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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 $75/bbl over the next few years.
I do, however, believe it is beyond the ability of men to predict the exact shape of the swing cycle, in terms of the period and cycle frequency.
Source: The Jakarta Post
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The writer has been working in the oil and gas business for about 30 years.
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Monday, 23 March 15
CFR SOUTH CHINA COAL SWAP: Q3 DELIVERY HAS FALLEN 7.93% MONTH-ON-MONTH
COALspot.com: API 8 CFR South China Coal swap for Q2’ 2015 delivery declined US$ 4.09 (-7.06%) per MT month over month and US$ 2.00 (-3 ...
Monday, 23 March 15
SEABORNE WORLD COAL TRADE: GROWTH +5% - GERMAN COAL IMPORTER ASSOCIATION
Hard Coal Market 2014: Despite The Energy Turnaround, Hard Coal Imports To Germany Rise By More Than 6%, Although Hard Coal-Fired Power Generation ...
Sunday, 22 March 15
DRY BULK RATES CONTINUED TO RISE THIS WEEK
COALspot.com: The freight market was steady this week as all the segments increased after many weeks of weak trend.
The Baltic Dry Index (BDI) ...
Friday, 20 March 15
HARD COAL MARKET 2014: DESPITE THE ENERGY TURNAROUND, HARD COAL IMPORTS TO GERMANY RISE BY MORE THAN 6% (PART 1)
Hard Coal Market 2014: Despite The Energy Turnaround, Hard Coal Imports To Germany Rise By More Than 6%, Although Hard Coal-Fired Power Generation ...
Friday, 20 March 15
U.S. WEEKLY COAL PRODUCTION SHOWS 5.9% INCREASE WEEK OVER WEEK - EIA
COALspot.com – United States the world's one of the largest coal producers, produced approximately 18.5 million short tons (mmst) of coal ...
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- Georgia Ports Authority, United States
- Sree Jayajothi Cements Limited - India
- Standard Chartered Bank - UAE
- Mjunction Services Limited - India
- Indo Tambangraya Megah - Indonesia
- Kartika Selabumi Mining - Indonesia
- Altura Mining Limited, Indonesia
- Indian Oil Corporation Limited
- Anglo American - United Kingdom
- Kapuas Tunggal Persada - Indonesia
- Minerals Council of Australia
- Trasteel International SA, Italy
- Barasentosa Lestari - Indonesia
- Agrawal Coal Company - India
- IHS Mccloskey Coal Group - USA
- Orica Mining Services - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GAC Shipping (India) Pvt Ltd
- Toyota Tsusho Corporation, Japan
- Deloitte Consulting - India
- Indian Energy Exchange, India
- Petron Corporation, Philippines
- London Commodity Brokers - England
- Bhatia International Limited - India
- White Energy Company Limited
- Bank of Tokyo Mitsubishi UFJ Ltd
- The University of Queensland
- Pendopo Energi Batubara - Indonesia
- Directorate Of Revenue Intelligence - India
- Pipit Mutiara Jaya. PT, Indonesia
- Madhucon Powers Ltd - India
- SN Aboitiz Power Inc, Philippines
- Sakthi Sugars Limited - India
- Orica Australia Pty. Ltd.
- Siam City Cement - Thailand
- Bahari Cakrawala Sebuku - Indonesia
- Energy Link Ltd, New Zealand
- Eastern Coal Council - USA
- Indika Energy - Indonesia
- Straits Asia Resources Limited - Singapore
- Mintek Dendrill Indonesia
- Sical Logistics Limited - India
- Aditya Birla Group - India
- Karaikal Port Pvt Ltd - India
- Carbofer General Trading SA - India
- GN Power Mariveles Coal Plant, Philippines
- Edison Trading Spa - Italy
- Bangladesh Power Developement Board
- Uttam Galva Steels Limited - India
- Renaissance Capital - South Africa
- Merrill Lynch Commodities Europe
- Bukit Asam (Persero) Tbk - Indonesia
- Videocon Industries ltd - India
- Kepco SPC Power Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- Jaiprakash Power Ventures ltd
- Petrochimia International Co. Ltd.- Taiwan
- Vijayanagar Sugar Pvt Ltd - India
- Tata Chemicals Ltd - India
- VISA Power Limited - India
- Asmin Koalindo Tuhup - Indonesia
- ICICI Bank Limited - India
- Global Green Power PLC Corporation, Philippines
- Bharathi Cement Corporation - India
- Wilmar Investment Holdings
- Kalimantan Lumbung Energi - Indonesia
- Banpu Public Company Limited - Thailand
- Lanco Infratech Ltd - India
- Chamber of Mines of South Africa
- Posco Energy - South Korea
- Romanian Commodities Exchange
- Bayan Resources Tbk. - Indonesia
- Kobexindo Tractors - Indoneisa
- PNOC Exploration Corporation - Philippines
- MS Steel International - UAE
- Krishnapatnam Port Company Ltd. - India
- Attock Cement Pakistan Limited
- Thiess Contractors Indonesia
- Kumho Petrochemical, South Korea
- The Treasury - Australian Government
- Commonwealth Bank - Australia
- Ministry of Finance - Indonesia
- Siam City Cement PLC, Thailand
- Medco Energi Mining Internasional
- Marubeni Corporation - India
- International Coal Ventures Pvt Ltd - India
