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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 $75/bbl over the next few years.
I do, however, believe it is beyond the ability of men to predict the exact shape of the swing cycle, in terms of the period and cycle frequency.
Source: The Jakarta Post
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The writer has been working in the oil and gas business for about 30 years.
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Monday, 23 February 15
Q2' CFR SOUTH CHINA COAL SWAP FOR Q2 ROSE 3.39% M-O-M
COALspot.com: API 8 CFR South China Coal swap for Q2’ 2015 delivery rose US$ 1.90 (+3.39%) per MT month over month and declined US$ 0.08 ...
Monday, 23 February 15
Q2' API 5 FOB NEWCASTLE COAL SWAP CLOSED $1 HIGHER THAN Q3
COALspot.com: API 5 FOB Newcastle Coal swap for Q2’ 2015 delivery rose US$ 3.12 per MT (+6.44%) month over month and fall US$ 0.43 (-0.83%) w ...
Sunday, 22 February 15
THE BALTIC DRY INDEX LOST ALMOST 3.2% OR 17 POINTS WEEK ON WEEK
COALspot.com: The Baltic Dry Index, one of the economic indicators that monitors the health of the world's economy by tracking the price of shi ...
Friday, 20 February 15
GOVT SET TO INCREASE COAL OUTPUT TARGET THIS YEAR - JAKARTA POST
The Energy and Mineral Resources Ministry is planning to increase its coal output target this year as the government seeks to offset the ongoing de ...
Friday, 20 February 15
U.S. PRODUCED AROUND 19.2 MILLION SHORT TONS OF COAL WEEK ON WEEK
COALspot.com – United States the world's one of the largest coal producers, produced approximately 19.2 million short tons (mmst) of coal ...
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- Bhatia International Limited - India
- Chettinad Cement Corporation Ltd - India
- Carbofer General Trading SA - India
- Parry Sugars Refinery, India
- OPG Power Generation Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Commonwealth Bank - Australia
- Port Waratah Coal Services - Australia
- Mercator Lines Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Planning Commission, India
- Larsen & Toubro Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kaltim Prima Coal - Indonesia
- Oldendorff Carriers - Singapore
- Electricity Authority, New Zealand
- Miang Besar Coal Terminal - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Indian Oil Corporation Limited
- PowerSource Philippines DevCo
- Kalimantan Lumbung Energi - Indonesia
- Uttam Galva Steels Limited - India
- Deloitte Consulting - India
- Billiton Holdings Pty Ltd - Australia
- Tamil Nadu electricity Board
- The Treasury - Australian Government
- Petron Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Jaiprakash Power Ventures ltd
- Thai Mozambique Logistica
- The State Trading Corporation of India Ltd
- Toyota Tsusho Corporation, Japan
- Sarangani Energy Corporation, Philippines
- Siam City Cement PLC, Thailand
- Karaikal Port Pvt Ltd - India
- Australian Coal Association
- Australian Commodity Traders Exchange
- Merrill Lynch Commodities Europe
- Minerals Council of Australia
- IHS Mccloskey Coal Group - USA
- Ministry of Transport, Egypt
- Krishnapatnam Port Company Ltd. - India
- Coalindo Energy - Indonesia
- Coastal Gujarat Power Limited - India
- Ministry of Finance - Indonesia
- Gujarat Electricity Regulatory Commission - India
- CNBM International Corporation - China
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Globalindo Alam Lestari - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Marubeni Corporation - India
- Wilmar Investment Holdings
- Sojitz Corporation - Japan
- Antam Resourcindo - Indonesia
- Georgia Ports Authority, United States
- Mercuria Energy - Indonesia
- Central Java Power - Indonesia
- Central Electricity Authority - India
- Global Coal Blending Company Limited - Australia
- Kideco Jaya Agung - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- GVK Power & Infra Limited - India
- ICICI Bank Limited - India
- Africa Commodities Group - South Africa
- White Energy Company Limited
- Pendopo Energi Batubara - Indonesia
- Sree Jayajothi Cements Limited - India
- Manunggal Multi Energi - Indonesia
- Interocean Group of Companies - India
- Bhoruka Overseas - Indonesia
- Meralco Power Generation, Philippines
- Kartika Selabumi Mining - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sindya Power Generating Company Private Ltd
- European Bulk Services B.V. - Netherlands
- Cement Manufacturers Association - India
- South Luzon Thermal Energy Corporation
- Riau Bara Harum - Indonesia
- Mjunction Services Limited - India
- Eastern Energy - Thailand
- PTC India Limited - India
- Cigading International Bulk Terminal - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Orica Mining Services - Indonesia
