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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 $75/bbl over the next few years.
I do, however, believe it is beyond the ability of men to predict the exact shape of the swing cycle, in terms of the period and cycle frequency.
Source: The Jakarta Post
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The writer has been working in the oil and gas business for about 30 years.
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Sunday, 08 March 15
FREIGHT RATES FROM INDONESIA TO INDIA IS TRENDING UP
COALspot.com: The freight market continued to see gains this week and all the indices were rose except for Cape index. The BDI was increased 4.62 p ...
Friday, 06 March 15
BALTIC DRY INDEX: IS THIS POWERFUL INDICATOR SIGNALING A GLOBAL RECESSION? - STREET AUTHORITY
Although memories of the Great Recession linger, a case can be made that better days lie ahead.
That’s because central banks around the ...
Friday, 06 March 15
U.S. WEEKLY COAL PRODUCTION ROSE 3.5% WEEK ON WEEK
COALspot.com – United States the world's one of the largest coal producers, produced approximately 17.1 million short tons (mmst) of coal ...
Thursday, 05 March 15
PANAMAX : THE ATLANTIC ROUND IS NOW PAYING AROUND US$ 5K PER DAY
COALspot.com: Handy - The activity in the handy/supra segment is back. “ We see more fresh cargo in the market for 2nd half March dates ...
Thursday, 05 March 15
INDIA WILL BE THE LARGEST DRIVER OF GLOBAL SEABORNE COKING COAL DEMAND GROWTH IN 2015 - WOOD MACKENZIE
Global demand growth will remain weak because of China’s negative demand growth.
COALspot.com: At Coaltrans India, Wood Mackenzie says I ...
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- Mjunction Services Limited - India
- Thiess Contractors Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Pendopo Energi Batubara - Indonesia
- Indian Oil Corporation Limited
- Wood Mackenzie - Singapore
- Goldman Sachs - Singapore
- Sarangani Energy Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Barasentosa Lestari - Indonesia
- New Zealand Coal & Carbon
- Heidelberg Cement - Germany
- Power Finance Corporation Ltd., India
- Antam Resourcindo - Indonesia
- Globalindo Alam Lestari - Indonesia
- London Commodity Brokers - England
- Kapuas Tunggal Persada - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Baramulti Group, Indonesia
- Thai Mozambique Logistica
- Carbofer General Trading SA - India
- Siam City Cement - Thailand
- Posco Energy - South Korea
- McConnell Dowell - Australia
- Tamil Nadu electricity Board
- Global Business Power Corporation, Philippines
- Planning Commission, India
- SN Aboitiz Power Inc, Philippines
- Bukit Makmur.PT - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Aboitiz Power Corporation - Philippines
- ICICI Bank Limited - India
- Leighton Contractors Pty Ltd - Australia
- Commonwealth Bank - Australia
- Central Java Power - Indonesia
- International Coal Ventures Pvt Ltd - India
- Trasteel International SA, Italy
- PetroVietnam Power Coal Import and Supply Company
- Indian Energy Exchange, India
- Bulk Trading Sa - Switzerland
- Oldendorff Carriers - Singapore
- Coastal Gujarat Power Limited - India
- Orica Australia Pty. Ltd.
- Billiton Holdings Pty Ltd - Australia
- Indo Tambangraya Megah - Indonesia
- MS Steel International - UAE
- Rio Tinto Coal - Australia
- Sree Jayajothi Cements Limited - India
- Bhatia International Limited - India
- Mintek Dendrill Indonesia
- IHS Mccloskey Coal Group - USA
- Binh Thuan Hamico - Vietnam
- Central Electricity Authority - India
- Mercator Lines Limited - India
- Indogreen Group - Indonesia
- VISA Power Limited - India
- Kaltim Prima Coal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Electricity Generating Authority of Thailand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Star Paper Mills Limited - India
- Eastern Energy - Thailand
- Iligan Light & Power Inc, Philippines
- Kartika Selabumi Mining - Indonesia
- Bukit Baiduri Energy - Indonesia
- Uttam Galva Steels Limited - India
- Banpu Public Company Limited - Thailand
- Energy Development Corp, Philippines
- Semirara Mining Corp, Philippines
- Ind-Barath Power Infra Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Sojitz Corporation - Japan
- Bayan Resources Tbk. - Indonesia
- Malabar Cements Ltd - India
- TeaM Sual Corporation - Philippines
- Australian Commodity Traders Exchange
- OPG Power Generation Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Sical Logistics Limited - India
- Price Waterhouse Coopers - Russia
- Gujarat Sidhee Cement - India
- Lanco Infratech Ltd - India
