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