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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 March 15
KYUSHU ELECTRIC POWER OF JAPAN HAS JOINED GLOBALCOAL ONLINE COAL TRADING PLATFORM
globalCOAL® announced today that Kyushu Electric Power, one of Japan’s largest utility companies, has joined its online coal trading plat ...
Wednesday, 25 March 15
MARKET INSIGHT: TANKER CHARTERING - KATERINA RESTIS
The 1st of January 2015, as broadly reported, denoted the beginning date of new and progressive emission regulations for vessels operating within t ...
Wednesday, 25 March 15
AUSTRALIA SET TO ONCE AGAIN BE THE WORLD'S LARGEST COAL EXPORTER - COAL, MINERALS COUNCIL OF AUSTRALIA
Greg Evans, Executive Director - Coal, Minerals Council of Australia
Media Release: The latest Resources and Energy Quarterly published by the ...
Wednesday, 25 March 15
AUSTRALIA UPSTREAM ENERGY FIRMS FACE RISING OIL PRICE EXPOSURE - FITCH
Fitch Ratings says the Australian oil and gas companies involved in exploration and production face higher exposure to oil price-linked revenues, w ...
Wednesday, 25 March 15
2014 : UK COAL IMPORTS DECLINED 17%; GERMANY COAL IMPORTS UP 6%
Hard Coal Market 2014: Despite The Energy Turnaround, Hard Coal Imports To Germany Rise By More Than 6%, Although Hard Coal-Fired Power Generation ...
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- Larsen & Toubro Limited - India
- MS Steel International - UAE
- Directorate General of MIneral and Coal - Indonesia
- IEA Clean Coal Centre - UK
- Indika Energy - Indonesia
- SMC Global Power, Philippines
- London Commodity Brokers - England
- India Bulls Power Limited - India
- ICICI Bank Limited - India
- Energy Link Ltd, New Zealand
- Maheswari Brothers Coal Limited - India
- Interocean Group of Companies - India
- Attock Cement Pakistan Limited
- LBH Netherlands Bv - Netherlands
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bhatia International Limited - India
- Xindia Steels Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Karaikal Port Pvt Ltd - India
- Power Finance Corporation Ltd., India
- GVK Power & Infra Limited - India
- Semirara Mining and Power Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Samtan Co., Ltd - South Korea
- Asmin Koalindo Tuhup - Indonesia
- SMG Consultants - Indonesia
- Pendopo Energi Batubara - Indonesia
- Star Paper Mills Limited - India
- Indonesian Coal Mining Association
- Bhoruka Overseas - Indonesia
- Medco Energi Mining Internasional
- Gujarat Sidhee Cement - India
- Grasim Industreis Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Ministry of Mines - Canada
- Marubeni Corporation - India
- Barasentosa Lestari - Indonesia
- Videocon Industries ltd - India
- Jindal Steel & Power Ltd - India
- Kumho Petrochemical, South Korea
- Dalmia Cement Bharat India
- Sinarmas Energy and Mining - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Semirara Mining Corp, Philippines
- Meenaskhi Energy Private Limited - India
- Price Waterhouse Coopers - Russia
- Uttam Galva Steels Limited - India
- Latin American Coal - Colombia
- White Energy Company Limited
- Jorong Barutama Greston.PT - Indonesia
- Siam City Cement PLC, Thailand
- Petron Corporation, Philippines
- Sojitz Corporation - Japan
- Altura Mining Limited, Indonesia
- Commonwealth Bank - Australia
- Formosa Plastics Group - Taiwan
- Bangladesh Power Developement Board
- Straits Asia Resources Limited - Singapore
- Leighton Contractors Pty Ltd - Australia
- Bulk Trading Sa - Switzerland
- Miang Besar Coal Terminal - Indonesia
- Global Green Power PLC Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Romanian Commodities Exchange
- Madhucon Powers Ltd - India
- Indian Oil Corporation Limited
- Central Java Power - Indonesia
- Bhushan Steel Limited - India
- PowerSource Philippines DevCo
- Central Electricity Authority - India
- Merrill Lynch Commodities Europe
- Australian Coal Association
- GMR Energy Limited - India
- Carbofer General Trading SA - India
- Ministry of Finance - Indonesia
- Thiess Contractors Indonesia
- Agrawal Coal Company - India
- Aditya Birla Group - India
- Riau Bara Harum - Indonesia
- Tata Chemicals Ltd - India
- GAC Shipping (India) Pvt Ltd
- PNOC Exploration Corporation - Philippines
- Minerals Council of Australia
- Electricity Authority, New Zealand
- Thai Mozambique Logistica
- Antam Resourcindo - Indonesia
- Trasteel International SA, Italy
- The University of Queensland
- Ministry of Transport, Egypt
- Bukit Makmur.PT - Indonesia
- TeaM Sual Corporation - Philippines
- Heidelberg Cement - Germany
- Mercuria Energy - Indonesia
- South Luzon Thermal Energy Corporation
- VISA Power Limited - India
- CNBM International Corporation - China
- Economic Council, Georgia
- Orica Australia Pty. Ltd.