- Indonesian Coal Mining Association
- Oldendorff Carriers - Singapore
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sojitz Corporation - Japan
- Ind-Barath Power Infra Limited - India
- Parliament of New Zealand
- GMR Energy Limited - India
- Billiton Holdings Pty Ltd - Australia
- OPG Power Generation Pvt Ltd - India
- Bhushan Steel Limited - India
- Riau Bara Harum - Indonesia
- Power Finance Corporation Ltd., India
- Latin American Coal - Colombia
- Planning Commission, India
- AsiaOL BioFuels Corp., Philippines
- Jindal Steel & Power Ltd - India
- Simpson Spence & Young - Indonesia
- Ministry of Transport, Egypt
- Salva Resources Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- Leighton Contractors Pty Ltd - Australia
- Gujarat Mineral Development Corp Ltd - India
- SMC Global Power, Philippines
- Africa Commodities Group - South Africa
- Meenaskhi Energy Private Limited - India
- Dalmia Cement Bharat India
- Baramulti Group, Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Borneo Indobara - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Larsen & Toubro Limited - India
- Economic Council, Georgia
- Semirara Mining and Power Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Coal and Oil Company - UAE
- Tamil Nadu electricity Board
- Electricity Generating Authority of Thailand
- Mercator Lines Limited - India
- Port Waratah Coal Services - Australia
- San Jose City I Power Corp, Philippines
- Intertek Mineral Services - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Sarangani Energy Corporation, Philippines
- Grasim Industreis Ltd - India
- Rashtriya Ispat Nigam Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Ministry of Mines - Canada
- Gujarat Electricity Regulatory Commission - India
- ASAPP Information Group - India
- Manunggal Multi Energi - Indonesia
- Sindya Power Generating Company Private Ltd
- Parry Sugars Refinery, India
- New Zealand Coal & Carbon
- Jorong Barutama Greston.PT - Indonesia
- IEA Clean Coal Centre - UK
- Meralco Power Generation, Philippines
- Global Coal Blending Company Limited - Australia
- Cigading International Bulk Terminal - Indonesia
- Vizag Seaport Private Limited - India
- Rio Tinto Coal - Australia
- Maharashtra Electricity Regulatory Commission - India
- Malabar Cements Ltd - India
- Essar Steel Hazira Ltd - India
- Coastal Gujarat Power Limited - India
- Therma Luzon, Inc, Philippines
- Ceylon Electricity Board - Sri Lanka
- Directorate General of MIneral and Coal - Indonesia
- Ambuja Cements Ltd - India
- CNBM International Corporation - China
- Bukit Makmur.PT - Indonesia
- Antam Resourcindo - Indonesia
- Xindia Steels Limited - India
- Binh Thuan Hamico - Vietnam
- Sinarmas Energy and Mining - Indonesia
- TeaM Sual Corporation - Philippines
- Australian Coal Association
- Formosa Plastics Group - Taiwan
- Aboitiz Power Corporation - Philippines
- Eastern Energy - Thailand
- Electricity Authority, New Zealand
- European Bulk Services B.V. - Netherlands
- Offshore Bulk Terminal Pte Ltd, Singapore
- India Bulls Power Limited - India
- Bhoruka Overseas - Indonesia
- Globalindo Alam Lestari - Indonesia
- Maheswari Brothers Coal Limited - India
- Independent Power Producers Association of India
- Bulk Trading Sa - Switzerland
- Mercuria Energy - Indonesia
- PowerSource Philippines DevCo
- Holcim Trading Pte Ltd - Singapore
- Makarim & Taira - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Singapore Mercantile Exchange
- Goldman Sachs - Singapore
- Metalloyd Limited - United Kingdom
- Coalindo Energy - Indonesia
- Australian Commodity Traders Exchange
- Semirara Mining Corp, Philippines
- Star Paper Mills Limited - India
- LBH Netherlands Bv - Netherlands
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- South Luzon Thermal Energy Corporation
- Energy Development Corp, Philippines
- Gujarat Sidhee Cement - India
- PTC India Limited - India
- Neyveli Lignite Corporation Ltd, - India
- McConnell Dowell - Australia
- The State Trading Corporation of India Ltd
- Bukit Baiduri Energy - Indonesia
- Kideco Jaya Agung - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Central Java Power - Indonesia
- Wood Mackenzie - Singapore
- Price Waterhouse Coopers - Russia
- Heidelberg Cement - Germany
- Karbindo Abesyapradhi - Indoneisa
- Central Electricity Authority - India
- Interocean Group of Companies - India
- Indogreen Group - Indonesia
- Thai Mozambique Logistica
- Global Business Power Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- GVK Power & Infra Limited - India
- Vedanta Resources Plc - India
- SMG Consultants - Indonesia
- Kaltim Prima Coal - Indonesia
- Cement Manufacturers Association - India
- Samtan Co., Ltd - South Korea
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