Coal - Colombia
- Simpson Spence & Young - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Kapuas Tunggal Persada - Indonesia
- Chamber of Mines of South Africa
- Siam City Cement - Thailand
- Chettinad Cement Corporation Ltd - India
- Energy Link Ltd, New Zealand
- Africa Commodities Group - South Africa
- Grasim Industreis Ltd - India
- Central Electricity Authority - India
- Xindia Steels Limited - India
- Ambuja Cements Ltd - India
- SMG Consultants - Indonesia
- Ind-Barath Power Infra Limited - India
- Orica Mining Services - Indonesia
- Bukit Baiduri Energy - Indonesia
- Thai Mozambique Logistica
- Tata Chemicals Ltd - India
- New Zealand Coal & Carbon
- Romanian Commodities Exchange
- Singapore Mercantile Exchange
- Neyveli Lignite Corporation Ltd, - India
- Bangladesh Power Developement Board
- Makarim & Taira - Indonesia
- Lanco Infratech Ltd - India
- Wilmar Investment Holdings
- Sical Logistics Limited - India
- Sakthi Sugars Limited - India
- Electricity Generating Authority of Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- CIMB Investment Bank - Malaysia
- White Energy Company Limited
- Maheswari Brothers Coal Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Australian Coal Association
- Pendopo Energi Batubara - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Standard Chartered Bank - UAE
- Miang Besar Coal Terminal - Indonesia
- Samtan Co., Ltd - South Korea
- GN Power Mariveles Coal Plant, Philippines
- Bukit Makmur.PT - Indonesia
- Australian Commodity Traders Exchange
- Interocean Group of Companies - India
- Kaltim Prima Coal - Indonesia
- Tamil Nadu electricity Board
- PTC India Limited - India
- Deloitte Consulting - India
- Leighton Contractors Pty Ltd - Australia
- Riau Bara Harum - Indonesia
- Larsen & Toubro Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Marubeni Corporation - India
- Vedanta Resources Plc - India
- Minerals Council of Australia
- Ministry of Finance - Indonesia
- Ministry of Transport, Egypt
- Intertek Mineral Services - Indonesia
- India Bulls Power Limited - India
- Savvy Resources Ltd - HongKong
- Globalindo Alam Lestari - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Gujarat Mineral Development Corp Ltd - India
- McConnell Dowell - Australia
- LBH Netherlands Bv - Netherlands
- Antam Resourcindo - Indonesia
- Jaiprakash Power Ventures ltd
- Indika Energy - Indonesia
- South Luzon Thermal Energy Corporation
- Cement Manufacturers Association - India
- Asmin Koalindo Tuhup - Indonesia
- Sarangani Energy Corporation, Philippines
- Mercuria Energy - Indonesia
- Parliament of New Zealand
- Edison Trading Spa - Italy
- Kobexindo Tractors - Indoneisa
- Jindal Steel & Power Ltd - India
- GVK Power & Infra Limited - India
- Meralco Power Generation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Semirara Mining Corp, Philippines
- The University of Queensland
- Aditya Birla Group - India
- Kohat Cement Company Ltd. - Pakistan
- Billiton Holdings Pty Ltd - Australia
- Port Waratah Coal Services - Australia
- Bharathi Cement Corporation - India
- Commonwealth Bank - Australia
- Orica Australia Pty. Ltd.
- European Bulk Services B.V. - Netherlands
- Kepco SPC Power Corporation, Philippines
- Global Business Power Corporation, Philippines
- Altura Mining Limited, Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Directorate Of Revenue Intelligence - India
- Energy Development Corp, Philippines
- ICICI Bank Limited - India
- Indogreen Group - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Salva Resources Pvt Ltd - India
- Mintek Dendrill Indonesia
- Planning Commission, India
- Eastern Coal Council - USA
- PowerSource Philippines DevCo
- Heidelberg Cement - Germany
- Barasentosa Lestari - Indonesia
- Power Finance Corporation Ltd., India
- Bulk Trading Sa - Switzerland
- Mercator Lines Limited - India
- Carbofer General Trading SA - India
- Medco Energi Mining Internasional
- Jorong Barutama Greston.PT - Indonesia
- MS Steel International - UAE
- Bukit Asam (Persero) Tbk - Indonesia
- Global Green Power PLC Corporation, Philippines
- San Jose City I Power Corp, Philippines
- PNOC Exploration Corporation - Philippines
- OPG Power Generation Pvt Ltd - India
- VISA Power Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Malabar Cements Ltd - India
- Economic Council, Georgia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Agrawal Coal Company - India
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