- Cement Manufacturers Association - India
- Grasim Industreis Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- The State Trading Corporation of India Ltd
- Anglo American - United Kingdom
- Interocean Group of Companies - India
- Medco Energi Mining Internasional
- South Luzon Thermal Energy Corporation
- Attock Cement Pakistan Limited
- PNOC Exploration Corporation - Philippines
- Altura Mining Limited, Indonesia
- Indonesian Coal Mining Association
- Edison Trading Spa - Italy
- Chettinad Cement Corporation Ltd - India
- White Energy Company Limited
- Vijayanagar Sugar Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Directorate Of Revenue Intelligence - India
- Wilmar Investment Holdings
- Bangladesh Power Developement Board
- ASAPP Information Group - India
- Orica Mining Services - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Meenaskhi Energy Private Limited - India
- Kepco SPC Power Corporation, Philippines
- Kumho Petrochemical, South Korea
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Economic Council, Georgia
- Simpson Spence & Young - Indonesia
- Bharathi Cement Corporation - India
- Dalmia Cement Bharat India
- Sindya Power Generating Company Private Ltd
- Karaikal Port Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Bank of Tokyo Mitsubishi UFJ Ltd
- Parliament of New Zealand
- AsiaOL BioFuels Corp., Philippines
- SMG Consultants - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Kideco Jaya Agung - Indonesia
- Metalloyd Limited - United Kingdom
- Ministry of Transport, Egypt
- Coalindo Energy - Indonesia
- CNBM International Corporation - China
- Petron Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Singapore Mercantile Exchange
- Manunggal Multi Energi - Indonesia
- Energy Link Ltd, New Zealand
- Petrochimia International Co. Ltd.- Taiwan
- Kobexindo Tractors - Indoneisa
- Eastern Coal Council - USA
- Meralco Power Generation, Philippines
- GVK Power & Infra Limited - India
- PTC India Limited - India
- Africa Commodities Group - South Africa
- Samtan Co., Ltd - South Korea
- SMC Global Power, Philippines
- Georgia Ports Authority, United States
- Bhushan Steel Limited - India
- Salva Resources Pvt Ltd - India
- The University of Queensland
- Jindal Steel & Power Ltd - India
- Siam City Cement PLC, Thailand
- Tata Chemicals Ltd - India
- Global Coal Blending Company Limited - Australia
- Marubeni Corporation - India
- Romanian Commodities Exchange
- Therma Luzon, Inc, Philippines
- Semirara Mining and Power Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Jaiprakash Power Ventures ltd
- Latin American Coal - Colombia
- Port Waratah Coal Services - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Riau Bara Harum - Indonesia
- Agrawal Coal Company - India
- Makarim & Taira - Indonesia
- Essar Steel Hazira Ltd - India
- Indika Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Sinarmas Energy and Mining - Indonesia
- Timah Investasi Mineral - Indoneisa
- Videocon Industries ltd - India
- Ambuja Cements Ltd - India
- Australian Coal Association
- Straits Asia Resources Limited - Singapore
- Larsen & Toubro Limited - India
- Savvy Resources Ltd - HongKong
- Vizag Seaport Private Limited - India
- Maheswari Brothers Coal Limited - India
- Xindia Steels Limited - India
- Standard Chartered Bank - UAE
- Renaissance Capital - South Africa
- Aditya Birla Group - India
- India Bulls Power Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ministry of Finance - Indonesia
- Deloitte Consulting - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Borneo Indobara - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Formosa Plastics Group - Taiwan
- Ceylon Electricity Board - Sri Lanka
- Gujarat Mineral Development Corp Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- LBH Netherlands Bv - Netherlands
- IEA Clean Coal Centre - UK
- The Treasury - Australian Government
- Toyota Tsusho Corporation, Japan
- Asmin Koalindo Tuhup - Indonesia
- Vedanta Resources Plc - India
- Krishnapatnam Port Company Ltd. - India
- Mercuria Energy - Indonesia
- GMR Energy Limited - India
- Coal and Oil Company - UAE
- Independent Power Producers Association of India
- Electricity Authority, New Zealand
- Parry Sugars Refinery, India
- Directorate General of MIneral and Coal - Indonesia
- PowerSource Philippines DevCo
- Chamber of Mines of South Africa
- Ministry of Mines - Canada
- CIMB Investment Bank - Malaysia
- Sakthi Sugars Limited - India
- Madhucon Powers Ltd - India
- Merrill Lynch Commodities Europe
- Rashtriya Ispat Nigam Limited - India
- Minerals Council of Australia
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