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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, 19 March 15
HANDY: INDO COAL CARGOS DESTINED FOR INDIA BEING FIXED IN REGION OF $ 7-8K - FEARNLEYS
Handy
The Handy and Supra market has had a week with mixed signals. Although we see more activity in both hemispheres the rates are only up about ...
Thursday, 19 March 15
INDONESIAN COAL BENCHMARK SOAR 7.69% IN MARCH....!!!
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia revised up Indonesian coal benchmark prices to US$ 67.76 per MT in March ...
Wednesday, 18 March 15
AVERAGE RATE FOR CAPES MOVED TO BELOW $ 4K/DAY LAST WEEK - INTERMODAL
COALspot.com: The even heavier losses noted in the Capesize segment last week, denied the Dry Bulk market a third weekly positive, while the smalle ...
Wednesday, 18 March 15
PARKING THE CAPES - LINOS KOGEVINAS
It is no secret that recent times have been anything but kind towards shipping, and no sector has suffered more lately than the dry bulk one. While ...
Wednesday, 18 March 15
CHINA-OWNED SHIPS: A RAPID RISE TO BECOME ONE OF THE WORLD'S LARGEST FLEETS - RICHARD SCOTT
Ships operated by owners based in China have become increasingly prominent on the world’s sea routes. China-owned container ships, bulk carri ...
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- Kideco Jaya Agung - Indonesia
- Barasentosa Lestari - Indonesia
- Energy Link Ltd, New Zealand
- Riau Bara Harum - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Bhatia International Limited - India
- Simpson Spence & Young - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bhoruka Overseas - Indonesia
- Sinarmas Energy and Mining - Indonesia
- PNOC Exploration Corporation - Philippines
- Miang Besar Coal Terminal - Indonesia
- Singapore Mercantile Exchange
- Meralco Power Generation, Philippines
- Georgia Ports Authority, United States
- Ministry of Mines - Canada
- Latin American Coal - Colombia
- Jaiprakash Power Ventures ltd
- Therma Luzon, Inc, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Jindal Steel & Power Ltd - India
- IHS Mccloskey Coal Group - USA
- Global Business Power Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Aboitiz Power Corporation - Philippines
- Chamber of Mines of South Africa
- The University of Queensland
- Leighton Contractors Pty Ltd - Australia
- The Treasury - Australian Government
- Bhushan Steel Limited - India
- Semirara Mining Corp, Philippines
- Kartika Selabumi Mining - Indonesia
- PTC India Limited - India
- Power Finance Corporation Ltd., India
- Deloitte Consulting - India
- Coastal Gujarat Power Limited - India
- Samtan Co., Ltd - South Korea
- Iligan Light & Power Inc, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Sakthi Sugars Limited - India
- Energy Development Corp, Philippines
- Sindya Power Generating Company Private Ltd
- Toyota Tsusho Corporation, Japan
- Bayan Resources Tbk. - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Timah Investasi Mineral - Indoneisa
- PowerSource Philippines DevCo
- Global Coal Blending Company Limited - Australia
- IEA Clean Coal Centre - UK
- Edison Trading Spa - Italy
- TeaM Sual Corporation - Philippines
- Kepco SPC Power Corporation, Philippines
- Anglo American - United Kingdom
- Aditya Birla Group - India
- Global Green Power PLC Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Chettinad Cement Corporation Ltd - India
- Kumho Petrochemical, South Korea
- Star Paper Mills Limited - India
- Cement Manufacturers Association - India
- Mercuria Energy - Indonesia
- Savvy Resources Ltd - HongKong
- Sical Logistics Limited - India
- Eastern Coal Council - USA
- Holcim Trading Pte Ltd - Singapore
- Banpu Public Company Limited - Thailand
- CIMB Investment Bank - Malaysia
- Larsen & Toubro Limited - India
- Kaltim Prima Coal - Indonesia
- Independent Power Producers Association of India
- Globalindo Alam Lestari - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Carbofer General Trading SA - India
- CNBM International Corporation - China
- Metalloyd Limited - United Kingdom
- Attock Cement Pakistan Limited
- Indika Energy - Indonesia
- Ceylon Electricity Board - Sri Lanka
- European Bulk Services B.V. - Netherlands
- Kapuas Tunggal Persada - Indonesia
- Videocon Industries ltd - India
- Coalindo Energy - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bukit Makmur.PT - Indonesia
- South Luzon Thermal Energy Corporation
- Electricity Generating Authority of Thailand
- Central Java Power - Indonesia
- Rio Tinto Coal - Australia