- SN Aboitiz Power Inc, Philippines
- Indo Tambangraya Megah - Indonesia
- Independent Power Producers Association of India
- PetroVietnam Power Coal Import and Supply Company
- San Jose City I Power Corp, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Bank of Tokyo Mitsubishi UFJ Ltd
- PNOC Exploration Corporation - Philippines
- Ind-Barath Power Infra Limited - India
- Indogreen Group - Indonesia
- Savvy Resources Ltd - HongKong
- Heidelberg Cement - Germany
- Economic Council, Georgia
- Power Finance Corporation Ltd., India
- Grasim Industreis Ltd - India
- McConnell Dowell - Australia
- Alfred C Toepfer International GmbH - Germany
- IEA Clean Coal Centre - UK
- GMR Energy Limited - India
- Energy Development Corp, Philippines
- Semirara Mining and Power Corporation, Philippines
- Standard Chartered Bank - UAE
- Rio Tinto Coal - Australia
- Bulk Trading Sa - Switzerland
- Straits Asia Resources Limited - Singapore
- Aboitiz Power Corporation - Philippines
- Salva Resources Pvt Ltd - India
- Trasteel International SA, Italy
- Formosa Plastics Group - Taiwan
- Ambuja Cements Ltd - India
- Bukit Makmur.PT - Indonesia
- Intertek Mineral Services - Indonesia
- Makarim & Taira - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Altura Mining Limited, Indonesia
- Lanco Infratech Ltd - India
- London Commodity Brokers - England
- Maharashtra Electricity Regulatory Commission - India
- Karbindo Abesyapradhi - Indoneisa
- GAC Shipping (India) Pvt Ltd
- Asmin Koalindo Tuhup - Indonesia
- Bharathi Cement Corporation - India
- Attock Cement Pakistan Limited
- Star Paper Mills Limited - India
- Simpson Spence & Young - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Essar Steel Hazira Ltd - India
- Gujarat Sidhee Cement - India
- SMG Consultants - Indonesia
- Edison Trading Spa - Italy
- LBH Netherlands Bv - Netherlands
- Coal and Oil Company - UAE
- Bhushan Steel Limited - India
- India Bulls Power Limited - India
- Parliament of New Zealand
- Wood Mackenzie - Singapore
- Medco Energi Mining Internasional
- Thiess Contractors Indonesia
- Indian Energy Exchange, India
- Videocon Industries ltd - India
- Xindia Steels Limited - India
- Directorate Of Revenue Intelligence - India
- Therma Luzon, Inc, Philippines
- Electricity Generating Authority of Thailand
- Ceylon Electricity Board - Sri Lanka
- Meenaskhi Energy Private Limited - India
- Singapore Mercantile Exchange
- Siam City Cement - Thailand
- Malabar Cements Ltd - India
- Eastern Coal Council - USA
- Dalmia Cement Bharat India
- Anglo American - United Kingdom
- Borneo Indobara - Indonesia
- Chamber of Mines of South Africa
- Sical Logistics Limited - India
- Rashtriya Ispat Nigam Limited - India
- Bukit Baiduri Energy - Indonesia
- Semirara Mining Corp, Philippines
- Sakthi Sugars Limited - India
- Renaissance Capital - South Africa
- Vedanta Resources Plc - India
- MS Steel International - UAE
- The University of Queensland
- Banpu Public Company Limited - Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Metalloyd Limited - United Kingdom
- Neyveli Lignite Corporation Ltd, - India
- Madhucon Powers Ltd - India
- Romanian Commodities Exchange
- Bangladesh Power Developement Board
- Holcim Trading Pte Ltd - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Baramulti Group, Indonesia
- Bayan Resources Tbk. - Indonesia
- Barasentosa Lestari - Indonesia
- SMC Global Power, Philippines
- CIMB Investment Bank - Malaysia
- Leighton Contractors Pty Ltd - Australia
- Sinarmas Energy and Mining - Indonesia
- Aditya Birla Group - India
- Timah Investasi Mineral - Indoneisa
- Kumho Petrochemical, South Korea
- Posco Energy - South Korea
- Agrawal Coal Company - India
- Goldman Sachs - Singapore
- New Zealand Coal & Carbon
- Vizag Seaport Private Limited - India
- Mintek Dendrill Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Price Waterhouse Coopers - Russia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Orica Australia Pty. Ltd.
- Indika Energy - Indonesia
- Tata Chemicals Ltd - India
- Iligan Light & Power Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Indonesian Coal Mining Association
- Energy Link Ltd, New Zealand
- Global Business Power Corporation, Philippines
- ASAPP Information Group - India
- Pipit Mutiara Jaya. PT, Indonesia
- Ministry of Mines - Canada
- International Coal Ventures Pvt Ltd - India
- VISA Power Limited - India
- Maheswari Brothers Coal Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Latin American Coal - Colombia
- Samtan Co., Ltd - South Korea
- Kohat Cement Company Ltd. - Pakistan
- Kobexindo Tractors - Indoneisa
- TeaM Sual Corporation - Philippines
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