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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 $75/bbl over the next few years.
I do, however, believe it is beyond the ability of men to predict the exact shape of the swing cycle, in terms of the period and cycle frequency.
Source: The Jakarta Post
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The writer has been working in the oil and gas business for about 30 years.
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Monday, 16 March 15
MAKING THE WORLD GO ROUND - SEABORNE TRADE! - CLARKSONS
Money, or even love if you prefer, are claimed to make the world go round. For the shipping world, however, it’s trade that sets things spinn ...
Monday, 16 March 15
API 5 FOB NEWCASTLE COAL SWAPS: DECLINED
COALspot.com: API 5 FOB Newcastle Coal swap for Q2’ 2015 delivery declined US$ 2.48 per MT (-4.77%) month over month and US$ 0.93 (-1.84%) we ...
Monday, 16 March 15
CFR SOUTH CHINA THERMAL COAL SWAP DECLINED 3.74% M-O-M
COALspot.com: API 8 CFR South China Coal swap for Q2’ 2015 delivery declined US$ 2.17 (-3.74%) per MT month over month and US$ 0.67 (-1 ...
Sunday, 15 March 15
BDI DECLINED LESSER THAN 1% WEEK OVER WEEK; INDO-INDIA FIRM
COALspot.com: The most of indices, including bulk dry index were falling this week. The BDI has been down by just 0.53 points and closing at 562 po ...
Saturday, 14 March 15
CAPESIZE DRY BULKERS TO AVERAGE BETWEEN $3,000 AND $9,000/DAY IN THE COMING WEEKS SAYS BIMCO
BIMCO issued its latest short-term estimates for the dry bulk market. For March/May: BIMCO assesses that the Capesize time charter (T/C) average ra ...
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- Energy Link Ltd, New Zealand
- McConnell Dowell - Australia
- Romanian Commodities Exchange
- European Bulk Services B.V. - Netherlands
- SMC Global Power, Philippines
- Indika Energy - Indonesia
- Semirara Mining Corp, Philippines
- Australian Commodity Traders Exchange
- Ministry of Mines - Canada
- Africa Commodities Group - South Africa
- Savvy Resources Ltd - HongKong
- Star Paper Mills Limited - India
- Commonwealth Bank - Australia
- Latin American Coal - Colombia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Gujarat Mineral Development Corp Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- ICICI Bank Limited - India
- Bhushan Steel Limited - India
- ASAPP Information Group - India
- Wilmar Investment Holdings
- Sree Jayajothi Cements Limited - India
- Chettinad Cement Corporation Ltd - India
- Banpu Public Company Limited - Thailand
- Parry Sugars Refinery, India
- Global Coal Blending Company Limited - Australia
- Eastern Energy - Thailand
- Indogreen Group - Indonesia
- Global Business Power Corporation, Philippines
- Bhatia International Limited - India
- Directorate Of Revenue Intelligence - India
- New Zealand Coal & Carbon
- Indonesian Coal Mining Association
- Sarangani Energy Corporation, Philippines
- Meralco Power Generation, Philippines
- The University of Queensland
- Borneo Indobara - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Kepco SPC Power Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Attock Cement Pakistan Limited
- TeaM Sual Corporation - Philippines
- Malabar Cements Ltd - India
- Manunggal Multi Energi - Indonesia
- Makarim & Taira - Indonesia
- Siam City Cement PLC, Thailand
- Intertek Mineral Services - Indonesia
- Power Finance Corporation Ltd., India
- Gujarat Electricity Regulatory Commission - India
- London Commodity Brokers - England
- Ministry of Finance - Indonesia
- Port Waratah Coal Services - Australia
- Price Waterhouse Coopers - Russia
- Kideco Jaya Agung - Indonesia
- CIMB Investment Bank - Malaysia
- Aditya Birla Group - India
- Petron Corporation, Philippines
- Vedanta Resources Plc - India
- Heidelberg Cement - Germany
- Independent Power Producers Association of India
- Orica Mining Services - Indonesia
- Maheswari Brothers Coal Limited - India
- Cement Manufacturers Association - India
- Xindia Steels Limited - India
- PNOC Exploration Corporation - Philippines
- Bukit Baiduri Energy - Indonesia
- Grasim Industreis Ltd - India
- Iligan Light & Power Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Formosa Plastics Group - Taiwan
- Vizag Seaport Private Limited - India
- CNBM International Corporation - China
- Wood Mackenzie - Singapore
- SN Aboitiz Power Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Thai Mozambique Logistica
- Australian Coal Association
- OPG Power Generation Pvt Ltd - India
- Interocean Group of Companies - India
- Carbofer General Trading SA - India
- Medco Energi Mining Internasional
- Miang Besar Coal Terminal - Indonesia
