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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, 01 March 15
BDI INDEX SLIGHTLY UP CAUSED AN INCREASE IN THE PANAMAX, SUPARAMAX AND HANDY SIZE INDICES
COALspot.com: The freight market saw some gains this week and BDI was up 5.26 pct closed at 540 points. However the Cape index failed to follow BDI ...
Friday, 27 February 15
WEEKLY US COAL PRODUCTION DOWN AN ESTIMATED 14.0% FROM LAST WEEK - EIA
COALspot.com – United States the world's one of the largest coal producers, produced approximately 16.5 million short tons (mmst) of coal ...
Thursday, 26 February 15
DRY BULK MARKET COULD REBOUND FROM HISTORICAL LOWS IN THE COMING WEEKS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The dry bulk market could exit from its historical lows in the coming weeks, as Chinese buyers reenter the market after the holiday celebrations. T ...
Thursday, 26 February 15
COAL POLICY RISK: HIGHER ROYALTIES FOR IUP HOLDERS - BAHANA SECURITIES | JAKARTA POST
The Energy and Mineral Resources Ministry plans to raise coal royalties charged to mining operation permit (IUP) holders by the end of the first qu ...
Thursday, 26 February 15
DRY BULK MARKET LOOKING FOR POSITIVE MOMENTUM, BUT PROSPECTS REMAIN DIM - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
As the Baltic Dry Index (BDI) inched a bit higher over the past couple of sessions and the Chinese are returning to the market after a week long hi ...
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- Directorate General of MIneral and Coal - Indonesia
- Directorate Of Revenue Intelligence - India
- Straits Asia Resources Limited - Singapore
- Edison Trading Spa - Italy
- Bulk Trading Sa - Switzerland
- Star Paper Mills Limited - India
- Energy Development Corp, Philippines
- Meralco Power Generation, Philippines
- Standard Chartered Bank - UAE
- Coalindo Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- Kobexindo Tractors - Indoneisa
- Iligan Light & Power Inc, Philippines
- Latin American Coal - Colombia
- Orica Mining Services - Indonesia
- Price Waterhouse Coopers - Russia
- Chettinad Cement Corporation Ltd - India
- Aditya Birla Group - India
- Jindal Steel & Power Ltd - India
- The Treasury - Australian Government
- Georgia Ports Authority, United States
- Bangladesh Power Developement Board
- Rio Tinto Coal - Australia
- Metalloyd Limited - United Kingdom
- Mintek Dendrill Indonesia
- Meenaskhi Energy Private Limited - India
- Therma Luzon, Inc, Philippines
- White Energy Company Limited
- Simpson Spence & Young - Indonesia
- IHS Mccloskey Coal Group - USA
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- GMR Energy Limited - India
- Agrawal Coal Company - India
- Riau Bara Harum - Indonesia
- Binh Thuan Hamico - Vietnam
- AsiaOL BioFuels Corp., Philippines
- Samtan Co., Ltd - South Korea
- Rashtriya Ispat Nigam Limited - India
- VISA Power Limited - India
- Wood Mackenzie - Singapore
- Eastern Energy - Thailand
- GVK Power & Infra Limited - India
- Tata Chemicals Ltd - India
- Kepco SPC Power Corporation, Philippines
- Dalmia Cement Bharat India
- Thiess Contractors Indonesia
- Central Electricity Authority - India
- Global Business Power Corporation, Philippines
- Indian Energy Exchange, India
- Uttam Galva Steels Limited - India
- McConnell Dowell - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Essar Steel Hazira Ltd - India
- Central Java Power - Indonesia
- Semirara Mining Corp, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bhushan Steel Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Jaiprakash Power Ventures ltd
- Leighton Contractors Pty Ltd - Australia
- Kohat Cement Company Ltd. - Pakistan
- Anglo American - United Kingdom
- Gujarat Electricity Regulatory Commission - India
- Videocon Industries ltd - India
- Maheswari Brothers Coal Limited - India
- Banpu Public Company Limited - Thailand
- Semirara Mining and Power Corporation, Philippines
- Australian Coal Association
- Toyota Tsusho Corporation, Japan
- South Luzon Thermal Energy Corporation
- Indogreen Group - Indonesia
- Ambuja Cements Ltd - India
- Formosa Plastics Group - Taiwan
- GN Power Mariveles Coal Plant, Philippines
- Gujarat Sidhee Cement - India
- Interocean Group of Companies - India
- Vijayanagar Sugar Pvt Ltd - India
- Medco Energi Mining Internasional
- India Bulls Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Planning Commission, India
- Kapuas Tunggal Persada - Indonesia
- Sree Jayajothi Cements Limited - India
- PNOC Exploration Corporation - Philippines
- Wilmar Investment Holdings
- Kideco Jaya Agung - Indonesia
- Indika Energy - Indonesia
