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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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Friday, 13 March 15
U.S. COAL PRODUCTION UP 2.3% WEEK OVER WEEK
COALspot.com – United States the world's one of the largest coal producers, produced approximately 17.5 million short tons (mmst) of coal ...
Friday, 13 March 15
ADARO RECORDED A 7% INCREASE IN EBITDA OF $877 MILLION IN 2014
“Coal market continues to be difficult and challenging” – Adaro Energy
The world’s Top 5 thermal coal exporter, ...
Thursday, 12 March 15
CAPESIZE : ACTIVITY IS LOW; PANAMAX: BIT MORE ACTIVITY; HANDY: A FIRMING WEEK
Handy
It has been a firming week in both hemispheres this week and especially in the Pacific, says Fearnleys AS in its week's week report.
...
Thursday, 12 March 15
COAL MINERS REMAIN UNDER PRESSURE AS GLUT CONTINUES - THE JAKARTA POST
Indonesia’s major coal miners reported a significant drop in their earnings last year as the sharp drop in the global demand, mainly from Chi ...
Thursday, 12 March 15
FOB INDONESIA COAL SWAP DROP TO $47.33 A TON IN THE WEEK ENDED MAR.6
COALspot.com: Indonesian coal swaps for delivery Q2' 2015 drop month on month and week over week.
The Q2 swap fell US$ 0.37 (0.78%) month ...
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- Ministry of Finance - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ceylon Electricity Board - Sri Lanka
- GVK Power & Infra Limited - India
- Orica Mining Services - Indonesia
- SMC Global Power, Philippines
- Global Green Power PLC Corporation, Philippines
- Coal and Oil Company - UAE
- Grasim Industreis Ltd - India
- Baramulti Group, Indonesia
- Energy Link Ltd, New Zealand
- Asmin Koalindo Tuhup - Indonesia
- Altura Mining Limited, Indonesia
- Parliament of New Zealand
- ASAPP Information Group - India
- GMR Energy Limited - India
- San Jose City I Power Corp, Philippines
- Jaiprakash Power Ventures ltd
- Larsen & Toubro Limited - India
- Sojitz Corporation - Japan
- Kohat Cement Company Ltd. - Pakistan
- Jindal Steel & Power Ltd - India
- Maheswari Brothers Coal Limited - India
- Sical Logistics Limited - India
- Siam City Cement - Thailand
- Central Electricity Authority - India
- Australian Coal Association
- Offshore Bulk Terminal Pte Ltd, Singapore
- TeaM Sual Corporation - Philippines
- Mjunction Services Limited - India
- Globalindo Alam Lestari - Indonesia
- Chamber of Mines of South Africa
- Iligan Light & Power Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- Formosa Plastics Group - Taiwan
- Tata Chemicals Ltd - India
- London Commodity Brokers - England
- Rio Tinto Coal - Australia
- Kapuas Tunggal Persada - Indonesia
- Toyota Tsusho Corporation, Japan
- IHS Mccloskey Coal Group - USA
- Ambuja Cements Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Latin American Coal - Colombia
- The Treasury - Australian Government
- Miang Besar Coal Terminal - Indonesia
- Bharathi Cement Corporation - India
- Sree Jayajothi Cements Limited - India
- Salva Resources Pvt Ltd - India
- Medco Energi Mining Internasional
- Wilmar Investment Holdings
- Timah Investasi Mineral - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- Makarim & Taira - Indonesia
- Global Coal Blending Company Limited - Australia
- Borneo Indobara - Indonesia
- PowerSource Philippines DevCo
- Thai Mozambique Logistica
- Port Waratah Coal Services - Australia
- Leighton Contractors Pty Ltd - Australia
- Rashtriya Ispat Nigam Limited - India
- Aboitiz Power Corporation - Philippines
- Simpson Spence & Young - Indonesia
- Oldendorff Carriers - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Deloitte Consulting - India
- Heidelberg Cement - Germany
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ministry of Transport, Egypt
- VISA Power Limited - India
- Edison Trading Spa - Italy
- Maharashtra Electricity Regulatory Commission - India
- Mercuria Energy - Indonesia
- Africa Commodities Group - South Africa
- Intertek Mineral Services - Indonesia
- IEA Clean Coal Centre - UK
- International Coal Ventures Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Orica Australia Pty. Ltd.
