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