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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, 19 February 15
PANAMAX: NOPAC AND AUSSIE ROUNDS ARE DONE IN LOW/MID $ 4000; TRIPS VIA INDONESIA TO INDIA CLOSER TO THE $5000 MARK - FEARNLEYS
Handy
The handy and supra market has not seen any firming rates in front of the Chinese New Year and still suffering on low activity in both hemi ...
Wednesday, 18 February 15
DRY BULK SHIPPING TO RECOVER IN LATE 2015 - DREWRY MARITIME RESEARCH
Strong trade growth, moderating fleet development and deployment of new fuel efficient vessels are expected to lead to a recovery in dry bulk shipp ...
Tuesday, 17 February 15
WHO PAYS THE SUEZ CANAL FEES? - INCE & CO
KNOWLEDGE TO ELEVATE
This was an appeal from an arbitration award on a point of construction in relation to the wording of an addendum to a ch ...
Tuesday, 17 February 15
BUOYANT WAVES IN RECENT YEARS: GLOBAL SHIP INVESTMENT SINCE THE CRASH - HELLENIC SHIPPING NEWS
Anxiety about fleet expansion is a recurring feature of world shipping markets. Within the global maritime community, worries about the vast amount ...
Tuesday, 17 February 15
FOB SUB-BIT INDONESIA COAL SWAP UP 8% MONTH OVER MONTH
COALspot.com: Indonesian coal swaps for delivery Q2' 2015 rose week over week and month on month.
The Q2 swap up US$ 3.58 (+8.00%) month o ...
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- Sical Logistics Limited - India
- Sarangani Energy Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- South Luzon Thermal Energy Corporation
- Coastal Gujarat Power Limited - India
- Eastern Coal Council - USA
- Jorong Barutama Greston.PT - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Eastern Energy - Thailand
- Leighton Contractors Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- Uttam Galva Steels Limited - India
- Grasim Industreis Ltd - India
- Altura Mining Limited, Indonesia
- Antam Resourcindo - Indonesia
- Semirara Mining Corp, Philippines
- Bangladesh Power Developement Board
- Africa Commodities Group - South Africa
- Straits Asia Resources Limited - Singapore
- Interocean Group of Companies - India
- Carbofer General Trading SA - India
- White Energy Company Limited
- Cigading International Bulk Terminal - Indonesia
- Aboitiz Power Corporation - Philippines
- Metalloyd Limited - United Kingdom
- Xindia Steels Limited - India
- European Bulk Services B.V. - Netherlands
- Rio Tinto Coal - Australia
- Jindal Steel & Power Ltd - India
- Sindya Power Generating Company Private Ltd
- Edison Trading Spa - Italy
- Economic Council, Georgia
- Indian Energy Exchange, India
- Maheswari Brothers Coal Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Salva Resources Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Sakthi Sugars Limited - India
- Lanco Infratech Ltd - India
- Bulk Trading Sa - Switzerland
- CIMB Investment Bank - Malaysia
- Neyveli Lignite Corporation Ltd, - India
- PTC India Limited - India
- Price Waterhouse Coopers - Russia
- Siam City Cement - Thailand
- Bhatia International Limited - India
- Mintek Dendrill Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Bhoruka Overseas - Indonesia
- Oldendorff Carriers - Singapore
- Siam City Cement PLC, Thailand
- Indonesian Coal Mining Association
- Standard Chartered Bank - UAE
- GN Power Mariveles Coal Plant, Philippines
- Ministry of Mines - Canada
- Energy Development Corp, Philippines
- Port Waratah Coal Services - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Energy Link Ltd, New Zealand
- LBH Netherlands Bv - Netherlands
- Bank of Tokyo Mitsubishi UFJ Ltd
- ASAPP Information Group - India
- Gujarat Sidhee Cement - India
- Central Electricity Authority - India
- Gujarat Mineral Development Corp Ltd - India
- Australian Coal Association
- Mercuria Energy - Indonesia
- Marubeni Corporation - India
- Banpu Public Company Limited - Thailand
- OPG Power Generation Pvt Ltd - India
- Electricity Authority, New Zealand
- Thiess Contractors Indonesia
- Alfred C Toepfer International GmbH - Germany
- Coal and Oil Company - UAE
- Global Green Power PLC Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Global Business Power Corporation, Philippines
- Thai Mozambique Logistica
- Anglo American - United Kingdom
- Offshore Bulk Terminal Pte Ltd, Singapore
- Karaikal Port Pvt Ltd - India
- SMC Global Power, Philippines
- IHS Mccloskey Coal Group - USA
- Renaissance Capital - South Africa
- Star Paper Mills Limited - India
- Posco Energy - South Korea
- Kideco Jaya Agung - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Jaiprakash Power Ventures ltd
