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