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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, 11 March 15
RICHARDS BAY COAL SWAPS DROP $ 3.65 - 4.0/T W-O-W
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q2' 2015 declined month over month and week on week.
The Q2 swap has fell US$ ...
Wednesday, 11 March 15
DRY BULK MARKET CLOSED OFF ON THE GREEN FOR A SECOND WEEK IN A ROW - INTERMODAL
COALspot.com: The Dry Bulk market closed off on the green for a second week in a row, while the performance of Capesizes hindered a more substantia ...
Wednesday, 11 March 15
MARKET INSIGHT : NEWBUILDINGS - PANOS TSILINGIRIS
From a cost-based, buy-low perspective, there is currently a buying opportunity in the second-hand dry bulk market. I am an anti-cyclical (buy-low) ...
Wednesday, 11 March 15
DRY BULK MARKET: ALL IS NOT LOST FOR A RECOVERY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The low cost of commodities across the board could trigger an increase of trade among many countries, which in turn could lead to a recovery of the ...
Wednesday, 11 March 15
U.S. ELECTRIC GENERATING COMPANIES TO ADD MORE THAN 20 GW OF GENERATING CAPACITY IN 2015; 16 GW OF GENERATING CAPACITY IS EXPECTED TO RETIRE IN 2015
COALspot.com: In 2015, electric generating companies in U.S. expect to add more than 20 gigawatts (GW) of utility-scale generating capacity to the ...
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- Billiton Holdings Pty Ltd - Australia
- Vedanta Resources Plc - India
- Goldman Sachs - Singapore
- IEA Clean Coal Centre - UK
- Bukit Asam (Persero) Tbk - Indonesia
- White Energy Company Limited
- Wood Mackenzie - Singapore
- Bangladesh Power Developement Board
- Globalindo Alam Lestari - Indonesia
- Global Coal Blending Company Limited - Australia
- Interocean Group of Companies - India
- Bukit Baiduri Energy - Indonesia
- Parliament of New Zealand
- Vijayanagar Sugar Pvt Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Trasteel International SA, Italy
- European Bulk Services B.V. - Netherlands
- Bhushan Steel Limited - India
- Kaltim Prima Coal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Metalloyd Limited - United Kingdom
- Sree Jayajothi Cements Limited - India
- Baramulti Group, Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Straits Asia Resources Limited - Singapore
- Intertek Mineral Services - Indonesia
- Sindya Power Generating Company Private Ltd
- Bukit Makmur.PT - Indonesia
- Binh Thuan Hamico - Vietnam
- Rashtriya Ispat Nigam Limited - India
- The Treasury - Australian Government
- Asmin Koalindo Tuhup - Indonesia
- Bulk Trading Sa - Switzerland
- Indogreen Group - Indonesia
- Africa Commodities Group - South Africa
- LBH Netherlands Bv - Netherlands
- Sinarmas Energy and Mining - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- PTC India Limited - India
- SMG Consultants - Indonesia
- Singapore Mercantile Exchange
- Bhoruka Overseas - Indonesia
- Posco Energy - South Korea
- Commonwealth Bank - Australia
- Dalmia Cement Bharat India
- Energy Development Corp, Philippines
- Xindia Steels Limited - India
- Malabar Cements Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Banpu Public Company Limited - Thailand
- Anglo American - United Kingdom
- Independent Power Producers Association of India
- OPG Power Generation Pvt Ltd - India
- Ambuja Cements Ltd - India
- Indonesian Coal Mining Association
- Coastal Gujarat Power Limited - India
- Barasentosa Lestari - Indonesia
- Energy Link Ltd, New Zealand
- Indian Energy Exchange, India
- India Bulls Power Limited - India
- Manunggal Multi Energi - Indonesia
- GVK Power & Infra Limited - India
- Australian Commodity Traders Exchange
- Star Paper Mills Limited - India
- Oldendorff Carriers - Singapore
- Vizag Seaport Private Limited - India
- Meenaskhi Energy Private Limited - India
- Orica Australia Pty. Ltd.
