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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 $75/bbl over the next few years.
I do, however, believe it is beyond the ability of men to predict the exact shape of the swing cycle, in terms of the period and cycle frequency.
Source: The Jakarta Post
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The writer has been working in the oil and gas business for about 30 years.
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Tuesday, 07 April 15
SUB-BIT FOB INDONESIA COAL SWAP KEEPS DROPPING; DROPPED 2% W-W
COALspot.com: Indonesian coal swap for delivery Q2 2015 declined month on month and week over week.
The Q2 swap was declined US$ 2.44 (5.14%) ...
Tuesday, 07 April 15
Q3 FOB RICHARDS BAY COAL SWAP CLOSED AT $ 55.96 PMT; DOWN 8.40% M-M
COALspot.com: API4 FOB Richards Bay Coal swap for delivery Q2' 2015 declined month over month and week on week.
The Q2 swap has declined U ...
Monday, 06 April 15
INDONESIA'S HBA FIXED AT US$ 64.48 PMT FOR APRIL DELIVERY; DOWN 4.84% M-M
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia revised down Indonesian coal benchmark prices to US$ 64.48 per MT in Apr ...
Monday, 06 April 15
FOB NEWCASTLE COAL SWAP DECLINED 12% MONTH OVER MONTH
COALspot.com: API 5 FOB Newcastle Coal swap for Q2’ 2015 delivery declined US$ 6.23 per MT (-12%) month over month and US$ 0.86 (-1.85%) week ...
Monday, 06 April 15
CFR SOUTH CHINA COAL SWAP FALL CONTINUES
COALspot.com: API 8 CFR South China Coal swap for Q2’ 2015 delivery declined US$ 5.96 (-10.37%) per MT month over month and US$ 0.98 (- ...
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- Alfred C Toepfer International GmbH - Germany
- Australian Coal Association
- Port Waratah Coal Services - Australia
- Iligan Light & Power Inc, Philippines
- Banpu Public Company Limited - Thailand
- Romanian Commodities Exchange
- Bhushan Steel Limited - India
- Directorate Of Revenue Intelligence - India
- Price Waterhouse Coopers - Russia
- Central Java Power - Indonesia
- Altura Mining Limited, Indonesia
- Madhucon Powers Ltd - India
- Toyota Tsusho Corporation, Japan
- South Luzon Thermal Energy Corporation
- Central Electricity Authority - India
- Semirara Mining and Power Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- India Bulls Power Limited - India
- Tata Chemicals Ltd - India
- ICICI Bank Limited - India
- Metalloyd Limited - United Kingdom
- Edison Trading Spa - Italy
- Bahari Cakrawala Sebuku - Indonesia
- Pendopo Energi Batubara - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Savvy Resources Ltd - HongKong
- Timah Investasi Mineral - Indoneisa
- PTC India Limited - India
- Ind-Barath Power Infra Limited - India
- Mercuria Energy - Indonesia
- Indika Energy - Indonesia
- GAC Shipping (India) Pvt Ltd
- Semirara Mining Corp, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kartika Selabumi Mining - Indonesia
- New Zealand Coal & Carbon
- Petron Corporation, Philippines
- Australian Commodity Traders Exchange
- Siam City Cement PLC, Thailand
- Sindya Power Generating Company Private Ltd
- Eastern Coal Council - USA
- IHS Mccloskey Coal Group - USA
- OPG Power Generation Pvt Ltd - India
- Coal and Oil Company - UAE
- GVK Power & Infra Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Bangladesh Power Developement Board
- Indian Oil Corporation Limited
- PetroVietnam Power Coal Import and Supply Company
- Kepco SPC Power Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Therma Luzon, Inc, Philippines
- Bulk Trading Sa - Switzerland
- Parliament of New Zealand
- Sree Jayajothi Cements Limited - India
- Merrill Lynch Commodities Europe
- Bayan Resources Tbk. - Indonesia
- Makarim & Taira - Indonesia
- Essar Steel Hazira Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Straits Asia Resources Limited - Singapore
- SMC Global Power, Philippines
- Anglo American - United Kingdom
- London Commodity Brokers - England
- CNBM International Corporation - China
- Binh Thuan Hamico - Vietnam
- Jindal Steel & Power Ltd - India
- Dalmia Cement Bharat India
- Eastern Energy - Thailand
- Billiton Holdings Pty Ltd - Australia
- Bhatia International Limited - India
- Malabar Cements Ltd - India
- McConnell Dowell - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Formosa Plastics Group - Taiwan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Sical Logistics Limited - India
- Chettinad Cement Corporation Ltd - India
- Kideco Jaya Agung - Indonesia
- Intertek Mineral Services - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Indonesian Coal Mining Association
- Mjunction Services Limited - India