- Marubeni Corporation - India
- Semirara Mining and Power Corporation, Philippines
- Power Finance Corporation Ltd., India
- Eastern Coal Council - USA
- Coastal Gujarat Power Limited - India
- Economic Council, Georgia
- Mintek Dendrill Indonesia
- Dalmia Cement Bharat India
- Siam City Cement PLC, Thailand
- Vizag Seaport Private Limited - India
- Sarangani Energy Corporation, Philippines
- Indika Energy - Indonesia
- Videocon Industries ltd - India
- CNBM International Corporation - China
- Samtan Co., Ltd - South Korea
- Mercator Lines Limited - India
- Bayan Resources Tbk. - Indonesia
- Wood Mackenzie - Singapore
- Binh Thuan Hamico - Vietnam
- Central Java Power - Indonesia
- Thiess Contractors Indonesia
- Bulk Trading Sa - Switzerland
- Agrawal Coal Company - India
- Merrill Lynch Commodities Europe
- Directorate General of MIneral and Coal - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Chettinad Cement Corporation Ltd - India
- Antam Resourcindo - Indonesia
- MS Steel International - UAE
- Price Waterhouse Coopers - Russia
- PetroVietnam Power Coal Import and Supply Company
- Meralco Power Generation, Philippines
- Karaikal Port Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Indonesian Coal Mining Association
- Indogreen Group - Indonesia
- Bukit Makmur.PT - Indonesia
- Directorate Of Revenue Intelligence - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Metalloyd Limited - United Kingdom
- Attock Cement Pakistan Limited
- Singapore Mercantile Exchange
- Jorong Barutama Greston.PT - Indonesia
- Standard Chartered Bank - UAE
- PNOC Exploration Corporation - Philippines
- Xindia Steels Limited - India
- Semirara Mining Corp, Philippines
- Anglo American - United Kingdom
- Kideco Jaya Agung - Indonesia
- PTC India Limited - India
- Banpu Public Company Limited - Thailand
- Indian Energy Exchange, India
- Australian Commodity Traders Exchange
- Energy Development Corp, Philippines
- GN Power Mariveles Coal Plant, Philippines
- South Luzon Thermal Energy Corporation
- Commonwealth Bank - Australia
- Indo Tambangraya Megah - Indonesia
- Barasentosa Lestari - Indonesia
- Tamil Nadu electricity Board
- Bhoruka Overseas - Indonesia
- Eastern Energy - Thailand
- Planning Commission, India
- ICICI Bank Limited - India
- Uttam Galva Steels Limited - India
- India Bulls Power Limited - India
- LBH Netherlands Bv - Netherlands
- Global Business Power Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Electricity Generating Authority of Thailand
- Georgia Ports Authority, United States
- Minerals Council of Australia
- Holcim Trading Pte Ltd - Singapore
- Star Paper Mills Limited - India
- Ministry of Mines - Canada
- Madhucon Powers Ltd - India
- Aditya Birla Group - India
- Sindya Power Generating Company Private Ltd
- Petron Corporation, Philippines
- Gujarat Sidhee Cement - India
- Posco Energy - South Korea
- Sakthi Sugars Limited - India
- Indian Oil Corporation Limited
- Kalimantan Lumbung Energi - Indonesia
- Carbofer General Trading SA - India
- SN Aboitiz Power Inc, Philippines
- Kumho Petrochemical, South Korea
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GAC Shipping (India) Pvt Ltd
- Gujarat Mineral Development Corp Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- AsiaOL BioFuels Corp., Philippines
- Bhushan Steel Limited - India
- The University of Queensland
- Romanian Commodities Exchange
- Bukit Baiduri Energy - Indonesia
- White Energy Company Limited
- Parry Sugars Refinery, India
- Goldman Sachs - Singapore
- Electricity Authority, New Zealand
- Krishnapatnam Port Company Ltd. - India
- Billiton Holdings Pty Ltd - Australia
- Renaissance Capital - South Africa
- Bangladesh Power Developement Board
- OPG Power Generation Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Straits Asia Resources Limited - Singapore
- CIMB Investment Bank - Malaysia
- Bhatia International Limited - India
- Malabar Cements Ltd - India
- Interocean Group of Companies - India
- Karbindo Abesyapradhi - Indoneisa
- Bukit Asam (Persero) Tbk - Indonesia
- Trasteel International SA, Italy
- Vedanta Resources Plc - India
- New Zealand Coal & Carbon
- Kartika Selabumi Mining - Indonesia
- Meenaskhi Energy Private Limited - India
- Kepco SPC Power Corporation, Philippines
- Independent Power Producers Association of India
- TNB Fuel Sdn Bhd - Malaysia
- Coalindo Energy - Indonesia
- McConnell Dowell - Australia
- Riau Bara Harum - Indonesia
- Essar Steel Hazira Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Lanco Infratech Ltd - India
- Alfred C Toepfer International GmbH - Germany
- European Bulk Services B.V. - Netherlands
- Therma Luzon, Inc, Philippines
- Kobexindo Tractors - Indoneisa
- Cement Manufacturers Association - India
- The State Trading Corporation of India Ltd
- SMG Consultants - Indonesia
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