- Kumho Petrochemical, South Korea
- Antam Resourcindo - Indonesia
- Petron Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- MS Steel International - UAE
- Agrawal Coal Company - India
- Ceylon Electricity Board - Sri Lanka
- Georgia Ports Authority, United States
- Kepco SPC Power Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Mjunction Services Limited - India
- Larsen & Toubro Limited - India
- Global Business Power Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Cement Manufacturers Association - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indian Oil Corporation Limited
- ASAPP Information Group - India
- Indo Tambangraya Megah - Indonesia
- Eastern Coal Council - USA
- Planning Commission, India
- Kapuas Tunggal Persada - Indonesia
- Medco Energi Mining Internasional
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Jaiprakash Power Ventures ltd
- Grasim Industreis Ltd - India
- Coal and Oil Company - UAE
- Standard Chartered Bank - UAE
- Power Finance Corporation Ltd., India
- Jorong Barutama Greston.PT - Indonesia
- Rio Tinto Coal - Australia
- Siam City Cement - Thailand
- Makarim & Taira - Indonesia
- VISA Power Limited - India
- Neyveli Lignite Corporation Ltd, - India
- The University of Queensland
- Indika Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Thai Mozambique Logistica
- Tata Chemicals Ltd - India
- IHS Mccloskey Coal Group - USA
- Edison Trading Spa - Italy
- San Jose City I Power Corp, Philippines
- Kideco Jaya Agung - Indonesia
- Lanco Infratech Ltd - India
- Ministry of Finance - Indonesia
- Kobexindo Tractors - Indoneisa
- ICICI Bank Limited - India
- CIMB Investment Bank - Malaysia
- McConnell Dowell - Australia
- Miang Besar Coal Terminal - Indonesia
- PowerSource Philippines DevCo
- Madhucon Powers Ltd - India
- Riau Bara Harum - Indonesia
- South Luzon Thermal Energy Corporation
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bhatia International Limited - India
- Aboitiz Power Corporation - Philippines
- Carbofer General Trading SA - India
- Mercator Lines Limited - India
- Bharathi Cement Corporation - India
- Coalindo Energy - Indonesia
- Australian Coal Association
- Semirara Mining Corp, Philippines
- GMR Energy Limited - India
- New Zealand Coal & Carbon
- Salva Resources Pvt Ltd - India
- Borneo Indobara - Indonesia
- Ministry of Mines - Canada
- Merrill Lynch Commodities Europe
- Bayan Resources Tbk. - Indonesia
- Latin American Coal - Colombia
- Heidelberg Cement - Germany
- Marubeni Corporation - India
- Tamil Nadu electricity Board
- Gujarat Electricity Regulatory Commission - India
- Chettinad Cement Corporation Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Videocon Industries ltd - India
- Gujarat Sidhee Cement - India
- Central Java Power - Indonesia
- Sakthi Sugars Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Electricity Authority, New Zealand
- Global Green Power PLC Corporation, Philippines
- Minerals Council of Australia
- Maheswari Brothers Coal Limited - India
- Timah Investasi Mineral - Indoneisa
- Economic Council, Georgia
- CNBM International Corporation - China
- Meralco Power Generation, Philippines
- Formosa Plastics Group - Taiwan
- SN Aboitiz Power Inc, Philippines
- SMC Global Power, Philippines
- Mintek Dendrill Indonesia
- Uttam Galva Steels Limited - India
- Ind-Barath Power Infra Limited - India
- Holcim Trading Pte Ltd - Singapore
- Directorate General of MIneral and Coal - Indonesia
- Therma Luzon, Inc, Philippines
- Ministry of Transport, Egypt
- Aditya Birla Group - India
- PetroVietnam Power Coal Import and Supply Company
- Electricity Generating Authority of Thailand
- AsiaOL BioFuels Corp., Philippines
- Samtan Co., Ltd - South Korea
- Renaissance Capital - South Africa
- Central Electricity Authority - India
- Siam City Cement PLC, Thailand
- Semirara Mining and Power Corporation, Philippines
- Wilmar Investment Holdings
- TeaM Sual Corporation - Philippines
- Sical Logistics Limited - India
- Thiess Contractors Indonesia
- Orica Mining Services - Indonesia
- PNOC Exploration Corporation - Philippines
- Altura Mining Limited, Indonesia
- The State Trading Corporation of India Ltd
- Deloitte Consulting - India
- Romanian Commodities Exchange
- International Coal Ventures Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Mercuria Energy - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Karaikal Port Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Savvy Resources Ltd - HongKong
- Parry Sugars Refinery, India
- Port Waratah Coal Services - Australia
- Attock Cement Pakistan Limited
- Eastern Energy - Thailand
- Krishnapatnam Port Company Ltd. - India
- London Commodity Brokers - England
- Simpson Spence & Young - Indonesia
- Pendopo Energi Batubara - Indonesia
- Toyota Tsusho Corporation, Japan
- Essar Steel Hazira Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Directorate Of Revenue Intelligence - India
- GAC Shipping (India) Pvt Ltd
- TNB Fuel Sdn Bhd - Malaysia
- Chamber of Mines of South Africa
- Price Waterhouse Coopers - Russia
- Sojitz Corporation - Japan
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