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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 $75/bbl over the next few years.
I do, however, believe it is beyond the ability of men to predict the exact shape of the swing cycle, in terms of the period and cycle frequency.
Source: The Jakarta Post
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The writer has been working in the oil and gas business for about 30 years.
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Thursday, 05 March 15
BUKIT ASAM BOOKED US$ 1 BILLION REVENUE IN 2014
COALspot.com: Indonesian publicly listed and state owned coal miner PT. Bukit Asam, has announced that, the revenue of the company for the period J ...
Wednesday, 04 March 15
AN AGENDA FOR CHANGE - FITCH INDONESIA CONFERENCE
Fitch Indonesia Conference - 5 March 2015
Fitch Ratings will host its annual Indonesia conference on 5 March 2015.
The theme of this year ...
Wednesday, 04 March 15
KEEP CALM AND INVEST IN DRY - THEODORE NTALAKOS
Keep Calm and Carry On was originally a motivational poster, intended to raise the morale of the British public, produced by the British government ...
Tuesday, 03 March 15
INDONESIAN COAL EXPORT VOLUME TO DECLINE 50% BY 2019
COALspot.com: The Indonesian government is planning to reduce coal export volume by 50% within the next five years while keeping its coal productio ...
Tuesday, 03 March 15
INDIAN THERMAL COAL IMPORTS: STEAMING FORWARD - CLARKSONS
Coal-fired power stations comprise around 60% of India’s power output, and with domestic supply issues and favourable international coal pric ...
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- Kepco SPC Power Corporation, Philippines
- Indika Energy - Indonesia
- Altura Mining Limited, Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Banpu Public Company Limited - Thailand
- Ambuja Cements Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Meralco Power Generation, Philippines
- Wilmar Investment Holdings
- Samtan Co., Ltd - South Korea
- PetroVietnam Power Coal Import and Supply Company
- Ceylon Electricity Board - Sri Lanka
- Posco Energy - South Korea
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Planning Commission, India
- Aditya Birla Group - India
- Agrawal Coal Company - India
- Jindal Steel & Power Ltd - India
- South Luzon Thermal Energy Corporation
- Riau Bara Harum - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Economic Council, Georgia
- Semirara Mining Corp, Philippines
- Thiess Contractors Indonesia
- Coastal Gujarat Power Limited - India
- Alfred C Toepfer International GmbH - Germany
- Straits Asia Resources Limited - Singapore
- Eastern Energy - Thailand
- SN Aboitiz Power Inc, Philippines
- Indian Oil Corporation Limited
- Oldendorff Carriers - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Interocean Group of Companies - India
- The Treasury - Australian Government
- Iligan Light & Power Inc, Philippines
- Trasteel International SA, Italy
- ASAPP Information Group - India
- PowerSource Philippines DevCo
- Sical Logistics Limited - India
- Australian Coal Association
- Borneo Indobara - Indonesia
- The University of Queensland
- Bayan Resources Tbk. - Indonesia
- OPG Power Generation Pvt Ltd - India
- Orica Mining Services - Indonesia
- Coalindo Energy - Indonesia
- Carbofer General Trading SA - India
- Indogreen Group - Indonesia
- Sarangani Energy Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Simpson Spence & Young - Indonesia
- Parry Sugars Refinery, India
- VISA Power Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Electricity Authority, New Zealand
- Romanian Commodities Exchange
- Electricity Generating Authority of Thailand
- Heidelberg Cement - Germany
- Antam Resourcindo - Indonesia
- Indonesian Coal Mining Association
- GMR Energy Limited - India
- Indo Tambangraya Megah - Indonesia
- Tata Chemicals Ltd - India
- Xindia Steels Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Star Paper Mills Limited - India
- MS Steel International - UAE
- Wood Mackenzie - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Marubeni Corporation - India
- CIMB Investment Bank - Malaysia
- Commonwealth Bank - Australia
- Semirara Mining and Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- IEA Clean Coal Centre - UK
- Maheswari Brothers Coal Limited - India
- Kapuas Tunggal Persada - Indonesia
- Coal and Oil Company - UAE
- LBH Netherlands Bv - Netherlands
- Leighton Contractors Pty Ltd - Australia
- Mercator Lines Limited - India
- Chettinad Cement Corporation Ltd - India
- Bangladesh Power Developement Board
- India Bulls Power Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Minerals Council of Australia
