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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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- Bukit Baiduri Energy - Indonesia
- Wood Mackenzie - Singapore
- PowerSource Philippines DevCo
- Coastal Gujarat Power Limited - India
- Metalloyd Limited - United Kingdom
- Sical Logistics Limited - India
- Essar Steel Hazira Ltd - India
- Sakthi Sugars Limited - India
- Sarangani Energy Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- TNB Fuel Sdn Bhd - Malaysia
- Semirara Mining Corp, Philippines
- Standard Chartered Bank - UAE
- Edison Trading Spa - Italy
- Samtan Co., Ltd - South Korea
- Trasteel International SA, Italy
- IEA Clean Coal Centre - UK
- Chamber of Mines of South Africa
- Sindya Power Generating Company Private Ltd
- Electricity Authority, New Zealand
- Rio Tinto Coal - Australia
- VISA Power Limited - India
- Straits Asia Resources Limited - Singapore
- Eastern Coal Council - USA
- Formosa Plastics Group - Taiwan
- McConnell Dowell - Australia
- Meralco Power Generation, Philippines
- GVK Power & Infra Limited - India
- Energy Link Ltd, New Zealand
- Kalimantan Lumbung Energi - Indonesia
- Sojitz Corporation - Japan
- Lanco Infratech Ltd - India
- Jindal Steel & Power Ltd - India
- Vizag Seaport Private Limited - India
- Medco Energi Mining Internasional
- Directorate General of MIneral and Coal - Indonesia
- Chettinad Cement Corporation Ltd - India
- CIMB Investment Bank - Malaysia
- OPG Power Generation Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Kideco Jaya Agung - Indonesia
- Indogreen Group - Indonesia
- Intertek Mineral Services - Indonesia
- Minerals Council of Australia
- Toyota Tsusho Corporation, Japan
- Merrill Lynch Commodities Europe
- Bulk Trading Sa - Switzerland
- Altura Mining Limited, Indonesia
- Economic Council, Georgia
- Mercator Lines Limited - India
- Bhatia International Limited - India
- Kartika Selabumi Mining - Indonesia
- Marubeni Corporation - India
- White Energy Company Limited
- Indian Oil Corporation Limited
- Antam Resourcindo - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Ind-Barath Power Infra Limited - India
- Sinarmas Energy and Mining - Indonesia
- Therma Luzon, Inc, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- International Coal Ventures Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Thiess Contractors Indonesia
- Kaltim Prima Coal - Indonesia
- ASAPP Information Group - India
- Grasim Industreis Ltd - India
- Goldman Sachs - Singapore
- Port Waratah Coal Services - Australia
- Rashtriya Ispat Nigam Limited - India
- Vedanta Resources Plc - India
- Attock Cement Pakistan Limited
- Aboitiz Power Corporation - Philippines
- Kohat Cement Company Ltd. - Pakistan
- Semirara Mining and Power Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Makarim & Taira - Indonesia
- India Bulls Power Limited - India
- Krishnapatnam Port Company Ltd. - India
- Tamil Nadu electricity Board
- Interocean Group of Companies - India
- PTC India Limited - India
- Meenaskhi Energy Private Limited - India
- Kobexindo Tractors - Indoneisa
- New Zealand Coal & Carbon
- Coalindo Energy - Indonesia
- South Luzon Thermal Energy Corporation
- Global Business Power Corporation, Philippines
- MS Steel International - UAE
- Directorate Of Revenue Intelligence - India
- Ministry of Transport, Egypt
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Cement Manufacturers Association - India
- TeaM Sual Corporation - Philippines
- Bharathi Cement Corporation - India
- Iligan Light & Power Inc, Philippines
- Anglo American - United Kingdom
- CNBM International Corporation - China
- Renaissance Capital - South Africa
- Price Waterhouse Coopers - Russia
- GMR Energy Limited - India
- SMC Global Power, Philippines
- Deloitte Consulting - India
- Gujarat Mineral Development Corp Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Eastern Energy - Thailand