- Meralco Power Generation, Philippines
- TeaM Sual Corporation - Philippines
- Kartika Selabumi Mining - Indonesia
- Kumho Petrochemical, South Korea
- Independent Power Producers Association of India
- Global Coal Blending Company Limited - Australia
- Simpson Spence & Young - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Kapuas Tunggal Persada - Indonesia
- CNBM International Corporation - China
- Georgia Ports Authority, United States
- Latin American Coal - Colombia
- Mjunction Services Limited - India
- Bhushan Steel Limited - India
- Indogreen Group - Indonesia
- Orica Mining Services - Indonesia
- Minerals Council of Australia
- Kobexindo Tractors - Indoneisa
- Krishnapatnam Port Company Ltd. - India
- Indian Oil Corporation Limited
- GAC Shipping (India) Pvt Ltd
- Australian Commodity Traders Exchange
- Asia Pacific Energy Resources Ventures Inc, Philippines
- India Bulls Power Limited - India
- Sree Jayajothi Cements Limited - India
- New Zealand Coal & Carbon
- Videocon Industries ltd - India
- Karbindo Abesyapradhi - Indoneisa
- San Jose City I Power Corp, Philippines
- Aditya Birla Group - India
- Malabar Cements Ltd - India
- Intertek Mineral Services - Indonesia
- Borneo Indobara - Indonesia
- London Commodity Brokers - England
- The Treasury - Australian Government
- Timah Investasi Mineral - Indoneisa
- Ambuja Cements Ltd - India
- Baramulti Group, Indonesia
- Binh Thuan Hamico - Vietnam
- Vedanta Resources Plc - India
- Pendopo Energi Batubara - Indonesia
- Romanian Commodities Exchange
- Indika Energy - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Central Java Power - Indonesia
- Merrill Lynch Commodities Europe
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- GVK Power & Infra Limited - India
- Samtan Co., Ltd - South Korea
- Tamil Nadu electricity Board
- Tata Chemicals Ltd - India
- Savvy Resources Ltd - HongKong
- Dalmia Cement Bharat India
- Planning Commission, India
- Essar Steel Hazira Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bayan Resources Tbk. - Indonesia
- Ministry of Finance - Indonesia
- Therma Luzon, Inc, Philippines
- Bukit Baiduri Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Bharathi Cement Corporation - India
- Bukit Asam (Persero) Tbk - Indonesia
- Sojitz Corporation - Japan
- TNB Fuel Sdn Bhd - Malaysia
- Riau Bara Harum - Indonesia
- Globalindo Alam Lestari - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Mercator Lines Limited - India
- Semirara Mining and Power Corporation, Philippines
- Medco Energi Mining Internasional
- Vizag Seaport Private Limited - India
- PowerSource Philippines DevCo
- Chamber of Mines of South Africa
- Commonwealth Bank - Australia
- Petron Corporation, Philippines
- Goldman Sachs - Singapore
- The State Trading Corporation of India Ltd
- Madhucon Powers Ltd - India
- PNOC Exploration Corporation - Philippines
- International Coal Ventures Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- GMR Energy Limited - India
- Cement Manufacturers Association - India
- Meenaskhi Energy Private Limited - India
- Larsen & Toubro Limited - India
- SN Aboitiz Power Inc, Philippines
- Gujarat Electricity Regulatory Commission - India
- Makarim & Taira - Indonesia
- Chettinad Cement Corporation Ltd - India
- Power Finance Corporation Ltd., India
- Sinarmas Energy and Mining - Indonesia
- Bukit Makmur.PT - Indonesia
- ICICI Bank Limited - India
- Ministry of Transport, Egypt
- VISA Power Limited - India
- Toyota Tsusho Corporation, Japan
- Miang Besar Coal Terminal - Indonesia
- Heidelberg Cement - Germany
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Parliament of New Zealand
- Wilmar Investment Holdings
- Singapore Mercantile Exchange
- IEA Clean Coal Centre - UK
- Parry Sugars Refinery, India
- Coalindo Energy - Indonesia
- Indo Tambangraya Megah - Indonesia
- Kepco SPC Power Corporation, Philippines
- Barasentosa Lestari - Indonesia
- McConnell Dowell - Australia
- Orica Australia Pty. Ltd.
- The University of Queensland
- Wood Mackenzie - Singapore
- Kaltim Prima Coal - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Formosa Plastics Group - Taiwan
- Pipit Mutiara Jaya. PT, Indonesia
- Attock Cement Pakistan Limited
- Agrawal Coal Company - India
- MS Steel International - UAE
- SMG Consultants - Indonesia
- Deloitte Consulting - India
- Manunggal Multi Energi - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Trasteel International SA, Italy
- Electricity Generating Authority of Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
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