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