- LBH Netherlands Bv - Netherlands
- Energy Development Corp, Philippines
- SN Aboitiz Power Inc, Philippines
- Barasentosa Lestari - Indonesia
- Coal and Oil Company - UAE
- Globalindo Alam Lestari - Indonesia
- Australian Coal Association
- Dalmia Cement Bharat India
- Simpson Spence & Young - Indonesia
- Ministry of Mines - Canada
- SMG Consultants - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Parliament of New Zealand
- Petron Corporation, Philippines
- Mercuria Energy - Indonesia
- Gujarat Sidhee Cement - India
- Kumho Petrochemical, South Korea
- Timah Investasi Mineral - Indoneisa
- The Treasury - Australian Government
- Baramulti Group, Indonesia
- Indika Energy - Indonesia
- Madhucon Powers Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- European Bulk Services B.V. - Netherlands
- Savvy Resources Ltd - HongKong
- The University of Queensland
- Banpu Public Company Limited - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Singapore Mercantile Exchange
- Bayan Resources Tbk. - Indonesia
- Electricity Generating Authority of Thailand
- Maheswari Brothers Coal Limited - India
- Bhoruka Overseas - Indonesia
- Tata Chemicals Ltd - India
- Siam City Cement PLC, Thailand
- Bhushan Steel Limited - India
- Gujarat Electricity Regulatory Commission - India
- Orica Mining Services - Indonesia
- ICICI Bank Limited - India
- Global Green Power PLC Corporation, Philippines
- Jaiprakash Power Ventures ltd
- PNOC Exploration Corporation - Philippines
- Sree Jayajothi Cements Limited - India
- Manunggal Multi Energi - Indonesia
- Riau Bara Harum - Indonesia
- Australian Commodity Traders Exchange
- Posco Energy - South Korea
- Agrawal Coal Company - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Cigading International Bulk Terminal - Indonesia
- Karaikal Port Pvt Ltd - India
- Georgia Ports Authority, United States
- Neyveli Lignite Corporation Ltd, - India
- GAC Shipping (India) Pvt Ltd
- Kepco SPC Power Corporation, Philippines
- Romanian Commodities Exchange
- Ceylon Electricity Board - Sri Lanka
- Pendopo Energi Batubara - Indonesia
- Malabar Cements Ltd - India
- Thai Mozambique Logistica
- Indonesian Coal Mining Association
- Global Coal Blending Company Limited - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Power Finance Corporation Ltd., India
- Videocon Industries ltd - India
- Indian Energy Exchange, India
- Borneo Indobara - Indonesia
- Commonwealth Bank - Australia
- GN Power Mariveles Coal Plant, Philippines
- Latin American Coal - Colombia
- Central Java Power - Indonesia
- Bukit Makmur.PT - Indonesia
- Bangladesh Power Developement Board
- Parry Sugars Refinery, India
- Star Paper Mills Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Salva Resources Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Xindia Steels Limited - India
- Siam City Cement - Thailand
- Mjunction Services Limited - India
- Africa Commodities Group - South Africa
- Aditya Birla Group - India
- Heidelberg Cement - Germany
- Kapuas Tunggal Persada - Indonesia
- Ambuja Cements Ltd - India
- Mintek Dendrill Indonesia
- Uttam Galva Steels Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- The State Trading Corporation of India Ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- Alfred C Toepfer International GmbH - Germany
- Carbofer General Trading SA - India
- Planning Commission, India
- Central Electricity Authority - India
- Oldendorff Carriers - Singapore
- London Commodity Brokers - England
- Asmin Koalindo Tuhup - Indonesia
- Independent Power Producers Association of India
- IHS Mccloskey Coal Group - USA
- Orica Australia Pty. Ltd.
- Larsen & Toubro Limited - India
- Ministry of Finance - Indonesia
- Wilmar Investment Holdings
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
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