- Cigading International Bulk Terminal - Indonesia
- Oldendorff Carriers - Singapore
- Savvy Resources Ltd - HongKong
- Baramulti Group, Indonesia
- Mjunction Services Limited - India
- Edison Trading Spa - Italy
- European Bulk Services B.V. - Netherlands
- Coastal Gujarat Power Limited - India
- Kapuas Tunggal Persada - Indonesia
- New Zealand Coal & Carbon
- Malabar Cements Ltd - India
- CIMB Investment Bank - Malaysia
- Aboitiz Power Corporation - Philippines
- Cement Manufacturers Association - India
- Jaiprakash Power Ventures ltd
- Siam City Cement - Thailand
- Rashtriya Ispat Nigam Limited - India
- Timah Investasi Mineral - Indoneisa
- Vijayanagar Sugar Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Energy Development Corp, Philippines
- Parry Sugars Refinery, India
- Kohat Cement Company Ltd. - Pakistan
- Sindya Power Generating Company Private Ltd
- Bukit Baiduri Energy - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Intertek Mineral Services - Indonesia
- Globalindo Alam Lestari - Indonesia
- Eastern Coal Council - USA
- Tamil Nadu electricity Board
- Chettinad Cement Corporation Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Krishnapatnam Port Company Ltd. - India
- Kartika Selabumi Mining - Indonesia
- Port Waratah Coal Services - Australia
- Salva Resources Pvt Ltd - India
- Meralco Power Generation, Philippines
- Chamber of Mines of South Africa
- Mintek Dendrill Indonesia
- Africa Commodities Group - South Africa
- The Treasury - Australian Government
- Ambuja Cements Ltd - India
- Coal and Oil Company - UAE
- Posco Energy - South Korea
- Indian Energy Exchange, India
- The State Trading Corporation of India Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Toyota Tsusho Corporation, Japan
- Pipit Mutiara Jaya. PT, Indonesia
- Iligan Light & Power Inc, Philippines
- Bharathi Cement Corporation - India
- Vedanta Resources Plc - India
- Independent Power Producers Association of India
- Standard Chartered Bank - UAE
- Sree Jayajothi Cements Limited - India
- Wood Mackenzie - Singapore
- Simpson Spence & Young - Indonesia
- Binh Thuan Hamico - Vietnam
- Indogreen Group - Indonesia
- Holcim Trading Pte Ltd - Singapore
- International Coal Ventures Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Manunggal Multi Energi - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Planning Commission, India
- Metalloyd Limited - United Kingdom
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Kideco Jaya Agung - Indonesia
- Essar Steel Hazira Ltd - India
- Rio Tinto Coal - Australia
- Deloitte Consulting - India
- Indo Tambangraya Megah - Indonesia
- McConnell Dowell - Australia
- ASAPP Information Group - India
- Kepco SPC Power Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Kaltim Prima Coal - Indonesia
- IHS Mccloskey Coal Group - USA
- SN Aboitiz Power Inc, Philippines
- PetroVietnam Power Coal Import and Supply Company
- TNB Fuel Sdn Bhd - Malaysia
- Georgia Ports Authority, United States
- Eastern Energy - Thailand
- Sical Logistics Limited - India
- Banpu Public Company Limited - Thailand
- Gujarat Mineral Development Corp Ltd - India
- Goldman Sachs - Singapore
- Anglo American - United Kingdom
- Parliament of New Zealand
- Billiton Holdings Pty Ltd - Australia
- Kobexindo Tractors - Indoneisa
- Vizag Seaport Private Limited - India
- Global Coal Blending Company Limited - Australia
- Ind-Barath Power Infra Limited - India
- Makarim & Taira - Indonesia
- Orica Mining Services - Indonesia
- Global Business Power Corporation, Philippines
- PTC India Limited - India
- Therma Luzon, Inc, Philippines
- Wilmar Investment Holdings
- Bukit Asam (Persero) Tbk - Indonesia
- Mercator Lines Limited - India
- Electricity Generating Authority of Thailand
- Renaissance Capital - South Africa
- AsiaOL BioFuels Corp., Philippines
- Singapore Mercantile Exchange
- Directorate Of Revenue Intelligence - India
- Borneo Indobara - Indonesia
- Sakthi Sugars Limited - India
- Coalindo Energy - Indonesia
- Australian Commodity Traders Exchange
- Bayan Resources Tbk. - Indonesia
- Lanco Infratech Ltd - India
- OPG Power Generation Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
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