- South Luzon Thermal Energy Corporation
- Kobexindo Tractors - Indoneisa
- Sindya Power Generating Company Private Ltd
- Globalindo Alam Lestari - Indonesia
- Trasteel International SA, Italy
- Ceylon Electricity Board - Sri Lanka
- Kapuas Tunggal Persada - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Singapore Mercantile Exchange
- Altura Mining Limited, Indonesia
- Baramulti Group, Indonesia
- Kumho Petrochemical, South Korea
- Ind-Barath Power Infra Limited - India
- Gujarat Sidhee Cement - India
- PTC India Limited - India
- Energy Development Corp, Philippines
- Posco Energy - South Korea
- Thiess Contractors Indonesia
- Renaissance Capital - South Africa
- Kaltim Prima Coal - Indonesia
- The Treasury - Australian Government
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- GMR Energy Limited - India
- International Coal Ventures Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Jorong Barutama Greston.PT - Indonesia
- Electricity Generating Authority of Thailand
- Ministry of Transport, Egypt
- Samtan Co., Ltd - South Korea
- PetroVietnam Power Coal Import and Supply Company
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Agrawal Coal Company - India
- LBH Netherlands Bv - Netherlands
- Metalloyd Limited - United Kingdom
- Videocon Industries ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Planning Commission, India
- Ambuja Cements Ltd - India
- Sical Logistics Limited - India
- Parliament of New Zealand
- Leighton Contractors Pty Ltd - Australia
- Eastern Coal Council - USA
- Marubeni Corporation - India
- Sojitz Corporation - Japan
- Indian Energy Exchange, India
- Jaiprakash Power Ventures ltd
- Chamber of Mines of South Africa
- Bukit Makmur.PT - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Meenaskhi Energy Private Limited - India
- Pendopo Energi Batubara - Indonesia
- Barasentosa Lestari - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Coal and Oil Company - UAE
- Bharathi Cement Corporation - India
- MS Steel International - UAE
- Bangladesh Power Developement Board
- GVK Power & Infra Limited - India
- Riau Bara Harum - Indonesia
- Karaikal Port Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Aboitiz Power Corporation - Philippines
- Lanco Infratech Ltd - India
- Anglo American - United Kingdom
- Simpson Spence & Young - Indonesia
- Indian Oil Corporation Limited
- Krishnapatnam Port Company Ltd. - India
- Siam City Cement - Thailand
- Cigading International Bulk Terminal - Indonesia
- Larsen & Toubro Limited - India
- PowerSource Philippines DevCo
- SMG Consultants - Indonesia
- India Bulls Power Limited - India
- Orica Australia Pty. Ltd.
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Madhucon Powers Ltd - India
- Central Electricity Authority - India
- Salva Resources Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Standard Chartered Bank - UAE
- Mercuria Energy - Indonesia
- Bayan Resources Tbk. - Indonesia
- Rio Tinto Coal - Australia
- Tamil Nadu electricity Board
- The State Trading Corporation of India Ltd
- TNB Fuel Sdn Bhd - Malaysia
- Economic Council, Georgia
- Goldman Sachs - Singapore
- IHS Mccloskey Coal Group - USA
- Coalindo Energy - Indonesia
- GAC Shipping (India) Pvt Ltd
- Sakthi Sugars Limited - India
- Timah Investasi Mineral - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Antam Resourcindo - Indonesia
- Bulk Trading Sa - Switzerland
- Central Java Power - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Essar Steel Hazira Ltd - India
- Electricity Authority, New Zealand
- Deloitte Consulting - India
- Global Green Power PLC Corporation, Philippines
- Uttam Galva Steels Limited - India
- IEA Clean Coal Centre - UK
- Edison Trading Spa - Italy
- Toyota Tsusho Corporation, Japan
- Jindal Steel & Power Ltd - India
- Bhoruka Overseas - Indonesia
- Coastal Gujarat Power Limited - India
- Georgia Ports Authority, United States
- Dalmia Cement Bharat India
- Rashtriya Ispat Nigam Limited - India
- Therma Luzon, Inc, Philippines
- Minerals Council of Australia
- Merrill Lynch Commodities Europe
- Pipit Mutiara Jaya. PT, Indonesia
- Tata Chemicals Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Neyveli Lignite Corporation Ltd, - India
- AsiaOL BioFuels Corp., Philippines
- Mintek Dendrill Indonesia
- Mercator Lines Limited - India
- San Jose City I Power Corp, Philippines
- Semirara Mining and Power Corporation, Philippines
- White Energy Company Limited
- Straits Asia Resources Limited - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Mjunction Services Limited - India
- VISA Power Limited - India
- Oldendorff Carriers - Singapore
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