- Xindia Steels Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Australian Commodity Traders Exchange
- Altura Mining Limited, Indonesia
- Merrill Lynch Commodities Europe
- Bank of Tokyo Mitsubishi UFJ Ltd
- Grasim Industreis Ltd - India
- Antam Resourcindo - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Tamil Nadu electricity Board
- Singapore Mercantile Exchange
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sindya Power Generating Company Private Ltd
- Heidelberg Cement - Germany
- Posco Energy - South Korea
- Africa Commodities Group - South Africa
- Goldman Sachs - Singapore
- Pendopo Energi Batubara - Indonesia
- Minerals Council of Australia
- SMC Global Power, Philippines
- Barasentosa Lestari - Indonesia
- ASAPP Information Group - India
- Chamber of Mines of South Africa
- Bayan Resources Tbk. - Indonesia
- Coastal Gujarat Power Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Parry Sugars Refinery, India
- Bhatia International Limited - India
- Larsen & Toubro Limited - India
- PowerSource Philippines DevCo
- Karbindo Abesyapradhi - Indoneisa
- Renaissance Capital - South Africa
- London Commodity Brokers - England
- Makarim & Taira - Indonesia
- Mercator Lines Limited - India
- Global Coal Blending Company Limited - Australia
- Globalindo Alam Lestari - Indonesia
- International Coal Ventures Pvt Ltd - India
- Energy Link Ltd, New Zealand
- Miang Besar Coal Terminal - Indonesia
- Orica Australia Pty. Ltd.
- Kumho Petrochemical, South Korea
- Ceylon Electricity Board - Sri Lanka
- Eastern Coal Council - USA
- Baramulti Group, Indonesia
- Alfred C Toepfer International GmbH - Germany
- Offshore Bulk Terminal Pte Ltd, Singapore
- Neyveli Lignite Corporation Ltd, - India
- Aboitiz Power Corporation - Philippines
- Kaltim Prima Coal - Indonesia
- Mjunction Services Limited - India
- Power Finance Corporation Ltd., India
- Billiton Holdings Pty Ltd - Australia
- Trasteel International SA, Italy
- New Zealand Coal & Carbon
- Sojitz Corporation - Japan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Electricity Authority, New Zealand
- Krishnapatnam Port Company Ltd. - India
- OPG Power Generation Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Cement Manufacturers Association - India
- GAC Shipping (India) Pvt Ltd
- Independent Power Producers Association of India
- Economic Council, Georgia
- Gujarat Mineral Development Corp Ltd - India
- MS Steel International - UAE
- Manunggal Multi Energi - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- PTC India Limited - India
- TeaM Sual Corporation - Philippines
- SN Aboitiz Power Inc, Philippines
- Parliament of New Zealand
- The University of Queensland
- Ministry of Mines - Canada
- Bukit Baiduri Energy - Indonesia
- Carbofer General Trading SA - India
- Maharashtra Electricity Regulatory Commission - India
- Indonesian Coal Mining Association
- CNBM International Corporation - China
- Bhoruka Overseas - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Commonwealth Bank - Australia
- Borneo Indobara - Indonesia
- Romanian Commodities Exchange
- Attock Cement Pakistan Limited
- Cigading International Bulk Terminal - Indonesia
- CIMB Investment Bank - Malaysia
- Global Green Power PLC Corporation, Philippines
- SMG Consultants - Indonesia
- Vedanta Resources Plc - India
- Savvy Resources Ltd - HongKong
- Ministry of Transport, Egypt
- Mercuria Energy - Indonesia
- Port Waratah Coal Services - Australia
- Marubeni Corporation - India
- IEA Clean Coal Centre - UK
- Siam City Cement - Thailand
- Sakthi Sugars Limited - India
- San Jose City I Power Corp, Philippines
- Bukit Makmur.PT - Indonesia
- The State Trading Corporation of India Ltd
- Electricity Generating Authority of Thailand
- Lanco Infratech Ltd - India
- Deloitte Consulting - India
- ICICI Bank Limited - India
- Intertek Mineral Services - Indonesia
- Vizag Seaport Private Limited - India
- Kartika Selabumi Mining - Indonesia
- Petron Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Sical Logistics Limited - India
- Indo Tambangraya Megah - Indonesia
- Thai Mozambique Logistica
- Ind-Barath Power Infra Limited - India
- Salva Resources Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Madhucon Powers Ltd - India
- Bharathi Cement Corporation - India
- Siam City Cement PLC, Thailand
- Indian Oil Corporation Limited
- Sarangani Energy Corporation, Philippines
- Oldendorff Carriers - Singapore
- Kalimantan Lumbung Energi - Indonesia
- Malabar Cements Ltd - India
- LBH Netherlands Bv - Netherlands
- Ministry of Finance - Indonesia
- Coal and Oil Company - UAE
- Sinarmas Energy and Mining - Indonesia
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