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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 $75/bbl over the next few years.
I do, however, believe it is beyond the ability of men to predict the exact shape of the swing cycle, in terms of the period and cycle frequency.
Source: The Jakarta Post
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The writer has been working in the oil and gas business for about 30 years.
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Tuesday, 10 March 15
FOB NEWCASTLE COAL SWAPS HEADING SOUTH
COALspot.com: API 5 FOB Newcastle Coal swap for Q2’ 2015 delivery declined US$ 0.24 per MT (-0.47%) month over month and US$ 1.52 (-2.93%) we ...
Tuesday, 10 March 15
CFR SOUTH CHINA POWER-STATION COAL SWAPS DECLINE
COALspot.com: API 8 CFR South China Coal swap for Q2’ 2015 delivery fell US$ 0.42 (-0.74%) per MT month over month and declined US$ 1.00 &nbs ...
Monday, 09 March 15
INDONESIA GREETS INDIA RATE CUT AS GOOD FOR EXPORTS - GLOBEASIA
Indonesian commodity producers and economists have hailed the Indian central bank’s rate cut as good for boosting exports from Southeast Asia ...
Monday, 09 March 15
CHINA'S SUPREME COURT ISSUES NEW JUDICIAL INTERPRETATION ON SHIP ARREST AND JUDICIAL SALE OF SHIPS - GARD
KNOWLEDGE TO ELEVATE
China is not traditionally a popular jurisdiction for ship arrest. However, Members and clients with ships calling at por ...
Monday, 09 March 15
CHINA'S IMPORTS - NEVER MORE IMPORTANT TO SHIPPING? - CLARKSONS
Over the last 15 years China has led maritime forecasters a right old dance. In 2002, rumours that Chinese iron ore imports were about to take off ...
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- Independent Power Producers Association of India
- Planning Commission, India
- Cigading International Bulk Terminal - Indonesia
- Indo Tambangraya Megah - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Ministry of Finance - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Trasteel International SA, Italy
- San Jose City I Power Corp, Philippines
- Manunggal Multi Energi - Indonesia
- Thiess Contractors Indonesia
- Malabar Cements Ltd - India
- Aditya Birla Group - India
- Makarim & Taira - Indonesia
- Intertek Mineral Services - Indonesia
- New Zealand Coal & Carbon
- Port Waratah Coal Services - Australia
- Lanco Infratech Ltd - India
- Iligan Light & Power Inc, Philippines
- Gujarat Electricity Regulatory Commission - India
- Ind-Barath Power Infra Limited - India
- Interocean Group of Companies - India
- Directorate General of MIneral and Coal - Indonesia
- India Bulls Power Limited - India
- Rio Tinto Coal - Australia
- Tata Chemicals Ltd - India
- Bukit Makmur.PT - Indonesia
- Bharathi Cement Corporation - India
- Meralco Power Generation, Philippines
- Bangladesh Power Developement Board
- Siam City Cement PLC, Thailand
- The Treasury - Australian Government
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Australian Coal Association
- Sinarmas Energy and Mining - Indonesia
- Marubeni Corporation - India
- Vizag Seaport Private Limited - India
- OPG Power Generation Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- MS Steel International - UAE
- Pipit Mutiara Jaya. PT, Indonesia
- Renaissance Capital - South Africa
- Semirara Mining Corp, Philippines
- Deloitte Consulting - India
- Energy Development Corp, Philippines
- Samtan Co., Ltd - South Korea
- Miang Besar Coal Terminal - Indonesia
- Merrill Lynch Commodities Europe
- Carbofer General Trading SA - India
- CIMB Investment Bank - Malaysia
- GVK Power & Infra Limited - India
- PTC India Limited - India
- Eastern Energy - Thailand
- Sindya Power Generating Company Private Ltd
- Chettinad Cement Corporation Ltd - India
- Savvy Resources Ltd - HongKong
- Cement Manufacturers Association - India
- Chamber of Mines of South Africa
- Jindal Steel & Power Ltd - India
- The State Trading Corporation of India Ltd
- Grasim Industreis Ltd - India
- Therma Luzon, Inc, Philippines
- Coalindo Energy - Indonesia
- Sojitz Corporation - Japan
- Economic Council, Georgia
- Price Waterhouse Coopers - Russia
- Uttam Galva Steels Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Global Green Power PLC Corporation, Philippines
- VISA Power Limited - India
- Toyota Tsusho Corporation, Japan
- Indogreen Group - Indonesia
- Simpson Spence & Young - Indonesia
- Kumho Petrochemical, South Korea
- Goldman Sachs - Singapore
- Mercuria Energy - Indonesia
- Banpu Public Company Limited - Thailand
- South Luzon Thermal Energy Corporation
- PetroVietnam Power Coal Import and Supply Company
- Central Java Power - Indonesia
- Electricity Generating Authority of Thailand
- Baramulti Group, Indonesia