- Romanian Commodities Exchange
- SMG Consultants - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Trasteel International SA, Italy
- Wood Mackenzie - Singapore
- Cigading International Bulk Terminal - Indonesia
- Directorate Of Revenue Intelligence - India
- GN Power Mariveles Coal Plant, Philippines
- Straits Asia Resources Limited - Singapore
- SMC Global Power, Philippines
- Ministry of Transport, Egypt
- Salva Resources Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Essar Steel Hazira Ltd - India
- Siam City Cement - Thailand
- MS Steel International - UAE
- ICICI Bank Limited - India
- Africa Commodities Group - South Africa
- Tata Chemicals Ltd - India
- Malabar Cements Ltd - India
- Oldendorff Carriers - Singapore
- Gujarat Electricity Regulatory Commission - India
- Neyveli Lignite Corporation Ltd, - India
- Uttam Galva Steels Limited - India
- Indogreen Group - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Economic Council, Georgia
- Xindia Steels Limited - India
- GMR Energy Limited - India
- Grasim Industreis Ltd - India
- Siam City Cement PLC, Thailand
- GVK Power & Infra Limited - India
- White Energy Company Limited
- Commonwealth Bank - Australia
- Krishnapatnam Port Company Ltd. - India
- Bukit Baiduri Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Dalmia Cement Bharat India
- Posco Energy - South Korea
- Price Waterhouse Coopers - Russia
- LBH Netherlands Bv - Netherlands
- Lanco Infratech Ltd - India
- Goldman Sachs - Singapore
- Indian Oil Corporation Limited
- Marubeni Corporation - India
- OPG Power Generation Pvt Ltd - India
- Agrawal Coal Company - India
- Altura Mining Limited, Indonesia
- New Zealand Coal & Carbon
- San Jose City I Power Corp, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Tamil Nadu electricity Board
- Minerals Council of Australia
- Indian Energy Exchange, India
- India Bulls Power Limited - India
- Orica Australia Pty. Ltd.
- SN Aboitiz Power Inc, Philippines
- Sarangani Energy Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Intertek Mineral Services - Indonesia
- Parliament of New Zealand
- Rashtriya Ispat Nigam Limited - India
- Meenaskhi Energy Private Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Bharathi Cement Corporation - India
- Central Electricity Authority - India
- Maheswari Brothers Coal Limited - India
- Makarim & Taira - Indonesia
- Formosa Plastics Group - Taiwan
- AsiaOL BioFuels Corp., Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Vizag Seaport Private Limited - India
- VISA Power Limited - India
- Mintek Dendrill Indonesia
- Gujarat Sidhee Cement - India
- Mercator Lines Limited - India
- Alfred C Toepfer International GmbH - Germany
- Karaikal Port Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Ministry of Finance - Indonesia
- McConnell Dowell - Australia
- International Coal Ventures Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- London Commodity Brokers - England
- Ambuja Cements Ltd - India
- Sree Jayajothi Cements Limited - India
- Bulk Trading Sa - Switzerland
- Australian Commodity Traders Exchange
- Orica Mining Services - Indonesia
- Coal and Oil Company - UAE
- Planning Commission, India
- Eastern Energy - Thailand
- Sojitz Corporation - Japan
- Antam Resourcindo - Indonesia
- Heidelberg Cement - Germany
- Interocean Group of Companies - India
- Medco Energi Mining Internasional
- Madhucon Powers Ltd - India
- Mjunction Services Limited - India
- Petron Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Thai Mozambique Logistica
- Karbindo Abesyapradhi - Indoneisa
- Semirara Mining and Power Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Manunggal Multi Energi - Indonesia
- Bangladesh Power Developement Board
- Renaissance Capital - South Africa
- Petrochimia International Co. Ltd.- Taiwan
- The State Trading Corporation of India Ltd
- Australian Coal Association
- Borneo Indobara - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- GAC Shipping (India) Pvt Ltd
- Standard Chartered Bank - UAE
- Port Waratah Coal Services - Australia
- Kobexindo Tractors - Indoneisa
- Electricity Authority, New Zealand
- Merrill Lynch Commodities Europe
- ASAPP Information Group - India
- Vedanta Resources Plc - India
- TNB Fuel Sdn Bhd - Malaysia
- Parry Sugars Refinery, India
- Binh Thuan Hamico - Vietnam
- Indonesian Coal Mining Association
- Wilmar Investment Holdings
- Vijayanagar Sugar Pvt Ltd - India
- Baramulti Group, Indonesia
- Thiess Contractors Indonesia
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