- Orica Mining Services - Indonesia
- Meenaskhi Energy Private Limited - India
- VISA Power Limited - India
- AsiaOL BioFuels Corp., Philippines
- Manunggal Multi Energi - Indonesia
- Sarangani Energy Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Oldendorff Carriers - Singapore
- Vizag Seaport Private Limited - India
- Grasim Industreis Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Minerals Council of Australia
- Goldman Sachs - Singapore
- Meralco Power Generation, Philippines
- Electricity Authority, New Zealand
- Coastal Gujarat Power Limited - India
- Riau Bara Harum - Indonesia
- Planning Commission, India
- Samtan Co., Ltd - South Korea
- Africa Commodities Group - South Africa
- Xindia Steels Limited - India
- International Coal Ventures Pvt Ltd - India
- Larsen & Toubro Limited - India
- ASAPP Information Group - India
- Asmin Koalindo Tuhup - Indonesia
- Ambuja Cements Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Economic Council, Georgia
- Thiess Contractors Indonesia
- Attock Cement Pakistan Limited
- Standard Chartered Bank - UAE
- Power Finance Corporation Ltd., India
- IEA Clean Coal Centre - UK
- Parry Sugars Refinery, India
- Sinarmas Energy and Mining - Indonesia
- Wilmar Investment Holdings
- Vedanta Resources Plc - India
- Sojitz Corporation - Japan
- Posco Energy - South Korea
- Medco Energi Mining Internasional
- Ministry of Mines - Canada
- Aditya Birla Group - India
- Agrawal Coal Company - India
- Bhoruka Overseas - Indonesia
- Thai Mozambique Logistica
- Orica Australia Pty. Ltd.
- Ceylon Electricity Board - Sri Lanka
- Bukit Makmur.PT - Indonesia
- Gujarat Sidhee Cement - India
- Deloitte Consulting - India
- Cement Manufacturers Association - India
- Energy Development Corp, Philippines
- Chamber of Mines of South Africa
- GMR Energy Limited - India
- Uttam Galva Steels Limited - India
- Wood Mackenzie - Singapore
- Kaltim Prima Coal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kohat Cement Company Ltd. - Pakistan
- Sakthi Sugars Limited - India
- European Bulk Services B.V. - Netherlands
- PNOC Exploration Corporation - Philippines
- Indian Energy Exchange, India
- Baramulti Group, Indonesia
- Marubeni Corporation - India
- The Treasury - Australian Government
- SN Aboitiz Power Inc, Philippines
- Renaissance Capital - South Africa
- Singapore Mercantile Exchange
- Miang Besar Coal Terminal - Indonesia
- Bukit Baiduri Energy - Indonesia
- Salva Resources Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Georgia Ports Authority, United States
- Petrochimia International Co. Ltd.- Taiwan
- Leighton Contractors Pty Ltd - Australia
- Borneo Indobara - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- SMG Consultants - Indonesia
- Latin American Coal - Colombia
- Ministry of Transport, Egypt
- Kapuas Tunggal Persada - Indonesia
- Mercator Lines Limited - India
- Carbofer General Trading SA - India
- White Energy Company Limited
- Electricity Generating Authority of Thailand
- Krishnapatnam Port Company Ltd. - India
- Cigading International Bulk Terminal - Indonesia
- Globalindo Alam Lestari - Indonesia
- Global Coal Blending Company Limited - Australia
- Videocon Industries ltd - India
- Trasteel International SA, Italy
- Kobexindo Tractors - Indoneisa
- Energy Link Ltd, New Zealand
- Tamil Nadu electricity Board
- LBH Netherlands Bv - Netherlands
- MS Steel International - UAE
- Lanco Infratech Ltd - India
- The State Trading Corporation of India Ltd
- Karaikal Port Pvt Ltd - India
- Interocean Group of Companies - India
- San Jose City I Power Corp, Philippines
- Barasentosa Lestari - Indonesia
- Indogreen Group - Indonesia
- Global Green Power PLC Corporation, Philippines
- Rio Tinto Coal - Australia
- Global Business Power Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Commonwealth Bank - Australia
- Heidelberg Cement - Germany
- Jorong Barutama Greston.PT - Indonesia
- Aboitiz Power Corporation - Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Karbindo Abesyapradhi - Indoneisa
- Ministry of Finance - Indonesia
- Kumho Petrochemical, South Korea
- Maheswari Brothers Coal Limited - India
- Mintek Dendrill Indonesia
- Indo Tambangraya Megah - Indonesia
- PowerSource Philippines DevCo
- CIMB Investment Bank - Malaysia
- Siam City Cement - Thailand
- The University of Queensland
- Star Paper Mills Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Bharathi Cement Corporation - India
- Antam Resourcindo - Indonesia
- Independent Power Producers Association of India
- Coalindo Energy - Indonesia
- Jaiprakash Power Ventures ltd
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