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