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