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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 $75/bbl over the next few years.
I do, however, believe it is beyond the ability of men to predict the exact shape of the swing cycle, in terms of the period and cycle frequency.
Source: The Jakarta Post
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The writer has been working in the oil and gas business for about 30 years.
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Wednesday, 18 March 15
Q2 INDONESIAN COAL SWAP DROP 1.45% M-O-M; GAIN 0.63% W-O-W
COALspot.com: Indonesian coal swaps for delivery Q2' 2015 drop month on month and gained week over week.
The Q2 swap fell US$ 0.70 (1.45%) ...
Tuesday, 17 March 15
GAS TO CHALLENGE COAL IN THE ASIAN POWER GENERATION MIX - WOOD MACKENZIE
KNOWLEDGE TO ELEVATE
Wood Mackenzie says that coal is facing increasing competition from gas in the power sector. Coal has dominated as the fu ...
Tuesday, 17 March 15
RIO TINTO PAID US$ 7.1 BILLION IN TAXES IN 2014
COALspot.com: Rio Tinto has published its latest Taxes paid report, detailing the US$7.1 billion in taxes paid by the company around the world in 2 ...
Tuesday, 17 March 15
NEARLY 17% OF US COAL PRODUCTION UNECONOMIC AT CURRENT MARKET PRICING - WOOD MACKENZIE
COALspot.com: Close to 17% of forecast 2015 US coal production is at risk of idling or closure, totalling 162 million short tons (Mst), as these mi ...
Tuesday, 17 March 15
Q3' SA COAL SWAP CLOSED $57.30 PMT W/E 13 MARCH
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q2' 2015 declined month over month and gained week on week.
The Q2 swap has fe ...
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- Petrochimia International Co. Ltd.- Taiwan
- Timah Investasi Mineral - Indoneisa
- Asmin Koalindo Tuhup - Indonesia
- Pendopo Energi Batubara - Indonesia
- Iligan Light & Power Inc, Philippines
- Heidelberg Cement - Germany
- Bharathi Cement Corporation - India
- Kumho Petrochemical, South Korea
- Sinarmas Energy and Mining - Indonesia
- Gujarat Sidhee Cement - India
- Bhushan Steel Limited - India
- Ministry of Finance - Indonesia
- Jaiprakash Power Ventures ltd
- Trasteel International SA, Italy
- Bank of Tokyo Mitsubishi UFJ Ltd
- Marubeni Corporation - India
- Eastern Energy - Thailand
- Renaissance Capital - South Africa
- McConnell Dowell - Australia
- Wood Mackenzie - Singapore
- Mjunction Services Limited - India
- Sakthi Sugars Limited - India
- Indian Energy Exchange, India
- Goldman Sachs - Singapore
- Essar Steel Hazira Ltd - India
- Makarim & Taira - Indonesia
- Orica Mining Services - Indonesia
- Indogreen Group - Indonesia
- Orica Australia Pty. Ltd.
- Jindal Steel & Power Ltd - India
- Straits Asia Resources Limited - Singapore
- Vedanta Resources Plc - India
- Kepco SPC Power Corporation, Philippines
- Central Electricity Authority - India
- Ind-Barath Power Infra Limited - India
- International Coal Ventures Pvt Ltd - India
- White Energy Company Limited
- Ministry of Mines - Canada
- GVK Power & Infra Limited - India
- Formosa Plastics Group - Taiwan
- Baramulti Group, Indonesia
- Global Business Power Corporation, Philippines
- Bhatia International Limited - India
- Independent Power Producers Association of India
- Price Waterhouse Coopers - Russia
- Indonesian Coal Mining Association
- SN Aboitiz Power Inc, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Therma Luzon, Inc, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SMC Global Power, Philippines
- South Luzon Thermal Energy Corporation
- Agrawal Coal Company - India
- Directorate Of Revenue Intelligence - India
- PetroVietnam Power Coal Import and Supply Company
- Billiton Holdings Pty Ltd - Australia
- Sojitz Corporation - Japan
- New Zealand Coal & Carbon
- Thiess Contractors Indonesia
- Edison Trading Spa - Italy
- Barasentosa Lestari - Indonesia
- Kaltim Prima Coal - Indonesia
- Romanian Commodities Exchange
- Aditya Birla Group - India
- Coalindo Energy - Indonesia
- Sarangani Energy Corporation, Philippines
- Mercator Lines Limited - India
- Salva Resources Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- VISA Power Limited - India
- Indian Oil Corporation Limited
- Banpu Public Company Limited - Thailand
- GN Power Mariveles Coal Plant, Philippines
- Savvy Resources Ltd - HongKong
- MS Steel International - UAE
- CIMB Investment Bank - Malaysia
- PTC India Limited - India
- Maheswari Brothers Coal Limited - India
- LBH Netherlands Bv - Netherlands
- Australian Coal Association
- Bayan Resources Tbk. - Indonesia
- Riau Bara Harum - Indonesia
- Mintek Dendrill Indonesia
- Energy Development Corp, Philippines
- Global Coal Blending Company Limited - Australia
- Uttam Galva Steels Limited - India