- Neyveli Lignite Corporation Ltd, - India
- Chamber of Mines of South Africa
- Baramulti Group, Indonesia
- New Zealand Coal & Carbon
- White Energy Company Limited
- San Jose City I Power Corp, Philippines
- Salva Resources Pvt Ltd - India
- Mintek Dendrill Indonesia
- Dalmia Cement Bharat India
- PNOC Exploration Corporation - Philippines
- Essar Steel Hazira Ltd - India
- Africa Commodities Group - South Africa
- Medco Energi Mining Internasional
- Georgia Ports Authority, United States
- Bahari Cakrawala Sebuku - Indonesia
- Attock Cement Pakistan Limited
- Vizag Seaport Private Limited - India
- Kobexindo Tractors - Indoneisa
- Cigading International Bulk Terminal - Indonesia
- Pendopo Energi Batubara - Indonesia
- Global Coal Blending Company Limited - Australia
- Binh Thuan Hamico - Vietnam
- Ministry of Finance - Indonesia
- Merrill Lynch Commodities Europe
- GVK Power & Infra Limited - India
- Bhatia International Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Mercuria Energy - Indonesia
- Parliament of New Zealand
- Therma Luzon, Inc, Philippines
- European Bulk Services B.V. - Netherlands
- Asmin Koalindo Tuhup - Indonesia
- Sojitz Corporation - Japan
- Timah Investasi Mineral - Indoneisa
- Central Java Power - Indonesia
- Anglo American - United Kingdom
- Sinarmas Energy and Mining - Indonesia
- Vedanta Resources Plc - India
- Gujarat Electricity Regulatory Commission - India
- Kalimantan Lumbung Energi - Indonesia
- Makarim & Taira - Indonesia
- Videocon Industries ltd - India
- GAC Shipping (India) Pvt Ltd
- Eastern Coal Council - USA
- Krishnapatnam Port Company Ltd. - India
- Tamil Nadu electricity Board
- Siam City Cement PLC, Thailand
- IHS Mccloskey Coal Group - USA
- Savvy Resources Ltd - HongKong
- Deloitte Consulting - India
- Kaltim Prima Coal - Indonesia
- Kideco Jaya Agung - Indonesia
- Port Waratah Coal Services - Australia
- Power Finance Corporation Ltd., India
- Orica Australia Pty. Ltd.
- Bhoruka Overseas - Indonesia
- Sree Jayajothi Cements Limited - India
- Energy Development Corp, Philippines
- Rio Tinto Coal - Australia
- Barasentosa Lestari - Indonesia
- Global Green Power PLC Corporation, Philippines
- SMG Consultants - Indonesia
- Intertek Mineral Services - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Manunggal Multi Energi - Indonesia
- Bhushan Steel Limited - India
- International Coal Ventures Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- Central Electricity Authority - India
- Bulk Trading Sa - Switzerland
- Pipit Mutiara Jaya. PT, Indonesia
- The State Trading Corporation of India Ltd
- Metalloyd Limited - United Kingdom
- ICICI Bank Limited - India
- Mjunction Services Limited - India
- Kumho Petrochemical, South Korea
- Global Business Power Corporation, Philippines
- Energy Link Ltd, New Zealand
- AsiaOL BioFuels Corp., Philippines
- Bukit Baiduri Energy - Indonesia
- Grasim Industreis Ltd - India
- Petron Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Directorate Of Revenue Intelligence - India
- Kartika Selabumi Mining - Indonesia
- Aboitiz Power Corporation - Philippines
- Ministry of Transport, Egypt
- Uttam Galva Steels Limited - India
- Meenaskhi Energy Private Limited - India
- Billiton Holdings Pty Ltd - Australia
- Price Waterhouse Coopers - Russia
- TeaM Sual Corporation - Philippines
- London Commodity Brokers - England
- Latin American Coal - Colombia
- Australian Commodity Traders Exchange
- Indian Energy Exchange, India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Standard Chartered Bank - UAE
- Cement Manufacturers Association - India
- Madhucon Powers Ltd - India
- McConnell Dowell - Australia
- Larsen & Toubro Limited - India
- Ministry of Mines - Canada
- Ind-Barath Power Infra Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Jaiprakash Power Ventures ltd
- Goldman Sachs - Singapore
- Malabar Cements Ltd - India
- Gujarat Sidhee Cement - India
- Sindya Power Generating Company Private Ltd
- Siam City Cement - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Thai Mozambique Logistica
- Sakthi Sugars Limited - India
- Lanco Infratech Ltd - India
- Edison Trading Spa - Italy
- Globalindo Alam Lestari - Indonesia
- Singapore Mercantile Exchange
- Miang Besar Coal Terminal - Indonesia
- Karaikal Port Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Renaissance Capital - South Africa
- SMC Global Power, Philippines
- Bharathi Cement Corporation - India
- Bukit Asam (Persero) Tbk - Indonesia
- PTC India Limited - India
- Bukit Makmur.PT - Indonesia
- CNBM International Corporation - China
- Independent Power Producers Association of India
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