- Essar Steel Hazira Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Kideco Jaya Agung - Indonesia
- Larsen & Toubro Limited - India
- Borneo Indobara - Indonesia
- Edison Trading Spa - Italy
- Binh Thuan Hamico - Vietnam
- McConnell Dowell - Australia
- IEA Clean Coal Centre - UK
- PNOC Exploration Corporation - Philippines
- Xindia Steels Limited - India
- ASAPP Information Group - India
- Power Finance Corporation Ltd., India
- Petron Corporation, Philippines
- Latin American Coal - Colombia
- Meenaskhi Energy Private Limited - India
- Australian Commodity Traders Exchange
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Timah Investasi Mineral - Indoneisa
- CNBM International Corporation - China
- Thai Mozambique Logistica
- Sarangani Energy Corporation, Philippines
- Coal and Oil Company - UAE
- Minerals Council of Australia
- Karaikal Port Pvt Ltd - India
- GMR Energy Limited - India
- Billiton Holdings Pty Ltd - Australia
- Bukit Baiduri Energy - Indonesia
- Videocon Industries ltd - India
- Sakthi Sugars Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Kartika Selabumi Mining - Indonesia
- Jaiprakash Power Ventures ltd
- Romanian Commodities Exchange
- Oldendorff Carriers - Singapore
- Gujarat Sidhee Cement - India
- AsiaOL BioFuels Corp., Philippines
- Ambuja Cements Ltd - India
- Standard Chartered Bank - UAE
- Karbindo Abesyapradhi - Indoneisa
- Africa Commodities Group - South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Aboitiz Power Corporation - Philippines
- European Bulk Services B.V. - Netherlands
- Orica Mining Services - Indonesia
- Orica Australia Pty. Ltd.
- Jorong Barutama Greston.PT - Indonesia
- London Commodity Brokers - England
- Sree Jayajothi Cements Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Wood Mackenzie - Singapore
- SN Aboitiz Power Inc, Philippines
- LBH Netherlands Bv - Netherlands
- Electricity Authority, New Zealand
- Bhushan Steel Limited - India
- Alfred C Toepfer International GmbH - Germany
- International Coal Ventures Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Parry Sugars Refinery, India
- Agrawal Coal Company - India
- Global Business Power Corporation, Philippines
- Eastern Coal Council - USA
- SMG Consultants - Indonesia
- Dalmia Cement Bharat India
- Sical Logistics Limited - India
- Indika Energy - Indonesia
- Siam City Cement - Thailand
- Vedanta Resources Plc - India
- Mjunction Services Limited - India
- Energy Link Ltd, New Zealand
- Wilmar Investment Holdings
- Straits Asia Resources Limited - Singapore
- Bhatia International Limited - India
- Globalindo Alam Lestari - Indonesia
- White Energy Company Limited
- Ministry of Mines - Canada
- GAC Shipping (India) Pvt Ltd
- Maharashtra Electricity Regulatory Commission - India
- Commonwealth Bank - Australia
- Asmin Koalindo Tuhup - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Anglo American - United Kingdom
- Parliament of New Zealand
- Kalimantan Lumbung Energi - Indonesia
- Metalloyd Limited - United Kingdom
- Heidelberg Cement - Germany
- Pendopo Energi Batubara - Indonesia
- Posco Energy - South Korea
- Kobexindo Tractors - Indoneisa
- Indian Energy Exchange, India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Indian Oil Corporation Limited
- Mintek Dendrill Indonesia
- Georgia Ports Authority, United States
- Offshore Bulk Terminal Pte Ltd, Singapore
- Antam Resourcindo - Indonesia
- Barasentosa Lestari - Indonesia
- Ministry of Transport, Egypt
- Maheswari Brothers Coal Limited - India
- SMC Global Power, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Coastal Gujarat Power Limited - India
- TeaM Sual Corporation - Philippines
- Global Coal Blending Company Limited - Australia
- Mercator Lines Limited - India
- IHS Mccloskey Coal Group - USA
- Holcim Trading Pte Ltd - Singapore
- Ceylon Electricity Board - Sri Lanka
- Rashtriya Ispat Nigam Limited - India
- Star Paper Mills Limited - India
- Leighton Contractors Pty Ltd - Australia
- Kepco SPC Power Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- Indonesian Coal Mining Association
- Directorate Of Revenue Intelligence - India
- Vijayanagar Sugar Pvt Ltd - India
- Central Electricity Authority - India
- Petrochimia International Co. Ltd.- Taiwan
- The University of Queensland
- Attock Cement Pakistan Limited
- Salva Resources Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Medco Energi Mining Internasional
- PowerSource Philippines DevCo
- Bhoruka Overseas - Indonesia
- Singapore Mercantile Exchange
- TNB Fuel Sdn Bhd - Malaysia
- Bayan Resources Tbk. - Indonesia
- Riau Bara Harum - Indonesia
- Tamil Nadu electricity Board
- Madhucon Powers Ltd - India
- ICICI Bank Limited - India
- Formosa Plastics Group - Taiwan
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