- Karaikal Port Pvt Ltd - India
- Attock Cement Pakistan Limited
- Eastern Coal Council - USA
- Kohat Cement Company Ltd. - Pakistan
- The State Trading Corporation of India Ltd
- Cement Manufacturers Association - India
- Energy Link Ltd, New Zealand
- Global Green Power PLC Corporation, Philippines
- London Commodity Brokers - England
- ASAPP Information Group - India
- SMG Consultants - Indonesia
- Thai Mozambique Logistica
- Jorong Barutama Greston.PT - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Larsen & Toubro Limited - India
- Holcim Trading Pte Ltd - Singapore
- OPG Power Generation Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Deloitte Consulting - India
- Power Finance Corporation Ltd., India
- The University of Queensland
- Intertek Mineral Services - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Borneo Indobara - Indonesia
- GAC Shipping (India) Pvt Ltd
- Singapore Mercantile Exchange
- Madhucon Powers Ltd - India
- Anglo American - United Kingdom
- Antam Resourcindo - Indonesia
- Interocean Group of Companies - India
- Georgia Ports Authority, United States
- Ceylon Electricity Board - Sri Lanka
- Sree Jayajothi Cements Limited - India
- Kideco Jaya Agung - Indonesia
- Mercuria Energy - Indonesia
- Coastal Gujarat Power Limited - India
- Leighton Contractors Pty Ltd - Australia
- Xindia Steels Limited - India
- Aboitiz Power Corporation - Philippines
- Binh Thuan Hamico - Vietnam
- San Jose City I Power Corp, Philippines
- Rio Tinto Coal - Australia
- Port Waratah Coal Services - Australia
- Videocon Industries ltd - India
- The Treasury - Australian Government
- TeaM Sual Corporation - Philippines
- Lanco Infratech Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Carbofer General Trading SA - India
- Malabar Cements Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Indo Tambangraya Megah - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Medco Energi Mining Internasional
- Electricity Generating Authority of Thailand
- Gujarat Mineral Development Corp Ltd - India
- Central Java Power - Indonesia
- Wilmar Investment Holdings
- Merrill Lynch Commodities Europe
- Miang Besar Coal Terminal - Indonesia
- Chettinad Cement Corporation Ltd - India
- India Bulls Power Limited - India
- European Bulk Services B.V. - Netherlands
- Bukit Makmur.PT - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Planning Commission, India
- Economic Council, Georgia
- Meenaskhi Energy Private Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- IHS Mccloskey Coal Group - USA
- Pipit Mutiara Jaya. PT, Indonesia
- Gujarat Electricity Regulatory Commission - India
- Ambuja Cements Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Semirara Mining Corp, Philippines
- Bhoruka Overseas - Indonesia
- Kartika Selabumi Mining - Indonesia
- ICICI Bank Limited - India
- Rashtriya Ispat Nigam Limited - India
- Altura Mining Limited, Indonesia
- Manunggal Multi Energi - Indonesia
- Posco Energy - South Korea
- AsiaOL BioFuels Corp., Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bangladesh Power Developement Board
- Petron Corporation, Philippines
- Ministry of Transport, Egypt
- Meralco Power Generation, Philippines
- Australian Commodity Traders Exchange
- Bukit Baiduri Energy - Indonesia
- Samtan Co., Ltd - South Korea
- Vizag Seaport Private Limited - India
- Toyota Tsusho Corporation, Japan
- Vijayanagar Sugar Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Africa Commodities Group - South Africa
- GMR Energy Limited - India
- Commonwealth Bank - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PNOC Exploration Corporation - Philippines
- PowerSource Philippines DevCo
- Parry Sugars Refinery, India
- Latin American Coal - Colombia
- Globalindo Alam Lestari - Indonesia
- Sindya Power Generating Company Private Ltd
- Cigading International Bulk Terminal - Indonesia
- Sical Logistics Limited - India
- Siam City Cement - Thailand
- IEA Clean Coal Centre - UK
- Coal and Oil Company - UAE
- Siam City Cement PLC, Thailand
- Kobexindo Tractors - Indoneisa
- Parliament of New Zealand
- Kalimantan Lumbung Energi - Indonesia
- Indika Energy - Indonesia
- Dalmia Cement Bharat India
- Standard Chartered Bank - UAE
- Tamil Nadu electricity Board
- Electricity Authority, New Zealand
- Tata Chemicals Ltd - India
- CNBM International Corporation - China
- Chamber of Mines of South Africa
- Oldendorff Carriers - Singapore
- Bulk Trading Sa - Switzerland
- Minerals Council of Australia
- Grasim Industreis Ltd - India
- Metalloyd Limited - United Kingdom
- Star Paper Mills Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Alfred C Toepfer International GmbH - Germany
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